India’s purchases of discounted Russian oil could climb to a yet another record of over 2 million barrels a day this month. And India’s oil ties with Russia are set to surge further with the signing of a new deal between Russian giant Rosneft and IndianOil Corporation that will substantially boost energy sales.

India has been buying mostly Urals oil but the new agreement means that we will be buying Arctic grades such as Novy Port, and ARCO and also the ESPO grade oil which currently mostly goes to China. India emerged as the largest buyer of Russia’s benchmark Urals grade crude in March and deliveries to India are poised to make up more than 50 per cent of all seaborne Urals exports this month. China will be in second place.

The deal was clinched during a visit by Rosneft CEO Igor Sechin to New Delhi on Wednesday. Sechin met Petroleum Minister Hardeep Singh Puri and signed the agreement with IndianOil Chairman Shrikant Madhav Vaidya.

Rosneft and IndianOil also agreed look at the possibility of making payments in national currencies, a move that could expand cooperation in the entire energy sector value chain.

“India’s imports of Russian crude have been making headlines over the course of 2022 and continue to break records and are poised to record their seventh consecutive month on month increase and potentially surpass the 2 Mbd (million barrels per day) mark this month,” says Viktor Katona, lead crude analyst at Kpler, a leading commodities data and analytics firm.

During the Delhi discussions, the two sides looked closely at the ongoing implementation of joint projects between Rosneft and its Indian partners, including Sakhalin-1, Taas-Yuryakh and Vankorneft. ONGC Videsh, the oil exploration company, has a 20 per cent stake in Sakhalin-1. Indian companies also have stakes in both Taas-Yuryakh and Vankorneft.

Petroleum Minister Puri said after the meeting: “The agreement is emblematic of the growing collaboration between the two countries in the energy arena.” He added the two sides had “reviewed the existing areas of cooperation including ongoing implementation of joint projects.”

Russia has in recent months become India’s largest oil supplier, overtaking both Iraq and Saudi Arabia which have been our traditional top suppliers in recent years. (Bear in mind that the share of Russian crude in our oil imports stands at around 30 per cent, up from 0.2 per cent before Moscow launched its war against Ukraine).

Till now, private-sector oil refiners like Reliance and Nayara Energy have been the largest buyers of Russian oil. Nayara is part-owned by Rosneft. However, Wednesday deal signals that IndianOil is keen to up its purchases of discounted Russian oil.

New fleets of ships have emerged in recent months to cater to the booming India-Russia oil trade. Gatik Ship Management, which has a small office in a Mumbai mall, has emerged as the world’s biggest tanker buyer and has spent over $1 billion assembling a fleet of 50 ships in the last eight months or so.

India has always bought most of its crude oil from the Gulf countries, mainly because of cheaper shipping costs for the five- to six-day journey. By comparison, Russian oil takes about 30 days to arrive at Indian ports.

Some cargoes also come to India after transferring from one tanker to another at South Korea’s Yeosu STS zone. Says Katona: “All but one of the February-loading Sokol cargoes ended up in India via ship-to-ship transfers taking place in South Korea’s Yeosu STS zone.” He adds that about 195kbd (thousand barrels a day) of Sokol grade crude has arrived in India in March so far.

The West has been seeking to deprive Russia of energy export revenues using sanctions to hamper Moscow’s ability to finance its more than year-old invasion of Ukraine. Russia has responded by selling to what it calls “friendly countries.” Russian Deputy Prime Minister Alexander Novak said Russian oil supplies to longstanding ally India jumped 22-fold in 2022. India hasn’t taken sides in the conflict and has told Western nations that it must source its oil from where it is cheapest – in this case Russia.

Energy revenues have been vital to keeping Russia’s economy afloat with Novak saying energy revenues accounted for 42 per cent of the country’s federal budget in 2022. Novak insisted that the country’s energy industry is sustainable despite the sanctions on the industry.

India leapfrogged China as the largest purchaser of Russian seaborne crude in November. Russia has been skirting sanctions by loading its crude on vessels which show no final destination. Most of the cargoes identified as “Unknown Asia” and heading for the Suez Canal are ending up in India, Bloomberg reported.

The steep rise in crude imports from Russia has helped make the country for the first time one of India’s five leading trading partners. The volume of trade between the two countries hit $38.4 billion in 2022, according to government data.

Russia said it cut its crude by 500,000 bpd this month and plans to continue with the lower output until June in what it says is retaliation against Western sanctions. It hopes the fall in output will punish Western nations by pushing up oil prices. But oil market forecasts show a surplus in the first half of 2023 thanks partly to a milder winter so the impact of Moscow’s move may be blunted.