India has made a unique request to both its state-run oil refiners and private giant Reliance Industries Ltd. (RIL) to collaborate on negotiating a long-term supply agreement with Russia. The primary goal is to secure a stable crude oil supply and safeguard the nation’s economy from price volatility.
Since the invasion of Ukraine, India has been a significant purchaser of Russian crude oil. However, stricter enforcement of US sanctions has disrupted this trade, leading to higher oil prices for Indian refiners.
According to sources cited in a Business Standard report, the government is urging its refiners to secure at least one-third of their contracted supply from Russia at a fixed discount to mitigate the impact of volatile prices on the nation’s economy. This request for collaboration was informal, the sources added.
The Indian government aims to bolster the bargaining power of its state-run oil processors, including Indian Oil Corp., Bharat Petroleum Corp., and Hindustan Petroleum Corp., during supply negotiations. Instead of competing individually, they are encouraged to collaborate.
However, while the government’s call for collaboration was informal, RIL remains cautious due to its position as a private refiner and competitor in the domestic fuel market. Sharing sensitive information with state oil refiners might pose challenges for RIL.
State refiners have been aiming for an oil discount of more than $5 per barrel to Dated Brent. However, Moscow is offering crude at a discount of $3 and is reluctant to adjust further, according to insider sources. The discount for a specific Russian grade widened to over $30 after the war before gradually narrowing.
Indian Oil Corp. previously had a long-term supply deal with Russia, which expired at the end of March and has not been renewed due to disagreements over volumes and pricing.
Finding a balance between competition and cooperation is crucial. State-run refiners must collaborate effectively without compromising their individual interests. The ongoing India-Russia ties and geopolitical dynamics are significant factors shaping these negotiations, as India seeks stability in energy supplies while navigating global complexities.
