Indian refiners, including Mukesh Ambani’s Reliance Industries, are using cheap Russian crude to try to boost diesel exports, including to countries like the EU with sanctions on Russian oil.
Russia overtook Saudi Arabia as India’s second largest oil supplier after Iraq in May. Russian crude oil exports to India are expected to surge to over 1 million barrels a day in June, according to commodities data and analytics firm Kpler.
The postponement means Indian refiners could replace some of the diesel Europe once bought directly from Russia or from refining Russian crude.
They are making outsized profits from both the discount on Russian oil, which is more than $25 a barrel for the major Ural variety, and the sky-high diesel profit margins in Europe created by sanctions on Russian supplies.
“When Western governments see that a third of India’s raw shale is Russian, they can generally assume that some of the diesel shipped to Europe contains Russian molecules,” said Neil Crosby, an analyst at data company OilX.
Crosby said it could complicate an otherwise very profitable moment for Indian refiners as Washington puts pressure on New Delhi to limit Russian oil purchases.
Crosby said, “Are they going to hit some kind of political wall where it gets too conspicuous and shut down that kind of activity?”
Indian leaders argue they are responding to strong international demand for diesel and other products during an energy crisis.
Ajay Sahai, Executive Director of the Federation of Indian Export Organizations, said: “Many inquiries have flowed to India, especially for importing diesel from India. These came from European countries.”
Nayara Energy, which is partly owned by Russian company Rosneft, with commodities trading firm Trafigura holding a 24.5 percent stake, and Ambani-based Reliance Industries import the largest volumes.
Reliance is responsible for “more than 95 percent” of India’s refined oil product exports to Europe, said Janiv Shah, downstream analyst at Rystad Energy. As diesel shortages in Europe “will remain”, Reliance is “currently on a shortlist” of potential refiners that could fill the vacuum left by Russia, Shah said.
India’s diesel exports to Europe hit a multi-year high of 230,000 barrels a day in March, Rystad said, but fell to 120,000 in April and plummeted to 40,000 in May. Exports to Africa and elsewhere have increased over the same period.
V. Srikanth, Reliance’s chief financial officer, said in an earnings call in May that the company had “minimized raw material costs by sourcing arbitrage casks.”
Srikanth said Reliance expects its margins to be supported due to “reduced Europe’s diesel imports from Russia and low global inventories.” Reliance declined to comment.
“Once the kegs come into the refinery system and are processed, there’s every type of variety from all different countries around the world, so it’s very difficult to distinguish that this one molecule of diesel is from ‘this’ source in ‘this’. country,” said Shah. “It’s basically impossible to tell the difference.”
Reliance’s refinery, which can process 1.24 million barrels of crude a day, is well positioned to benefit from Russian crude, said Harshavardhan Dole, an analyst at Brokerage IIFL whose reporting includes Reliance.
“Reliability is actually the sweetest of the sweet spots because the complexity of the RIL refinery is actually one of the highest,” Dole said.
Nayara Energy declined to comment on the Russian imports, adding that it is an “independent Indian company, governed by Indian laws and committed to meeting the country’s growing energy needs.”
Additional reporting by Harry Dempsey and David Sheppard