Hormuz blockade may shrink Russian crude discounts for Indian refiners

Business Standard

4 hours ago

Indian refiners may end up paying higher prices for Russian oil delivered in August due to escalating tensions in the Strait of Hormuz—a key transit route for around 40 per cent of India's crude imports and more than half of its LNG supplies—industry sources said.
The threat of an Iranian blockade has added pressure to shipping costs and tightened the global supply of Middle Eastern oil, prompting refiners to brace for reduced discounts on Russian crude.
August negotiations underway
Indian refiners began negotiations this week with Russian suppliers for August-loading crude, typically done 45 days ahead of delivery, a trader at a state-owned refiner said.
While volumes may remain stable or decline, demand from countries like Turkey is intensifying. Over 70 per cent of India's Russian oil consists of the medium, sour Urals grade—also preferred by Turkish refiners, particularly amid disrupted Middle East flows.
Discounts fall as freight and demand rise
Russian oil discounts may fall to their lowest levels in months due to higher shipping costs and increased competition, two refinery traders told Business Standard. Russia currently supplies four out of every ten barrels of oil imported by India.
'We may have to pay more for Russian oil because the discounts on the grades may shrink,' said a senior trader at a state-run oil company.
Discounts could narrow by 20–40 cents per barrel, potentially falling below $2 per barrel, refining sources said. For context, discounts stood at $10–$15 per barrel in 2023 and $5–$8 earlier this year.
Tighter margins could impact the gross refining margins of Indian refiners, they added.
Reliance, PSUs face squeeze on discounts
At present, Indian state-run refiners secure discounts of about $2.50 per barrel on Russian crude, priced against the European Dated Brent benchmark on a delivered basis. Reliance Industries, the country's top Russian oil importer, obtains a higher $3-per-barrel discount under a 500,000 barrels-per-day term deal signed with Rosneft in December.
Most Russian supplies to India, however, are purchased on the spot market.
Espo demand from China may rise
India may also face stiffer competition from China for the East Siberia–Pacific Ocean (Espo) grade in August, particularly as Chinese refiners lose access to Iranian crude due to ongoing conflict, an Indian refining executive said.
China does not typically purchase Urals but prefers Espo, a lighter crude. India's purchases of Espo have increased this year amid China's declining demand. But with Iranian supply constraints, China's dependence on Espo may rise again.
This month, Espo was India's second-largest imported Russian grade, at 162,000 barrels per day, according to ship-tracking data.
Russia remains top supplier
Russian crude made up a record 45 per cent of India's total crude imports during the first 23 days of June, exceeding 2.2 million barrels per day, according to Paris-based intelligence firm Kpler.
Urals inflows reached an all-time high of 1.6 million bpd. Reliance Industries accounted for 722,000 bpd—roughly a third of total Russian imports. State-run refiners, led by Indian Oil Corporation and Bharat Petroleum Corporation, together imported about 52 per cent.
The remainder comprised lighter grades such as CPC Russia, Espo, and Arco.