US sanctions threaten Russian oil sales to India; complicate process for OMCs to secure annual deals: Report

New sanctions imposed by the US on Russia threaten to dent Russian oil sales to India, the biggest buyer of Russian seaborne crude, and complicate efforts by the state refiners to secure annual supply deals, industry sources familiar with the matter told news agency Reuters.

US on Friday imposed sanctions to mark the second anniversary of Russia's invasion of Ukraine and retaliate for the death of opposition leader Alexei Navalny. The sanctions target Russia's leading tanker group, Sovcomflot, which the US accused of being involved in violating the G7's price cap on Russian oil, as well as 14 crude oil tankers tied to Sovcomflot.

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Sources told Reuters that oil refiners in India are concerned the latest sanctions will create challenges in getting vessels for Russian oil and could drive up freight rates. That may narrow the discount for the oil, which is bought from traders and Russian companies on a delivered basis.

In addition, Russia may have to push even more volumes through traders to shield from further sanctions risk, adding to uncertainties, according to the report. India rarely bought Russian oil before 2022 due to high freight costs, but refiners in the world's third-largest oil importing nation are now big buyers, benefitting from lower prices, after Europe banned Russian oil imports.

Russia emerged as India's top oil supplier in 2023. Through term deals and spot market purchases, the South Asian nation imported about 1.66 million barrels per day of Russian oil in 2023 compared to an average 652,000 bpd in 2022.

State refiners Indian Oil Corp, Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) are in joint talks with Russian major Rosneft for an annual deal to secure a combined volume of up to 400,000 bpd of Russian oil, mainly Urals, for the fiscal year that starts on April 1. The final volumes under the planned term deals depend on payment terms and discounts offered by Russia.

Rosneft has offered a discount of $3-$3.50 per barrel to Dubai prices, two of the sources said, costlier than top refiner Indian Oil's current deal with Rosneft, which ends on March 31, at a discount of $8-$9 to Dubai quotes on a cost and freight basis. The oil refiners consider the proposed discount to be thin, given the uncertainties brought by sanctions, according to the report.

State refiners are not seeking supplies of Sokol grade crude under the planned term deal due to payment issues. A government source told Reuters that India would continue buying Russian oil only if it is sold below the price cap in a non-sanctioned vessels.