No takers for rupee payment for oil imports
India’s push for rupee to be used to pay for import of crude oil has not found any takers as suppliers have expressed concern on repatriation of funds and high transactional costs, the oil ministry told a parliamentary standing committee. The default payment currency for all contracts for import of crude oil is US dollar as per the international trade practice. However, in a bid to internationalise the Indian currency, the Reserve Bank of India on July 11, 2022 allowed importers to pay with rupees and exporters be paid in rupee. While there has been some success with non-oil trade with a select few countries, rupee continues to be shunned by oil exporters. “During FY 2022-23, no crude oil imports by oil PSUs was settled in Indian rupee. Crude oil suppliers (including UAE’s ADNOC) continue to express their concern on the repatriation of funds in the preferred currency and also highlighted high transactional costs associated with conversion of funds along with exchange fluctuation risks,” the oil ministry told the parliamentary department related standing committee. The ministry, whose subimissions are part of the committee’s report which was tabled in Parliament last week, said Indian Oil Corporation (IOC) has informed that it incurred high transaction costs as crude oil suppliers pass on the additional transactional costs to IOC.” The RBI, it said, had last year permitted opening of rupee vostro accounts in the partner trading country. Under this mechanism, Indian importers undertaking imports through this mechanism shall make payment in Indian rupee which shall be credited into the special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier. “Payments for crude oil can be made in Indian rupee, subject to the suppliers’ complying with regulatory guidelines in this regard,” the ministry said. “Currently, Reliance Industries Ltd and oil PSUs do not have an agreement with any crude oil supplier to make purchases in Indian currency for supply of crude oil.” India is the world’s third largest energy consumer. With its domestic production meeting less than 15% of its needs, the country imports the remaining crude oil, which is converted to fuels such as petrol and diesel at refineries.
First rupee payment for oil to UAE: India looks for more deals, no targets: Officials
India’s first-ever payment in rupees for crude oil purchased from the UAE is helping the world’s third largest energy consumer push for taking the local currency global, as it looks for similar deals with other suppliers, officials said, adding internationalisation is a process and there are no targets. With the nation more than 85 per cent dependent on imports for meeting its oil needs, India has been pursuing a three-pronged strategy of buying from the cheapest available source, diversifying sources of supply and not breaching any international obligation like the price cap in case of Russian oil. While the strategy helped save billions of dollars, when it ramped up imports of Russian oil that was shunned by some in West post Ukraine war, it is looking to settle trade in rupees instead of dollars in a bid to cut transaction costs by eliminating dollar conversions. India in July signed an agreement with the UAE for rupee settlement and soon after Indian Oil Corporation (IOC) made payments for purchase of a million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC) in Indian rupees. Some of the Russian oil imports too have been settled in rupee. Officials said the default payment currency for import of crude oil has been the US dollar for several decades and the currency traditionally has liquidity as well as lower hedging cost. But to boost the rupee’s role in cross-border payments, the Reserve Bank of India allowed more than a dozen banks to settle trades in rupees with 18 countries since last year. Since then, India has been encouraging big oil exporters such as the UAE and Saudi Arabia to accept the Indian currency for trade settlements, officials said, adding the first success happened in August this year when IOC made the rupee payment to ADNOC. More such deals may happen in future, they said, insisting there was no target as internationalisation is a process and cannot happen overnight. “We have to be mindful that it (rupee settlement) does not lead to increase in cost and is in no way detrimental to the trade,” an official said. “Settling a trade in rupee where the amount is not big does not pose much problem but when you have each shipload of crude oil costing millions of dollars, there are issues.” India, they said, is navigating the situation keeping overarching national interest in mind. The internationalization of the rupee will help reduce dollar demand and make the Indian economy less vulnerable to global currency shocks. A parliamentary standing committee report, tabled in Parliament last week, stated that there were not many takers for Indian rupee. Officials said that situation was true for 2022-23 fiscal and there has been a rupee trade this year. “During FY 2022-23, no crude oil imports by oil PSUs were settled in Indian rupee. Crude oil suppliers (including UAE’s ADNOC) continue to express their concern on the repatriation of funds in the preferred currency and also highlighted high transactional costs associated with conversion of funds along with exchange fluctuation risks,” the ministry told the panel. The ministry, whose subimissions are part of the committee’s report which was tabled in Parliament last week, said India Oil Corporation (IOC) has informed that it incurred high transaction costs as crude oil suppliers pass on the additional transactional costs to IOC.”
