Pakistan placed its first order for discounted crude oil from Russia after the latter diverted most of its supply to Asian countries. India and China have emerged as the major consumers of Russian crude oil since the war broke out between Moscow and Ukraine
In March, Russia supplied 1.64 million barrels per day (bpd) of crude to India — becoming the country’s largest supplier. Energy experts believe that India would be unaffected by Pakistan sourcing crude from Russia as India has a much bigger appetite than its neighbour.
Hitesh Jain, Lead Analyst at Yes Securities, said, “Pakistan is a small economy. Its (crude oil) requirement is one-sixth of India’s, hence, Pakistan cannot cannibalise India’s share in Russian oil exports.”
Pakistan is going through a serious economic crisis as the country’s currency has fallen to a record low. The country, which is highly dependent on imported fuel, is on the verge of economic collapse.
Reuters reported that Pakistan will buy only crude oil from Russia, and not refined fuels. Imports are expected to reach 100,000 bpd if the first transaction goes through smoothly, a Reuters report said.
Diverting oil to Asian countries
Russia has been diverting the supply of its crude oil to Asian countries, especially India and China, at discounted rates as the European Union (EU) and the US have imposed a slew of sanctions on Moscow.
“In the medium term, Europe does not seem likely to source crude from Russia. Therefore, Russia is building a relationship with countries in Asia to supply its oil to them. The deal with Pakistan is one such attempt,” said an analyst with a domestic brokerage firm who did not wish to be identified.
Russia’s share in India’s import basket, which was less than 1 percent until January 2022, has now increased to over 30 percent. The Eurasian country has been the top supplier of crude to India for the last six consecutive months, from October 2022 to March 2023.
Discounted Russian oil
One of the major factors for Russia becoming India’s top crude oil supplier is the discounts offered by the country. Experts say that the discounts offered by Russia might go away with Moscow increasing the number of destination countries for its crude.
Prashant Vasisht, VP and Co-head of Corporate Ratings, ICRA, said, “Though the availability of Russian crude oil would not be a problem, with more countries buying Russian oil the discounts may go away.”
India has been enjoying discounts on Russian crude since February last year. Moneycontrol had reported in December 2022 that India is estimated to have saved over Rs 350 billion by importing cheap Russian crude since February 2022, when Russia sent troops into Ukraine.