Sanctions shock: Discounts on Russian oil jump as refiners shun Rosneft, Lukoil

New Delhi: New Delhi: Discounts on Russian oil have jumped in less than a month as buyers shun oil from sanctioned entities Rosneft and Lukoil.

International buyers avoided Russia after its invasion of Ukraine in 2022, prompting Moscow to offer discounts close to $30 per barrel. Discounts in October, when India and China stepped up purchases, were in the range of $1.7-4 per barrel. They have now increased to $5-6 in the past fortnight, two industry executives said.

"As offtake of Russian oil has dipped, suppliers are increasing the discounts on offer, and are expected to rise further with the sanctions on Rosneft and Lukoil coming into effect," one of the people cited above said on the condition of anonymity.

The US Treasury Department's Office of Foreign Assets Control (OFAC) last month sanctioned Russia's two largest oil companies to pressure its energy sector and force it to retreat from Ukraine. New Delhi has already reduced its dependence on Moscow, though Russia remains India's largest oil supplier. In FY25, Rosneft and Lukoil accounted for about 60% of Russia's total oil exports to India of 88 million tonne.

Discount sale

"As buyers like India are moving away from Russian suppliers that are sanctioned, the discounts would increase to attract more buyers," said Prashant Vasisht, senior vice-president and co-group head, corporate ratings, Icra Ltd.

While Indian refiners are not engaging Rosneft and Lukoil for new orders, they are still buying oil from smaller, non-sanctioned Russian entities, although for smaller volumes, the executive mentioned earlier said.

Reliance Industries had last month said that the company is assessing the implications of restrictions placed on imports of Russian crude by the European Union, United States, and the United Kingdom.

“We have noted the recent restrictions announced by the European Union, United Kingdom and the United States on crude oil imports from Russia and export of refined products to Europe. Reliance is currently assessing the implications, including the new compliance requirements,” a company spokesperson said, while adding that the company would comply to the EU’s guidelines on the supply of refined products into Europe. “Whenever there is any guidance from the Indian Government in this respect, as always, we will be complying fully," the spokesperson had said.

Nayara and Reliance Industries Ltd are the major private refiners in the country. Queries sent to both companies remained unanswered. Queries emailed to Indian Oil Corp., Bharat Petroleum Corp Ltd, Hindustan Petroleum Corp Ltd, Union ministry of petroleum and natural gas, the Russian Embassy in New Delhi, Rosneft and Lukoil also remained unanswered.

Sumit Ritolia, lead research analyst, refining and modelling at global real-time data and analytics provider Kpler said: "With crude linked to these entities now effectively treated as a 'sanctioned molecule', Indian refiners (aside from Nayara) are expected to pause direct purchases after 21 November. As a result, we expect a noticeable drop in Russian crude flows to India in the near term, particularly through December and January," he said, while adding that loadings have already slowed since the announcement of the sanctions. Nayara, owned by Rosneft, continues to buy and refine oil from Russia.

However, Ritolia said it is early to draw a definitive conclusion, given Russia’s agility in deploying intermediaries, shadow fleets, and workarounds in financing. "Refiners will likely proceed more cautiously, relying on unsanctioned traders, blended barrels, and more complex logistics to minimize OFAC exposure. Russian supply will not disappear but will increasingly move through opaque channels," he said.

Russian dependence

In October, Russia was the largest supplier of oil to India. According to data from Centre for Research on Energy and Clean Air (CREA), a Finnish think tank, India was the second largest buyer of Russian oil, purchasing 38% of Russia's total exports. China was the largest, with 47%.

In November so far, Russian oil, which has landed in India, stands at 1.9 million barrels per day of oil, compared to 1.6 million bpd in October, while fresh loadings of crude to India from Russia have sharply dropped this month to 632,557 barrels per day, from 1.9 million bpd last month. A report by CREA noted that private refiners’ imports constituted over two-thirds of India’s total imports in October. It highlighted that Nayara raised its production to 90% capacity in October. "After the EU sanctions in July, the refinery has been importing crude solely from Russia. In October, their imports from Russia recorded a 32% month-on-month increase to their highest volumes since the full-scale invasion," the report said on imports by Nayara Energy.

The CREA report added that Russia’s fossil fuel export revenues in October fell 4% month-on-month to 524 million euros per day, the lowest since its Ukraine invasion. The US Treasury also said that US sanctions against Russian oil majors are already reducing Russian oil revenues and are likely to reduce the quantity of Russian oil sold in the long term. The US said the sanctions "are having their intended effect of dampening Russian revenues by lowering the price of Russian oil and therefore the country's ability to fund its war effort against Ukraine."

Going ahead, Indian refiners are expected to increase imports from West Asia, Latin America, West Africa and North America including the US and Canada.

"Freight costs on long-haul routes will cap substitution potential, but the overall import basket is likely to widen," Ritolia said, while adding that despite near-term declines, a complete halt to Russian imports is unlikely.

"Discounted Russian barrels remain attractive for margins, and India’s energy policy continues to prioritise affordability and security over geopolitical pressure," he said.

So far in November, Iraq has supplied about 965,000 bpd, Saudi Arabia has exported 671,000 bpd, followed by the US with about 594,000 bpd. As India eyes a trade deal with the US and it is also increasing its imports from the world's largest economy. Last month, India recorded a three year high of 568,000 bpd of crude imports from the US.