IOC, BPCL, HPCL in talks to raise ₹5,500 crore by securitising licence fee
Indian Oil, Bharat Petroleum and Hindustan Petroleum are discussing plans to raise ₹5,500 crore by securitising the licence fee they get from their petrol pump dealers as part of the government’s push for asset monetisation by state companies, according to multiple people familiar with the matter. Top company executives at three state-run refiners have discussed the monetisation plan with officials at Niti Aayog and the petroleum and finance ministries for months, they said. Indian Oil is targeting to raise ₹2,500 crore while BPCL and HPCL are aiming for ₹1,500 crore each by securitising the licence fee for three years and selling the securities to banks or other buyers, according to the companies’ plans. The licence fee is linked to the volume of petrol and diesel sold at a pump and is settled between a dealer and the company each fortnight or month. The licence fee for diesel and petrol varies from ₹ 128 per kilolitre to ₹369 per kilolitre based on the location of the petrol pump. A goods and services tax (GST) of 18-28% also applies to the licence fee. Indian Oil, BPCL and HPCL didn’t respond to ET’s request for comment for the story. A source close to Indian Oil, who didn’t want to be named, said the idea of monetising licence fees was first discussed last year when fuel retailers were making losses following a spike in international fuel prices and were looking to raise cash through innovative means. While the plan to monetise licence fees is on the table, the urgency to execute it has reduced as companies now flush with cash due to record-high profits in the first half of the current fiscal year, the person said. Compared to Indian Oil, BPCL and HPCL appear keener on the plan to monetise licence fees, another person with knowledge of the matter said. The government has been pushing state-run oil companies for years to monetise their assets to raise resources that can be deployed in new projects. Three years ago, the government had drawn up a plan, which expected state oil and gas companies to transfer some of their pipelines to InvITs and sell minority stakes in those to raise Rs 17,000 crore. The plan didn’t take off as the companies said they could raise capital from lenders at a much lower cost than the return they may have to offer to InvIT investors.
Two Elections that Will Impact Energy and Geopolitics in 2024
The New Year will bring not only new leadership to key energy venues around the world, but it will also bring impactful developments in the run-up, as incumbents act to secure their destinies at all costs. From Russia to Venezuela and the United States, with a stage-setting surprise already unveiled in Argentina, this is one of the most important election years in decades. Russia: March 15-17, 2024 Russian President Vladimir Putin is pulling out all the stops for his presidential bid in March next year. To that end, leading Kremlin critic and the country’s most influential opposition figure and anti-corruption campaigner, Alexei Navalny, has been sequestered (at best) in a secret location for the past two weeks. No one knows where the imprisoned opposition leader is now. Navalny, who has been serving a prison term in the 1K-6 prison outside of Moscow has not appeared at any scheduled court hearings for December, according to The Moscow Times, and his lawyers haven’t seen him since December 5. In August, Navalny was sentenced to 19 years in prison on “extremism” charges in a brazen attempt to keep him out of politics. In the meantime, it’s the high season for treason in Russia as Putin seeks to quash any detractors. According to The Moscow Times, a record number of 63 cases of high treason have been sent to the courts this year, with an additional seven cases for “confidential cooperation with a foreign state or organization.” It smacks of Stalin’s days. On December 22, Putin seized the country’s biggest car dealership (Rolf) and put it under state management, claiming it was for commercial reasons but the reality is that the owner is Sergei Petrov, a Kremlin critic. Rolf, which is based in Cyprus, has been around since the fall of the Soviet Union. The Kremlin has accused Rolf of illegally moving money abroad at a time when Russia’s wartime economy can’t allow for it. Petrov’s take on this is that Putin is paving the way for his cronies to redistribute assets amongst themselves. On the war in Ukraine, it remains unclear as to whether Putin has succeeded in conveying to the public that this is a victory in any way, or what it has meant for the Russian economy or Russia’s influence in the former Soviet arena. Russia in 2024 will undoubtedly usher in another victory for Putin, but his cronies and loyalists have been shifting, and that means a redistribution of assets and a largely uninvestable country. His victory will not, of course, shock the market or have much impact on oil and gas prices, which have long ago calculated any Putin premium there is to be had. A defeat for Putin, however, would roil markets because of the massive amount of uncertainty this would bring. Can anyone challenge Putin at this point? Not really. The only challenger hopeful is former journalist Yekaterina Duntsova, who is being accused of being backed by Yukos Oil boss Mikhail Khodorkovsky (both deny this), who is classified in Russia as a “foreign agent”. He’s a fugitive oligarch running an opposition movement from outside of Russia. A second candidate appeared in December, 60-year-old Boris Nadezhdin, a former politician and commentator who has accused Putin of undermining the country’s democratic institutions with his authoritarianism. He’s also called Putin’s invasion of Ukraine a “fatal mistake”–a statement that could land him in prison for treason. 