India Moves Quickly to Pay for Russian Oil Before Sanctions Take Effect

India is gearing up to accelerate payments for Russian crude oil as it approaches the deadline for new sanctions from the United States. The situation has become urgent as Indian state refiners aim to complete their transactions before the enforcement of these sanctions, which are set to expand significantly next month.

Importance of Russian Crude to India

Currently, about one-third of India's oil imports come from Russia, making it a crucial supplier for the country. The refiners are now moving to minimize any potential disruptions by shortening their payment timelines from five days to just two days. This change reflects the need for quicker settlements amidst fears of stricter U.S. sanctions.

Indian ports are expecting the arrival of at least 4.4 million barrels of Russian crude. Several tankers carrying different grades of oil are en route to various ports, including Jamnagar, Chennai, Paradip, and Visakhapatnam. Recent ship tracking data indicates that these tankers are underway to discharge their cargo before the impending sanctions take effect.

Adjustments in Payment Methods

The Mercury, one of the tankers, is anticipated to reach Paradip soon, carrying over 1 million barrels of Urals oil. Just recently, two sanctioned vessels successfully discharged more than 1.4 million barrels at ports in Gujarat. The Zaliv Amurskiy delivered Urals at Jamnagar, while the Arjun unloaded its cargo at Vadinar.

Due to the potential for tighter regulations, Indian banks have begun to exercise greater caution in processing payments. Since late last year, they have been requiring more comprehensive paperwork and establishing tracking systems for incoming Russian shipments. Currently, payments are being settled based on the bill of lading as larger financial institutions navigate the risks posed by the new sanctions.

Payment in Rubles to Bypass Dollar Restrictions

As part of this precaution, Indian banks have ceased making payments in U.S. dollars to avoid compliance with the $60-a-barrel price cap imposed on Russian crude in 2022. Payments for oil from Gazprom Neft, which was sanctioned recently, are now being handled in rubles.

The U.S. Office of Foreign Assets Control has established a significant deadline for the clearance of crude shipments tied to sanctions. All cargoes loaded onto sanctioned vessels before January 10 must be delivered by February 27, allowing Indian buyers to maximize this “wind down” period.

Concerns About Inflation and Oil Supply

Inflation management remains a top priority for the Indian government, making the discounted Russian oil particularly appealing. The recent sanctions have raised alarms about India's traditional suppliers, drawing more attention to Russian crude as a viable option despite the geopolitical tensions.

As the refiners navigate these changes, there remains a strong indication that Russia will seek ways to work around these latest oil curbs. Anticipation continues to grow regarding the future of international oil supply as these dynamics evolve.

India, Oil, Sanctions