Fear of sanctions keeps SBI off Russian oil deals

SBI, India’s largest lender, is the authorized dealer bank for foreign transactions of state-run refiners. The sanctions of the US treasury department’s Office of Foreign Assets Control on maritime transportation of the Russian Federation-origin oil took effect on 5 December 2022, and for seaborne transportation of petroleum products on 5 February 2023.

Indian banks operating in the US include SBI, Bank of Baroda and Bank of India. Mint earlier reported about OFAC checking whether these banks conform to the G7 price cap of $60 a barrel for Russian oil. Mint also reported about India’s largest lender requesting data on purchasing prices from refiners such as Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL)and Hindustan Petroleum Corp. Ltd (HPCL) to prevent a breach of US sanctions by inadvertently processing payments for Russian oil purchased above the cap.

“Since the time the OFAC sanctions have been imposed, SBI has been avoiding making bank payment transfer to Rosneft for the purchase of Russian oil. It is because SBI has such a major presence in the US. This, despite the fact that bank transfer within the price cap can be made," said one of the two people cited above on the condition of anonymity.

The G7 set a price cap on Russian seaborne crude oil to limit Russia’s earnings from exports to squeeze its military budget. The move bars the purchase and import of crude oil from Russia at rates exceeding the price cap. It is the strategy of the West to isolate Russia, as well as to ensure steady supply to stabilize global oil prices, which had surged following Russia’s invasion of Ukraine in February 2022.

Queries emailed to the spokespersons of SBI, Rosneft, IOCL, BPCL, HPCL and India’s petroleum and natural gas ministry on Wednesday remained unanswered till press time.

“As we can see, the flow of Russian crude has not stopped. Last year (2023), they constituted a large chunk of our imports. In case of avoidance of payment by SBI, refiners would have so far found alternative ways of payment. It is not a major issue," said another person cited above.

Russia emerged as the top supplier to India in the past two years since its invasion of Ukraine. Russian oil accounted for nearly 30% of the crude brought into the country in October, according to commerce ministry data. At $3.78 billion, the value of the crude oil supply from Russia increased 44% year-on-year (y-o-y) in October from $2.62 billion in October 2022.

In 2021-22, before the Ukraine crisis, Russian oil accounted for only 2% of India’s total oil imports, with the top supplier being Iraq, followed by Saudi Arabia and United Arab Emirates. Since the invasion of Ukraine in February 2022, Russia has climbed to the top on the back of deep discounts, crossing the $30 per barrel discount in 2022. However, the discounts have declined to single digits, and now stand below $5 per barrel.

A recent report by S&P Global Commodity Insights said that India’s demand for Russian crude remains resilient despite Red Sea threats with no known diversions seen so far. The report also said that in the event of an escalation in Red Sea attacks, no decrease in Russian volume is anticipated, with projections indicating that India’s crude imports from Russia could constitute around 35%-45% of the country’s overall imports, provided that competitive pricing is maintained.