71-year-old Putin does not appear to have been weakened significantly by the failed Wagner mutiny earlier this year; Ukraine’s counteroffensive has showed signs of stalling; and while the economy may not be rock solid due to the war effort, the propaganda machine is working at full force to get across a different narrative, and it seems to be working. Most analysts are preparing for a show election that will see Putin–already in power since 1999–remain in power thanks to Constitutional amendments that he made sure went through to allow him to stay in power for more than a decade longer. For oil, it will mean more of the current status quo of war in Ukraine and Western sanctions and price caps, which will simply become the norm. Venezuela – 2024 (TBD) Venezuelan President Nicolas Maduro cut a deal with Washington for a temporary easing of sanctions on Venezuelan oil. The deal was for free and fair elections, and that he would not attempt to thwart the opposition’s participation. His first move was to issue arrest warrants for a handful of opposition figures, including former National Assembly leader Juan Guaido and staffers of the opposition presidential candidate Maria Corina Machado. This coincided with the holding of a referendum on the annexation of Essequibo, the oil-rich area of Guyana, which makes up some two-thirds of the country’s territory. While Guyana and Venezuela have held talks since and vowed to refrain from a military confrontation over the matter, Maduro is desperate, and from a domestic standpoint, this is a play designed to circumvent elections by escalating things to a level that would allow him to declare a state of emergency. As noted by Andres Oppenheimer writing for the Miami Herald in late December, to achieve his goals, Maduro could send a stealth force to claim Essequibo without firing a single bullet. By establishing this presence and officially declaring Essequibo under Venezuelan control, Maduro creates an international incident that the West will find necessary to address. Under the continually escalating pressure of an “international incident”, Maduro will find the legitimacy he needs to declare a state of emergency and cancel 2024 elections, or at least postpone them indefinitely. A state of emergency would allow him to cancel elections. The West would act slowly because China and Russia would back Venezuela’s claim and the West would seek to avoid any actual confrontation. This is a potential Pandora’s Box of geopolitical consequences, too, because Maduro is also being used as a puppet for Chinese and Iranian ends. As historian Gregory Copley noted for Oilprice.com earlier in December, China and Iran
Red Sea Ship Attacks Pose Threat To West Asian Crude Oil Supply
The rising attacks on ships, especially oil tankers, in and around the Red Sea may cause a temporary hindrance to India’s petroleum exports from West Asia, given the recent developments. Concerns were raised after two India-bound warships were targeted by drones during the Israel-Hamas conflict, as outlined by media reports. Late on Saturday, Iran-aligned Houthi rebels are said to have launched a drone strike on the crude oil tanker MV Sai Baba, which is registered under the flag of Gabon and is carrying 25 Indian crew members. The United States Central Command (CENTCOM) reports that the incident happened in rebel-controlled territory, but thankfully no injuries were reported. MV Sai Baba, certified by the Indian Register of Shipping, was en route to India, adhering to international law requiring merchant ships to register in a host country. The US Central Command’s report followed another attack on the merchant vessel MV Chem Pluto, which was hit by a suspected drone in the Arabian Sea. This vessel, with around 20 Indian crew members, caught fire about 217 nautical miles off the Porbandar coast. The fact that most oil volumes pass through the affected waters makes these instances significant. The government is keeping a careful eye on the situation and is aware that these kinds of attacks may have an effect on the short-term flow of crude oil from West Asia. Furthermore, as shipments from Europe are choosing to take the longer route around Africa and the Cape of Good Hope rather than the Red Sea through the Suez Canal, shipping costs are predicted to increase even more.
India’s Russian crude imports prevented price surge, ‘havoc’ in global oil market, says petroleum ministry
Global crude oil prices would have surged and created “havoc” in the international oil market had India not ramped up oil imports from Russia in the aftermath of Moscow’s February 2022 invasion of Ukraine, the petroleum and natural gas ministry told the department-related parliamentary standing committee. “If they (Indian refiners) had not imported Russian oil into India, which may be a big number of 1.95 million barrels per day, that deficiency would have created a havoc in the crude oil market and the prices would have shot up by about $30-40,” a petroleum ministry representative was quoted as saying in a recent report of the standing committee on petroleum and natural gas. The report was tabled in Parliament on December 20. “The crude oil market is such that in the market of 100 million barrels per day, if the OPEC (Organization of the Petroleum Exporting Countries) says that they are going to reduce it by one or two million barrels per day, prices increase by 10 to 20 per cent and reach up to $125-130. If India does not absorb–I would call it absorption–1.95 million barrels per day, these prices would have reached $120-130. It would have created a havoc,” the petroleum ministry representative added. The report did not name the representative. Usually, senior bureaucrats of the petroleum ministry represent the ministry before the standing committee. India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. The country has a refining capacity of over 250 million tonnes per annum, or 5 million barrels a day.