In the financial year 2023-2024 (FY24), the appeal of inexpensive Russian crude to Indian refiners waned as Russian discounts diminished and Iraq offered more competitive rates to regain traction in the Indian crude market, according to Indian government data.
Industry officials suggest that the increased costs associated with sourcing Russian crude may have contributed to lower gross refining margins for Indian state-run companies in the preceding quarter.
Analysis by Business Standard, based on customs data, indicates that Russian oil was only marginally cheaper than Iraqi crude by less than $3 per barrel in FY24, compared to over $7 per barrel cheaper a year earlier.
Iraq, which was once India’s leading crude supplier, lost ground to Russia due to the Russian invasion of Ukraine, prompting Moscow to divert its European supplies to China and India at significant discounts. Consequently, Russia emerged as India’s primary crude source in fiscal 2024.
In FY24, Russian supplies averaged $76.4 per barrel on a landed basis in India, while Iraqi shipments stood at $79 per barrel.
This is a significant shift from FY23 when Iraqi oil averaged $90.6 per barrel compared to $83.2 per barrel for Russian oil. Venezuelan crude emerged as the cheapest last fiscal year at $64 per barrel, attributed to its poor quality, heavy nature, and high sulfur content, suitable for processing only by advanced refineries like Reliance Industries’ Jamnagar facility in Gujarat.
However, Iraqi grades have become more affordable in calendar year 2024. Iraqi benchmark Basrah oil was $2 per barrel cheaper than Russian oil in March, according to the latest available data, with Iraqi oil averaging $78.6 per barrel compared to $80.6 per barrel for Russian oil, as per customs data. Indian refiners are reportedly opting for heavier grades of Basrah crude, which Iraq is offering at slight discounts.
Despite the resurgence of Iraqi oil, there are limitations on the volume Iraq can supply to India compared to Russia, which supplied record volumes of over 2 million barrels per day in mid-2023.
The resurgence of Iraqi oil can be attributed to two primary factors, according to Indian refining sources. Firstly, the tightening of US sanctions on Russian shipping, coupled with reduced availability of Russian oil due to its participation in the OPEC+ grouping’s production cuts, has impacted discounts. Secondly, Baghdad is offering oil at competitive rates to Indian refiners, according to a state-run refining official.
The diminishing discounts on Russian oil in FY24 are evident in the narrowing gap between Iraqi and Russian oil rates. Discounts on Russian oil to India have decreased by 77% since late 2023 compared to the fourth quarter of FY23, with rates hovering around $3.50 per barrel since last October. In FY24, discounts averaged only $5.8 per barrel, a significant drop from $10.5 per barrel in FY23, according to a state-run refining official.
