India may not join US-led push to cap prices of Russia oil

India is averse to joining a US-led global initiative to cap prices of Russian crude oil, two people aware of the matter said, as it gets a steep discount on oil cargoes from Russia and wants to maintain the relationship with its long-time strategic partner. As the world’s third-largest oil importer, India’s stand is likely to influence the efficacy of the price cap plan.

Finance ministers of G7 countries on 2 September proposed that oil-related service providers be allowed to transact in Russian seaborne oil and petroleum products only at the price cap or lower. They said the price cap is specifically designed to reduce Russia’s revenues and its ability to fund the war in Ukraine and limit the impact on global energy prices, particularly for low and middle-income countries. Russia has warned that it will snap oil supplies to any country that joins the price cap plan.

“Overall, the way the US pitches is that a price cap is also good for India. On the other hand, Russia has threatened to stop supplies to anyone participating in this plan. That doesn’t leave us anywhere. In that case, why would we want to be part of it? The deal here is that we have to balance our interests,” a government official, one of the two people cited above, said on condition of anonymity.

Russia, which has never been a major oil supplier to India, emerged as the third largest supplier to the energy import-dependent nation in FY23, as it snapped up supplies shunned by many countries. India gets Russian oil at an average discount of around $15-20 per barrel on a delivered-at-place (DAP) basis, wherein the seller bears the transportation risk for delivering at the designated port. In the current fiscal till August, India imported crude oil worth $11.41 billion from Russia, shows data from the Union ministry of commerce and industry. With India dependent on imports for as much as 85% of its oil needs and 55% of its natural gas demand, record-high energy prices are a big concern for a major consumer nation such as India.

“The discounts on Russian crude oil to Indian refiners depend on individual cargoes and may vary,” said the second person cited above, who did not want to be named.

The price cap proposal also comes against the backdrop of a 2 million barrels per day output cut by the Organization of the Petroleum Exporting Countries (Opec) and allies at a time of record high fuel prices in India.

The US has been trying to impress India to join the price cap plan, with visiting US deputy secretary of treasury Wally Adeyemo in August stating that a price cap on Russian oil will help lower energy cost for Indian consumers. India, on its part, has remained steadfast in its relationship with Russia, choosing to neither pursue arbitration with the Russian government-owned Gazprom nor accept a penalty from the world’s largest explorer of natural gas over its failure to honour the terms of a deal to supply LNG to state-run GAIL (India) Ltd as reported by Mint earlier.

A US embassy spokesperson in New Delhi directed Mint to the Indian government for its views. “For the US position, I can share with you the transcript of a 14 October press conference that US treasury secretary Janet L. Yellen gave in conjunction with 2022 IMF-World Bank Annual Meetings,” the spokesperson said in an emailed response.

“It’s an innovative policy that aims to cut Putin’s revenue while keeping Russian oil flowing onto global markets at low prices. This policy has particular benefits for developing countries. A price cap will help stabilize global energy prices. It will also provide developing countries with greater leverage to negotiate better prices for Russian oil,” Yellen said, according to the transcript.

The proposed ban on Russian Federation-origin crude oil is to come into effect on 5 December for maritime transportation of crude oil and on 5 February next year for seaborne transportation of petroleum products. “The coalition is essentially the G7, the EU , and Australia... All of these countries have agreed to ban the provision of services that are involved that our country’s firms in our countries supply for the transport of Russian oil, and the EU sanctions package includes shipping,” Yellen said.

“Beyond that, we’re not trying to sign up additional countries to a coalition. None of the coalition countries are buying Russian oil or will buy Russian oil. And none of the countries outside the coalition are really important suppliers of any of those financial services. So, we, the members of the coalition, will implement the price cap once it’s adopted and make sure that the suppliers of insurance, trade, finance and other financial services that may be provided throughout the world can only be provided if the purchase of oil by whichever country occurs at a price below the price cap,” Yellen added.

Queries emailed to the spokespeople for India’s ministries of external affairs and petroleum and natural gas, the US Treasury Department, and the Russian Federation embassy in New Delhi last Thursday remained unanswered till press time.

“We will be making sure that Western firms abide by that, but we honestly are not asking other governments to do anything, and of course, companies and governments can fight with subject to the cap if they can find ships. Insurance, trade, finance and so forth, which provided by nine coalition members that’s fine with the very existence of this price cap really raises the leverage that countries even that are like using western services have when they negotiate with Russia,” Yellen said.

State-owned firms such as ONGC Videsh Ltd (OVL), Bharat Petroresources Ltd, Indian Oil Corp. Ltd (IOC) and Oil India Ltd (OIL) have also invested $16 billion in Russia to date, including in the Far East and East Siberia, in oil and gas assets such as Sakhalin-1, Vankor and Taas-Yuryakh. OVL also acquired Imperial Energy Corp. Plc’s Siberian deposits.