When Iran effectively shut the Strait of Hormuz in early March, crude tankers carrying Gulf supplies were stranded in the Persian Gulf, triggering a frantic search for alternative barrels. “Russia became the saviour,” an industry executive said, noting that ample Russian cargoes were already afloat, including in the Indian Ocean, allowing them to reach Indian refiners relatively quickly.
But with buyers scrambling for every available cargo, sellers of Russian crude were able to command hefty premiums. “Indian refiners paid premiums of $12-20 a barrel for Russian oil,” the executive said. Refiners, which had been steadily reducing purchases from Russia over the previous three months due to the US sanctions, doubled imports in March.
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Russian crude has continued to account for around 40% or more of India’s imports since then, although the cost of procuring those barrels has fluctuated with changing perceptions of supply risk. A sharp slowdown in Chinese crude buying also freed up additional Russian cargoes for India and other buyers.
Indian refiners diversified supplies, securing cargoes from Angola, Gabon and Congo, while Saudi Arabia ramped up shipments through its Red Sea export terminals to offset disruptions in the Gulf. The easing supply fears pushed the premium on Russian crude down to about $10 a barrel by April.
The premium had almost disappeared by May as supplies from Brazil, Venezuela, Saudi Arabia and the UAE improved and the Iran-US ceasefire, repeatedly extended, reassured the market that a wider supply disruption was unlikely.The interim Iran-US agreement in June restored discounts on Russian crude. Benchmark Brent tumbled to about $71 a barrel from more than $120 in April as traders priced in lower geopolitical risks, widening discounts on Russian oil to about $10 a barrel.
The resumption of Iran-US hostilities has wiped out those discounts once again, with traders unwilling to offer price concessions amid mounting supply risks. The conflict also appears to be widening, with Iran-backed Houthi rebels in Yemen stepping up attacks on commercial shipping in the Red Sea, disrupting exports from Saudi Arabia, India’s second-largest supplier. Renewed concerns over global supplies have pushed Brent back to nearly $100 a barrel.