Russia's cheap oil is attracting India, and China may follow suit.

• Five Russian oil cargoes, totaling 6 million barrels, have been loaded and are en route to India, to be discharged in early April, according to Matt Smith, lead oil analyst at Kpler.
• He informed CNBC that this represents a substantial increase, being approximately half of the volume discharged last year.
• If China also purchases oil from Russia at discounted prices, it could affect crude oil prices, according to analysts.
• The International Energy Agency announced on March 17 that Russian crude from the Urals is currently being sold at unprecedented discounts.

Since March, there has been a substantial increase in Russian oil deliveries to India following the invasion of Ukraine by Russia, and it is predicted that New Delhi will purchase even more inexpensive oil from Moscow, according to industry experts.

It is predicted that China, currently the largest purchaser of Russian oil, will likely purchase even more oil from Russia at reduced prices.

This could mean higher crude prices to come.

Since last year, major oil importing countries such as India and China have been facing higher crude prices, which have increased by around 80%. Despite recent fluctuations in oil prices, they remain high compared to a year ago.

According to Matt Smith, lead oil analyst at Kpler, it is believed that China, to a lesser extent than India, will increase its purchase of heavily discounted Russian crude.

The U.S., U.K., and the European Union have imposed sanctions on Russia's energy sector in response to its unprovoked and unjustified war on Ukraine.

If sanctions were imposed on Russia, it would result in a market gap, leaving the country with excess crude that it cannot sell, according to analysts.

The International Energy Agency reported on March 17 that while Urals crude from Russia is currently being offered at record discounts, uptake has been limited, with most Asian oil importers continuing to rely on traditional suppliers in the Middle East, Latin America, and Africa.

The IEA predicts that from April, there is a possibility of 3 million barrels of Russian oil being shut off daily, which could increase if restrictions or public condemnation intensify.

Ellen Wald, president of Transversal Consulting, informed CNBC that two weeks ago, commodity trading firms such as Glencore and Vitol were providing discounts of $30 and $25 per barrel respectively for the Urals blend.

‘Significant uptick’ of Russian oil bound for India

Smith informed CNBC that the delivery of Russian crude to India was "relatively rare" in 2021, with a total of 12 million barrels transported.

Since December, Kpler has not witnessed any Russian deliveries to India.

Since March, five Russian oil cargoes, totaling 6 million barrels, have been loaded and are heading to India, to be discharged in early April, according to an email from him to CNBC.

Smith stated that this represents a substantial increase, as it is approximately half of the volume discharged last year.

Since Russia invaded Ukraine on Feb. 24, markets have been affected by concerns about tight oil supply, as Russia is a major supplier of the world's oil and gas.

Indian refiners have issued tenders for Urals crude as the discount to Brent continues to rise, indicating that Russia's oil is still struggling to find a stable market, according to ANZ Research.

The IEA reports that Russia exports approximately 5 million barrels of crude oil daily, making it the world's third-largest oil producer following the U.S. and Saudi Arabia.

The IEA reports that Russia is the world's largest exporter of oil to global markets and the second largest crude oil exporter after Saudi Arabia.

U.S.-India’s close historical ties

According to analysts and some media reports, India could purchase additional cheap oil from Russia at a discount of approximately 20%, resulting in a savings of over $20 per barrel based on current crude prices.

According to Samir N. Kapadia, head of trade at government relations consulting firm Vogel Group, India imports crude from Russia only at a nominal share of between 2% to 5% a year. However, New Delhi gets its crude from countries such as Iraq, Saudi Arabia, the United Arab Emirates, and Nigeria, which are currently dictating higher prices.

The Government of India's motivations are economic, not political. India will always look for a deal in their oil import strategy. It's hard not to take a 20% discount on crude when you import 80-85% of your oil, particularly on the heels of the pandemic and global growth slowdown, as Kapadia told CNBC in an email.

India would consider its friendship with Russia when deciding whether to take crude off it, in addition to the benefits of discounts.

Kapadia stated that India, the third largest oil importer globally, is currently considering their course of action to collaborate with an old ally. Similarly, China, like India, has refrained from supporting a United Nations resolution condemning Russia's invasion of Ukraine.

Both Russia and India have a long history of cooperation, with Russia providing India with 60% of its military and defense-related equipment needs and also facilitating rupee-ruble currency swap arrangements in the late 1950s to finance India's imports when it was facing financial difficulties.

Russia has also backed India on key issues, including the conflict with China and Pakistan over the Kashmir region.

The US and Europe's response to India's continued purchases of crude oil from Russia will be the real question, according to Kapadia.

According to Reuters, a government official stated two weeks ago that countries that are self-sufficient in oil or import oil from Russia cannot effectively advocate for restrictive trade policies.

Kapadia stated that if Western countries shifted India's focus to consider the impact of supporting Russia on China's geopolitical influence in the region, things could change.

No surprise if China buys more Russian oil

Russia is predicted to offer discounted oil to China, the world's largest oil importer.

In 2021, the Asian giant was the largest single buyer of Russian oil, purchasing an average of 1.6 million barrels per day of Russian crude, as stated by the IEA.

Russia is facing pressure to sell its oil to China as the country is having difficulty finding buyers, according to Wald. However, China is still importing Russian oil and may increase its purchases if it can pay in yuan and at discounts.

China would prefer much cheaper oil prices, as even $90 is too high for them. If they can buy Russian oil at a discount of up to $30 off the benchmark, then it makes sense for China to purchase a lot of Russian oil.

Since 2011, various countries, including the US and EU, have imposed sanctions on Iran's oil due to its nuclear program. However, China continued to purchase oil from Iran through secretive methods.

Wald stated that insurers are not significantly concerned about insurance problems because they have increased their premiums on shipments in the region due to the Russia-Ukraine war, which has led to an increase in the risk of attacks on ships and ports.

She said an increase in China’s purchases could hit oil prices.

It is possible that more Russian oil will shift to China and potentially other suppliers like Kuwait, UAE, and Saudi Arabia, but the discount that China will receive may have a global impact on oil prices, according to her.

Despite the war, China's purchases of Russian crude slightly increased this year.

According to Kpler's Smith, China's flows to Russia are slightly stronger than the previous year, but this is mainly due to China's demand for ESPO crude from Eastern Russian ports. This does not relate to Russia diverting its crude away from Europe. ESPO crude refers to Russian oil exports to Asia-Pacific markets and is popular among independent Chinese oil refineries.

Smith stated that we have not witnessed any changes in these flows yet, but we anticipate it to occur soon.