Russia secures firm foothold in Indian oil market for next 10 years

Russian state-owned oil company Rosneft and Indian private refiner Reliance have agreed to supply nearly 500,000 barrels of oil per day. The news was reported by Reuters. It is the largest-ever deal between the two countries. India became the biggest importer of Russian oil after the European Union, previously its main buyer, imposed sanctions on imports of Russian oil in response to the 2022 invasion of Ukraine.

The 10-year deal represents 0.5% of global supply and is worth approximately $13 billion a year at current prices. Imports of this volume will further strengthen energy ties between India and Russia, which is currently facing tough Western sanctions over its invasion of Ukraine and seeking alternative markets for its energy commodities. Russian oil imports already account for more than a third of India’s total energy commodity imports.

As India has imposed no sanctions on Russian oil, its refineries can profit from cheaper supplies. The sanctions have pushed Russian oil prices below those of comparable competing products, by an average of $3 to $4 per barrel.

India as a driver of global demand

India is one of the fastest-growing energy markets, and as many oil producers as possible want to tap into that growth. Another reason for competing for a share of the Indian market is that growth in China, the leading importer, is gradually slowing, making India an increasingly important driver of global demand.

According to Reuters, the deal covers imports of 21 Aframax-sized cargoes of various Russian oil grades (80,000 to 100,000 metric tons) and three cargoes of around 100,000 tonnes of fuel oil each month. The cargoes will be delivered to Reliance’s refinery complex in Jamnagar, the largest in the world.

Reliance already signed a contract with Rosneft in 2024 to buy 3 million barrels of oil per month. Rosneft also regularly sells oil to the Indian company through other intermediaries.

The new deal represents about half of Rosneft’s seaborne oil exports from Russian ports. From January to October this year, Reliance imported an average of 405,000 barrels of Russian oil per day, almost 5% more than in the previous period.

The new agreement between Rosneft and Reliance was discussed and approved at Rosneft’s board meeting in November, two sources said. Deliveries will begin in January and are set to continue for 10 years, with an option to extend the contract by a further 10 years.

Most of the supplies will come from Russia’s Urals region, where medium-sulfur crude oil and diesel are produced. This type of oil is the most popular among Indian refineries. The price of the commodity will be around $3 per barrel below Dubai prices over the coming year.