If India can buy Russian oil, why can’t Pakistan?

In Pakistan it is common that ministers often talk about decisions to be made by other ministries. One such trespassing was committed by Minister of State for Petroleum Musadiq Malik on Friday. He said that an increase in electricity tariff would follow fuel price adjustment through withdrawal of subsidies.

Talking about PTI’s claims of 30% cheaper oil and LNG import deals with Russia, the minister said there was no agreement or memorandum of understanding on record which could prove such claims. However, he admitted that the former energy minister had written a letter to the Russian minister showing interest in purchasing oil and gas from Russia, but there was no response from the other side.

Pakistan’s ambassador in Moscow approached the Russian energy ministry, but did not get a response either on cheaper oil or gas, said Malik.

I am ready to accept that Imran Khan spread disinformation, but will Malik be kind enough to share, has the incumbent government approached Russia for the purchase of cheaper oil?

I have a glut feeling that the present government, living under the shadow of the US administration just couldn’t have dared to do that.

Lately, India expressed its intention to continue to buy cheap oil from Russia.

"We will get cheap oil from Russia," the government official told reporters on Wednesday, adding that the average price at which the world's third largest oil importer buys crude is currently above US$100 a barrel.

With concerns that conventional payment routes could be blocked due to Western sanctions on Moscow, including on banks, work was ongoing to set up a rupee-rouble trade mechanism to facilitate transactions, the official said.

Without elaborating further, the official added that no final decision had been taken and all possible ways to pay for goods were still under discussion.

While Russia's oil exports have not to date fallen under Western sanctions, some international traders have avoided buying the barrels given the disruption to payment systems and shipping.

The official also said India was increasing its dependence on coal due to surging power demand, adding that state-run Coal India will produce more coal in the coming months.

There’s been a significant uptick in Russian oil deliveries bound for India since March after Russia’s invasion of Ukraine began — and New Delhi looks set to buy even more cheap oil from Moscow, industry observers say.   

China, already the largest single buyer of Russian oil, is also widely expected to buy more oil from Russia at deep discounts, they say. 

Major oil importing countries such as India and China have been grappling with higher crude prices, which have soared since last year. While oil prices have been volatile in recent weeks, swinging between gains and losses, they are still around 80% higher compared to a year ago.

“We believe that China, and to a lesser extent, India will step up to buy heavily discounted Russian crude,” said Matt Smith, lead oil analyst at Kpler.

“Urals crude from Russia is being offered at record discounts, but uptake is limited so far, with Asian oil importers for the most part sticking to traditional suppliers in the Middle East, Latin America and Africa,” the International Energy Agency said on March 17, 2022. Urals crude is the main oil blend that Russia exports.

“As of mid-March, we see the potential for 3 million barrels a day of Russian oil supply to be shut in starting from April, but that could increase if restrictions or public condemnation escalate,” the IEA said.

 ‘Significant uptick’ of Russian oil bound for India

However, since the beginning of March, five cargoes of Russian oil, or about 6 million barrels, have been loaded and are bound for India – set to be discharged in early April, he told CNBC in an email.

“This is about half the entire volume discharged last year — a significant uptick,” Smith said. 

 “Today, the Government of India’s motivations are economic, not political. India will always look for a deal in their oil import strategy. 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,” Kapadia told CNBC in an email.

Both countries have had a long history. Russia has supported India on a variety of areas including the provision of military and defense-related equipment — as much as 60% of the Asian country’s needs, according to Kapadia.

In the late 1950s, India also leaned on Russia for rupee-ruble currency swap arrangements to finance its imports when the former was “broke,” said Kapadia.

Russia has also supported India on crucial issues such as the dispute with China and Pakistan surrounding the territory of Kashmir.

“White House pressure to curb purchases of crude oil from Russia has fallen on deaf ears in Delhi,” said Kapadia. “The real question will be how the US and Europe respond to India should they extend an olive branch to Russia by providing them an outlet for their oil.”