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Higher discounts on crude oil offered by the United Arab Emirates (UAE) to wean India away from Russian crude may soon see Indian refiners ramping up purchases from the Gulf nation, officials at multiple refiners said.
They also pointed to the recent agreement on trade settlement in national currencies signed between India and the UAE as a reason for this.
“While discussions are underway, the UAE has offered discounts on crude, which will be more than that of the current level of Russian discounts.
"There have been periodic talks on the issue but the pace has intensified in recent months as discounts from Russia have reduced,” an official said.
Crude imports into the country touched a record high of $16.8 billion in 2022-23 (FY23), up from $12.3 billion in the previous year.
But this made the Emirates only the fourth-largest source of crude for India in FY23.
It knocked down one spot from FY22 due to the emergence of Russian Urals grade crude in the Indian market.
Last month, Business Standard had reported that the government anticipated that West Asian sellers such as Iraq and the UAE were keenly watching the situation and may raise their level of discounts.
Last year, Baghdad had undercut Russia from June, by supplying a range of crudes that on average cost $9 a barrel less than Russian oil.
The extremely price-sensitive market, therefore, had shifted heavily in favour of Iraq.
Currently, the price of Russian Urals grade crude is trading close to the $60 limit, beyond which sanctions take hold.
Since April, the majority of Russian oil sold to India has been on the Dubai benchmark, with an average discount level of $8-10 per barrel.
Industry insiders said Moscow won't change terms by a wide margin at a time when it is pressed for cash.
But the level of discounts has continuously shrunk in 2023 as China snapped up large volumes of Russian crude.
“Discounts on Russian oil are still continuing but the levels have dropped.
"Refiners would look at favourable terms wherever they exist. Right now, that is the West Asian countries,” a senior official with a major refiner said.
Currency arrangement
Recently, the Reserve Bank of India (RBI) and the Central Bank of the United Arab Emirates signed a memorandum of understanding (MoU) to settle trade in local currency.
This enables the use of the rupee and UAE’s dirham for cross-border transactions.
Crude oil forms the single-largest component of India’s $84-billion bilateral trade with the UAE.
As a result, the government has nudged refiners to expedite more purchases from the country, sources said.
The UAE is India’s third-largest trading partner globally, after the United States and China.
The country has also become India’s second-largest source of imports after the pandemic.
