Industry
SBI seeks oil data to avoid sanction risk
Summary
- Given its large exposure to the US, SBI aims to avoid penalties
- India’s imports of oil and petroleum products rose 30% to $209.6 billion in FY23, according to govt data
NEW DELHI : State Bank of India (SBI) is taking all measures to avoid violating US sanctions by inadvertently processing payments for Indian oil refiners that may have purchased Russian oil above the $60 per barrel price cap set by a US-led coalition. To mitigate the risk, India’s largest lender has requested data on purchasing prices from refiners such as Indian Oil Corp., Bharat Petroleum Corp. Ltd, and Hindustan Petroleum Corp. Ltd, two people familiar with the matter said.
Given its significant exposure to the US, SBI aims to avoid any penalties from the US treasury department’s Office of Foreign Assets Control (OFAC). The ban on Russian crude oil came into effect on 5 December for maritime transportation, and 5 February for transportation of all petroleum products. “SBI has asked for a break-up that confirms that Indian refiners are buying oil below the $60 per barrel price cap. They are doing it given the stringent sanctions under the OFAC of the US treasury department. The OFAC directive is agnostic about the currency in which the payments are made, including United Arab Emirates dirhams. As of now, there is no problem," said a government official, one of the two people cited above requesting anonymity.
The development comes amid surging India-Russia trade, which reached a record $45 billion in the 11 months till February 2023, with Indian imports of Russian oil alone accounting for $27 billion, making Russia the second-largest oil supplier to India after Iraq.
“We have been buying crude oil below the price cap. We don’t have any problem with the term contracts that we have. In addition, we are also buying a lot of Russian oil in the spot market," the government official said, requesting anonymity. In the backdrop of finance minister Nirmala Sitharaman’s recent statement that India could buy Russian oil even if prices neared or crossed the $60 per barrel cap, a senior executive at an Indian state-run refiner confirmed that the price cap had not been breached, and payments for Russian crude oil have been proceeding.
Russia has emerged as a significant supplier to India, the world’s third-largest oil importer, as it offers discounted oil amid the Ukraine conflict. With India reliant on imports for 87% of its oil needs and 55% of its natural gas requirements, Russian oil has helped the country meet its growing demand for petroleum products.“The price cap has not been breached, and payments for Russian crude oil have been taking place. Had that been the case, the payments would have stopped," said a senior executive at an Indian state-run refiner, requesting anonymity.
Russian oil has helped India meet its growing demand for fuel, with 222 million tonnes of petroleum products consumed in FY23, a 10.2% increase from a year earlier. India’s imports of oil and petroleum products rose 30% to $209.6 billion in FY23, according to data from the Petroleum Planning and Analysis Cell of the oil ministry.
Queries sent to spokespeople for SBI, Indian Oil Corp., Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp., Nayara Energy Ltd, Reliance Industries Ltd and India’s petroleum and natural gas ministry went unanswered at the time of writing.India, a crucial Asian refining hub, boasts an installed capacity of over 249.36 million tonnes per annum (mtpa) across 23 refineries and plans to increase this to 400 mtpa by 2025. Major Indian refiners include Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp., Nayara Energy Ltd, and Reliance Industries Ltd.
The US-led sanctions, supported by G7 countries, the European Union, and Australia, seeks to cap Russian crude oil prices to restrict Russia’s revenue and hinder its ability to finance the war in Ukraine.
Meanwhile, India remains committed to its longstanding strategic partnership with Russia, with state-owned firms investing $16 billion in the country to date, earning approximately $9 billion.
