India Buying Discounted Russian Oil, Exploring Alternative Payment Channels

Posted by Written by Melissa Cyrill Reading Time: 3 minutes

India is buying Russian crude oil at steep discounts, which are not subject to sanctions, and is considering alternative payments channels for its bilateral trade payments. New Delhi appears to be pursuing a balancing act in its engagement with allies on all sides of the war in Ukraine due to unavoidable geographic, economic, and geopolitical considerations.


India is looking to cut its huge energy bills by buying discounted Russian crude oil, a direct fallout of Russia’s invasion of Ukraine. India is also reportedly considering buying cheaper raw material for fertilizers from Russia and Belarus. Discussions on alternative payment channels are also underway for bilateral trade as sanctions remove Russian access to SWIFT, currency markets, etc.

IOC, HPCL purchase Russian oil at deep discount

Recently Reuters reported that India’s top oil refiner, Indian Oil Corporation (IOC), “bought 3 million barrels of Russian Urals [crude oil] from trader Vitol for May delivery”. This has been the first such purchase made since the Russian invasion of Ukraine began February 24. “Vitol sold the cargoes at a discount of $20-$25 a barrel to dated Brent,” as per the Reuters report.

Following Indian Oil, Hindustan Petroleum Corporation Limited (HPCL) this week reportedly made a purchase of two million barrels of Russian Urals crude for loading in May.

As reported by The Indian Express, speaking to the upper house of parliament on Monday, Oil Minister Hardeep Singh Puri said that India would evaluate taking up the Russian offer to sell crude oil at discounted prices after considering the various factors involved in the movement / supply of fuel from a non-traditional supplier. For example, IOC’s purchase of Ural crude oil was made on the terms that the seller would deliver it to the Indian coast – to counter any impact that the sanctions could have on arranging shipping and insurance.

Cutting spiraling energy import bills key motivation

Imports account for 85 percent of India’s energy requirements and only 1.3 percent of this is from Russia. Russia is the world’s second-largest crude oil exporter behind Saudi Arabia and has had strong market ties to European countries.

While wide-ranging sanctions have been imposed on Russia, there have been exceptions made for oil and energy commodities trade. It is why international payment systems are still available to settle such purchase from Russia.

Also, White House Press Secretary, Jen Psaki, confirmed on Wednesday that the discounted purchase of Russian crude oil did not violate sanctions.

New Delhi has long-standing diplomatic ties with Moscow and has stopped short of outright condemnation of the invasion – although it has called for an end to the violence.

Chinese yuan an alternative pricing tool

Earlier in the week, the Global Times reported that India could consider making Russian oil purchases using the yuan – due to its stability – if sanctions affected dollar payments. Currently, payments worth around US$500 million to Indian exporters for goods already shipped to Russia are stuck due to the ongoing financial sanctions.

Relatedly, the Dow Jones reported on Tuesday: “Saudi Arabia is in active talks with Beijing to price some of its oil sales in yuan” instead of the US dollar.

India exploring alternative payment channels for settlement of trade payments

India has been exploring alternative systems to settle payments for its bilateral trade with Russia since early March.

All these options are on the table and are being discussed by the two governments, the Reserve Bank of India and the Bank of Russia. – Senior Indian government official speaking to the Mint.

The Mint has published that this could involve linking India’s Unified Payments Interface (UPI) with the Russian Faster Payments System (FPS). A rupee-ruble trade payment pact is also being reportedly explored that would settle international transactions in rupee or even yuan.

International sanctions have resulted in the removal of access to MasterCard, Visa, and SWIFT (Society for Worldwide Interbank Financial Telecommunications) services for Russia. Russia has also been denied access to the international dollar, euro, and currency markets.

India, Russia strategic partners

While India’s trade exposure to Russia is limited, the country is a strategic partner for New Delhi, particularly on account of its tensions with neighbors Pakistan and China.

Russia’s defense exports to India have included ammunition, weapons, fighter aircrafts, tanks, and modern missile systems. Just in December 2021, at the 2+2 dialogue, India and Russia had signed the military tech cooperation agreement 2021-2031, which included orders for military platforms worth over US$9 billion.

A recent significant military deal was India’s purchase of the S-400 air defense system after a deal in 2018 to buy five units of the S-400 surface to air missile system worth US$5 billion. One unit has already been delivered to the Indian Air Force (IAF).


About Us

India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in in India.

We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.

Leave a Reply

Your email address will not be published.