Indian Refiners Scramble to Replace Russian Oil Imports as US Imposes Sanctions

Strategic Insights -

In a significant move aimed at pressuring Russia into a peace deal with Ukraine, the US has imposed sanctions on top Russian oil exporters, Rosneft and Lukoil. The strict enforcement of these sanctions is set to upend global oil markets, potentially removing 3.1 million barrels per day of Russian supply from international trade, a third of which goes to India. Indian refiners, struggling to secure December cargoes from a thin global surplus, are racing to find alternative suppliers. The sanctions, announced by the US Department of the Treasury's Office of Foreign Assets Control, pose a significant risk to entities doing business with the sanctioned firms, including Indian refiners and banks.

Key Takeaways:

  • The sanctions on Rosneft and Lukoil are expected to remove 3.1 million barrels per day of Russian supply from international trade, with a third of it going to India.
  • Indian refiners are scrambling to replace Russian oil imports, exploring options such as West Asia term deals and spot cargoes from the US, Brazil, and elsewhere.
  • Refiners will have to cancel November and December loadings and find replacements for roughly 1 million barrels per day (mbd) of crude that Rosneft and Lukoil ship to India.
  • The impact of the sanctions on RIL's Ebitda could be up to Rs 3,500 crore.
  • Indian state firms collectively hold 49.9% and 29.9% stakes in Rosneft's upstream joint ventures Vankorneft and Taas-Yuryakh, respectively.
  • Over $1 billion in dividends from these ventures are trapped in Russia, unable to be repatriated by Indian partners.
  • Reliance Industries shares fell 1% after an early rise, while IOC, BPCL, and HPCL closed 2-3% lower due to the loss of the Russian discount and the need for costlier replacements.
  • Refiners will have to complete all cargo receipts and payments by November 21, effectively ruling out fresh loadings from Rosneft or Lukoil to India.

Statistics:

  • 3.1 million barrels per day of Russian supply will be removed from international trade due to the sanctions.
  • 1 million barrels per day of crude will need to be replaced by Indian refiners.
  • $1 billion in dividends from Rosneft's upstream joint ventures are trapped in Russia and unable to be repatriated.
  • Rs 3,500 crore of RIL's Ebitda could be impacted by the sanctions.
  • 49.9% and 29.9% of stakes in Rosneft's upstream joint ventures Vankorneft and Taas-Yuryakh are held by Indian state firms.
  • 3.1 million barrels per day of Russia's total crude shipments (4.5-5 mbd) are exported by Rosneft and Lukoil.

Sources:

  • US Department of the Treasury's Office of Foreign Assets Control
  • Reliance Industries
  • IOC (Indian Oil Corporation)
  • BPCL (Bharat Petroleum Corporation Limited)
  • HPCL (Hindustan Petroleum Corporation Limited)
  • Rosneft
  • Lukoil