Russia vs. the World: A win for India and China?
May 31, 2022
3 min read
What's going on here?
The ongoing War in Ukraine has resulted in sanctions from Western buyers of Russian oil. However, India does not appear to show the same sentiment and has rather seen an increase in the amount of Russian oil it imports, with the world now expecting China to follow suit.
What does this mean?
Russia’s invasion of Ukraine has resulted in many buyers of Russian oil, including the UK and the US, drastically reducing, and even pausing, their purchases. According to data firm Kpler, the volume of Russian seaborne oil exports on Thursday 24 March was nearly two million below the level on Tuesday 1 March. For India, Russian oil looks represents a bargain as it is able to purchase it at a discounted rate of approximately 20%. In March, Russian ship loadings headed for India were expected to have risen to 230,000 barrels per day (bpd), an astronomical rise from nothing in the previous three months.
However, payment in dollars has proven difficult and India has been forced to experiment with a rouble-rupee mechanism. Still, Samir N. Kapadia, head of trade at government relations consulting firm Vogel Group, commented that “India’s motivations are economic, not political…It’s hard not to take a 20% discount on crude when you import 80-85% of your oil, particularly on the heels of the pandemic and global growth slowdown”.
In addition, analysts expect that, as the largest oil importer in the world, China too will opt for discounted Russian oil. This is relevant as China is already the single largest buyer of Russian oil, having bought an average of 1.6 million bpd in 2021 alone. Ellen Wald, President of Transversal Consulting, stated that if China “can buy Russian oil at a discount…then I really don’t see what would be stopping China from purchasing a lot of Russian oil”. Nevertheless, Wald did add that China would “likely increase its purchases if it can pay in yuan and at a discount”, making clear that currency of payment would also be an important factor in any decision to boost Russian oil imports.
What's the big picture effect?
A marked increase in Indian and Chinese purchases of Russian oil could cause a seismic long-term shift to the global patterns of trade. For one, Russia’s push into Asia, which has resulted in Europe and America scrambling for supplies, could reshape the global market. North Sea oil, for instance, which is usually exported to the East, will stay in Europe, which is also more likely to increase oil purchases from West Africa and the US.
In turn, Asia and the rest of the world will have to settle for what Europe rejects. Additionally, with the majority of refineries worldwide being configured to guzzle certain types of crude oil, many have had to switch to other types, such as Saudi Arabia’s super light oil – an extremely costly and drawn-out process. The result is a domino effect leading to structurally higher prices for oil importers. As Ben Luckock of trading firm Trafigura notes: “the finely tuned system has been disrupted”.
As the War in Ukraine grows more protracted and the death toll of innocent civilians continues to rise, world leaders will be watchful of how both India and China develop their stances in regards to Russian oil over the coming months.
Report written by Anna-Maria Poku
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