Price Reductions for Russian Oil Reaching Over $12 Per Barrel
The Russian oil sector has been facing a challenging period, with a budget deficit of 4.9 trillion rubles for the first seven months of the year due to a decrease in raw material taxes. This deficit is 4.4 times more than for the same period last year.
According to Natalia Milchakova, a leading analyst at Freedom Finance Global, oil and gas revenues for the year may fall below 8 trillion rubles. Initially, the Ministry of Finance had planned to collect 10.9 trillion rubles, but sharply reduced the plan to 8.3 trillion in the summer.
The situation has led to a split in the Indian refining sector. State-owned refineries initially halted Russian oil imports in response to U.S. President Donald Trump's threats of imposing steep tariffs on buyers of Russian oil, and because the discounts on Russian crude had narrowed, reducing financial incentives. However, Indian private refiners such as Reliance Industries and Nayara Energy have continued or resumed buying Russian crude, capitalizing on the discounted supplies.
This dynamic reflects a split in the Indian refining sector. State refiners paused imports to avoid U.S. tariffs and geopolitical risk, while private companies, less constrained by government directives, have taken advantage of the discounted Russian oil to gain economic advantage.
The renewed Indian purchases of Russian oil provide significant revenue to Russian oil companies at a time when European markets remain constrained due to sanctions. Indian demand helps Moscow offset losses from restricted exports in Europe, sustaining Russian oil sector revenues despite Western sanctions.
For India’s federal budget, discounted Russian crude imports by private refiners can reduce the country’s overall oil import bill, potentially easing fuel subsidy burdens and improving trade balances. However, state refiners’ import pauses may force India to buy higher-priced oil from Middle Eastern and West African producers, possibly increasing costs in the short term. The impact on the budget thus depends on the balance of purchases between discounted Russian crude and higher-cost alternatives.
As of August 14, the discount for Urals in the Baltic Sea port of Primorsk to the North Sea Brent blend reached $12.16 per barrel. Indian refineries, which buy around 2 million barrels of Urals daily, have started looking at Russian oil again after a halt due to Trump's tariffs.
In Indian ports, discounts for Urals increased from $2.04 to $2.61 per barrel. With the current Brent price around $66 per barrel, the Russian Urals blend is trading at $54-55, compared to $60 on average in July.
State-owned Indian Oil, Hindustan Petroleum, and Bharat Petroleum have started sending trade firms requests to buy Urals. Russian oil companies have increased discounts on Urals oil after Donald Trump's threats to India.
However, the discounts for India will lead to a decrease in federal budget revenues, according to Natalia Milchakova. For the last three months, the decrease in raw material taxes is falling at a rate of around 30% year-on-year. This trend is expected to continue, potentially impacting India's economic stability in the long term.
For China, which buys the Far Eastern ESPO blend, discounts in the port of Kozmino rose from $3.75 to $4.81 per barrel compared to the Dubai marker. This trend suggests a global market adjusting to geopolitical changes and economic pressures, with buyers seeking out discounted supplies to offset higher costs elsewhere.
In conclusion, the Indian private refiners' continued purchases of discounted Russian oil have significant implications for both the Russian oil sector and India's federal budget. As the situation evolves, it will be interesting to see how the balance between state and private refiners' purchases affects both countries' economic stability.
The continued purchase of discounted Russian oil by Indian private refiners, such as Reliance Industries and Nayara Energy, provides a significant financial advantage to the Russian oil sector, helping Moscow offset losses from restricted exports in Europe.
Conversely, the increased discounts for Russian oil in India may lead to a decrease in federal budget revenues due to reduced raw material taxes, potentially impacting India's economic stability in the long term.
