Indian and Chinese oil buying has offset most of the fall in Russian shipments to Europe, raising questions about the impact of sanctions on Moscow that have led to soaring energy bills for European consumers.
A Financial Times analysis of available data from Chinese and Indian customs statistics shows the countries imported 11mn tonnes more oil from Russia in the second quarter of 2022 compared with the first quarter. Payments for Russian oil from the countries increased by $9bn.
The biggest volume growth came from India, where imports of Russian oil jumped from 0.66mn tonnes in the first quarter to 8.42mn tonnes in the second.
After President Vladimir Putin’s invasion of Ukraine in February, the US, EU, UK, Canada and Japan imposed sanctions on Russia, crippling its financial system and banning imports of many of its goods.
But customers in China and India, the world’s most populous countries, kept buying Russian oil and other commodities such as coal and fertiliser.
China, already an important buyer of Russian crude before the war, bought 2mn barrels a day in May, an increase of 0.2-0.4mn per day compared with January and February.
The evidence of rising shipments to India and China comes at a time when the US is pushing importers of Russian oil, including New Delhi, to join the G7 in backing a price cap to limit Moscow’s revenues.
Alexander Gabuev, senior fellow at the Carnegie Endowment for International Peace, said India and China were “taking advantage of opportunities on the market”.
“It’s not a conscious desire to help Putin; it’s just a cynical, pragmatic way to use the situation in their best interest,” Gabuev said. “But of course, it de facto creates cash flow that helps the Kremlin when exports to Europe are being cut.”
India’s ports and coastal refineries are within easy reach of shipping routes from oil-exporting countries that are much closer than Russia, including Saudi Arabia, Iraq and the United Arab Emirates.
“My view on India buying larger quantities of Russian oil is that it’s economic expediency,” said Biswajit Dhar, professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University. “In a situation where inflationary pressures and shortages of fertilisers were upsetting all calculations, the Russian supplies came in handy.”
Dhar said a “key factor” in India’s buying was its neutrality on the war in Ukraine. Russia is also India’s largest arms supplier.
While information on India’s oil import market is opaque, analysts said they believed New Delhi was also taking advantage of price discounts from Russia.
Since the invasion, Russian oil has traded at discounts of as much as $30 a barrel compared with Brent crude, the international benchmark. But the total income Russia receives has still been higher than in 2021 because global prices have gone up so much, with oil trading for most of the year above $100 for the first time since 2014.
Chinese customs data suggest its current oil imports from Russia cost almost the same as the smaller quantity it bought before the war. Given that global oil prices surged during that period, the figures imply that the sales took place below prevailing market prices.
The unit value of imports from Saudi Arabia, the UAE, Iraq and Oman — China’s other top sources of crude oil — soared to $800 a tonne in the second quarter, while import costs from Russia stayed at $700 a tonne.
India has even enjoyed a price cut compared with the prewar period, its trade statistics suggest. India’s oil imports from Russia cost an average of $790 a tonne in the first quarter but fell to $740 a tonne in the second. The cost of imports from other sources rose during the same period.
“Although we don’t know the exact level, there seems to be a substantial discount Russia is offering on its oil,” said Neil Crosby, a Vienna-based senior analyst at OilX. “However, I don’t think many people in the market have seen any paperwork on these deals, so we can only make inferences.”
Despite the discounts, Russian oil companies could still profit handsomely, said Elina Ribakova, deputy chief economist at the Institute for International Finance.
Profits at Tatneft, a large Russian oil producer, rose 52 per cent year on year in the first half of 2022.
Speaking at an economic forum on Wednesday, Putin claimed Russia would have no issue selling its energy resources to non-western buyers. Whereas redirecting gas supplies is difficult due to the limitations of existing pipeline infrastructure, Russia has been more successful at maintaining oil sales.
“As far as our resources are concerned,” Putin said, “you know, the demand [for them] is so great on the world markets that we have no problem selling them.”
Putin said Moscow would walk away from energy contracts and cut off supplies if a price cap on Russia oil proposed by the G7 was imposed, warning that the west would end up “frozen”.
“We will not supply gas, oil, coal, heating oil — we will not supply anything,” he said.
Ribakova said: “Russia’s authorities might be laughing now, but they will become excessively dependent on China and India for energy exports as Europe pivots away from Russian gas in the coming one to two years.
“This is why Russia is using its leverage now, as it knows soon it will no longer be as effective in the energy wars,” she said.
Additional reporting by Polina Ivanova