HomeMediaLatest NewsRussian oil has got rid of the sanctions discount

Russian oil has got rid of the sanctions discount

11 July 2023

Gromov Alexey I. Principal Director on Energy Studies, Head of the Energy Department

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, commented to the Vzglyad business newspaper on the reasons for the price discount reduction for Russian oil.

The rebate on Russian oil has fallen by 87% since peaking at $25-30 and is now only $4 for Indian refineries. This is written by the Indian edition of The Times of India, citing sources in the industry.

In fact, the discount of $25-30 per barrel was last year, when oil was expensive and had to be redirected to Asia, which increased logistics costs. The real sanctions discount went down along with world prices. Already in April and May, we fixed the sanctioned discount at the level of $8–9, and now it has dropped to $4. This is a real discount that we provide to customers,” Gromov says. In his opinion, there is no reason to hope that in the second half of the year Russia will be able to significantly increase its export income.

In addition, there are problems with mutual settlements for the supply of Russian oil.

“Last year we started trading with India in rupees, and then we realized that we could not convert these rupees into goods in adequate quantities. And if rupees are converted into other currencies, then we lose because of the volatility of the Indian rupee, which sometimes reaches 20% during the year. Information has appeared that we have agreed to sell oil to India for yuan, and it will take time to understand how this will affect budget revenues”, the expert argues.

In his opinion, it will be possible to strategically solve the problem of filling the budget with oil and gas revenues only when Russia, in partnership with key allies - China, India and other countries, can create a financial and economic system for trading Russian oil independent of the West. Then Russia will be able to work without regard to the so-called world oil market, world oil prices, ceilings and sanctions.

The second necessary condition for the creation of a Russian oil trade independent of the West is the creation of our own tanker fleet and a shadow tanker fleet that is ready to transport our oil. According to Gromov, Russia is already close to solving this problem.

The third condition is insurance for the transportation of Russian oil.

“Practically all liquid cargoes in Russia are already insured and reinsured in Russia. But the depth of insurance coverage is insufficient. Insurance coverage can be enough for just a couple of incidents related to spills of our oil. Therefore, it is necessary to create alliances of insurers with the Indians and the Chinese, which is also being done. There is a problem here with the fact that the state-owned Indian and Chinese insurance companies have a minority share of Western shareholders. However, this is not a critical dependence, and it is also solvable,” Gromov believes.

The fourth condition is to create and test our own system of price indicators within the framework of the St. Petersburg Stock Exchange. In the future, the price of Russian oil should be formed on the basis of supply and demand only for it itself, without reference to world prices.
Gromov Alexey I. Principal Director on Energy Studies, Head of the Energy Department
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