In a significant move, India’s Reliance Industries, which operates the world’s largest refining complex, has inked a one-year deal with Russia’s Rosneft to purchase at least 3 million barrels of oil monthly, with payments made in roubles. This strategic shift aligns with Russian President Vladimir Putin’s directive for Moscow and its trading partners to find alternatives to the Western financial system amidst U.S. and European sanctions.
Geopolitical Context and Economic Strategy
The transition to rouble payments underscores a broader geopolitical strategy. Amidst the U.S. and European sanctions following Russia’s 2022 invasion of Ukraine, Russia has been exploring ways to circumvent the traditional Western financial mechanisms. This deal not only aids Russia in stabilizing its economy but also benefits Reliance Industries by securing oil at discounted rates, especially critical as the OPEC+ group of oil producers considers extending voluntary supply cuts beyond June.
The OPEC+ alliance, which includes the Organisation of the Petroleum Exporting Countries (OPEC) and allies like Russia, is slated to discuss these output cuts in an upcoming online meeting on June 2. This strategic timing allows Reliance to leverage discounted oil prices amid potential tightening of global oil supply.
India’s Position in Global Oil Market
India, the world’s third-largest oil importer and consumer, has emerged as the leading buyer of Russian seaborne crude since Western countries ceased purchases and imposed sanctions on Moscow. Besides roubles, India has utilized rupees, dirhams, and Chinese yuan for these transactions. This diversification in payment methods highlights India’s adaptability and strategic positioning in the global oil market.
State-owned Indian refiners, however, have been more reliant on spot markets for Russian oil due to challenges in finalizing term supplies for the year, as previously reported by Reuters.
Details of the Reliance-Rosneft Agreement
“India is a strategic partner for Rosneft,” the Russian company confirmed in an email response to Reuters, although it refrained from commenting on confidential agreements. The cooperation between Indian companies and Rosneft spans production, refining, and trading of oil and petroleum products, showcasing a robust bilateral energy relationship.
According to sources, the agreement, effective from the start of India’s financial year on April 1, involves Reliance purchasing two cargoes of approximately one million barrels of Urals crude each month, with an option for four additional cargoes. These purchases come at a discount of $3 per barrel to the Middle East Dubai benchmark. Additionally, Reliance will buy one to two cargoes of low-sulphur crude oil, mainly the ESPO Blend exported from Russia’s Pacific port of Kozmino, at a $1 premium to Dubai quotes.
Payment Mechanism and Financial Logistics
Payments under this deal will be made in roubles through India’s HDFC Bank and Russia’s Gazprombank. This mechanism not only simplifies transactions between the two countries but also fortifies their economic alliance against external financial pressures. Further specifics of the payment logistics remain undisclosed.
Strategic Implications
This landmark deal between Reliance Industries and Rosneft represents more than just a commercial transaction; it signifies a pivotal shift in global trade dynamics, influenced by geopolitical tensions and economic sanctions. By securing a steady and discounted oil supply, Reliance can enhance its refining operations while Russia finds a reliable market for its crude amidst Western sanctions. This deal, therefore, is a testament to the evolving strategies nations are adopting to navigate the complex landscape of international trade and politics.
