Given the uncertainty surrounding the proposed G7 price cap mechanism, Indian refiners are hesitant to purchase Russia crude oil loading after the European Union sanctions go into effect on December 5.

Beginning next month, Chinese refiners will start to reduce their imports of Russian oil.

After the West rejected Russian oil after the start of the war in Ukraine, the two largest importers in the world—Asian giants—became Russia’s main consumers.

Even if those new purchasers are unlikely to support a move by wealthy nations in the Group of Seven (G7) to cap Russian oil prices, their decreased purchasing would force Russia to seek out alternative customers, perhaps bringing prices down.

Russian cargoes loading after December 5 have not yet received orders from Reliance Industries Ltd, the owner of the largest refining complex in the world and a significant Russian customer. Reuters’ email inquiry for responses from the Indian businesses received no response.

Given its connection to the western banking system and its exportation of refined goods, Reliance is reportedly wary of responses from foreign institutions.

The cap mechanism is plagued by far too many unknowns. We don’t know what the payment method would be or what the cap level might be.

However,  Indian Oil Corp, the leading refiner in the nation, has placed orders for Russian cargoes, including for loading some parcels after December 5.

IOC wants to secure barrels, and added that Indian refiners have the option of increasing purchases under their term agreements with suppliers, primarily in the Middle East, to meet their contractual obligations if they experience difficulties obtaining Russian supply.

Reuters’ email requesting comment from the IOC received no response.

Contrarily, sources familiar with Nayara Energy’s crude procurement indicated that the private refiner, which is majority owned by Russian firms, intends to keep importing Russian oil.

Most foreign banks ceased doing business with Nayara after western sanctions against Russia and Rosneft, which controls around 49% of the refiner, were put in place, leaving the refiner to conduct business through Indian institutions.

Russia’s biggest crude oil buyers right now are India and China.

India was a minor, insignificant importer of Russian crude oil before the Russian invasion of Ukraine. After Western consumers began to avoid Russian petroleum, India and China rose to prominence as major markets for Russian oil supplies.

According to estimates, Russia even surpassed OPEC giants Saudi Arabia and Iraq to become India’s top crude oil supplier in October, shipping a record-breaking 946,000 barrels per day (bpd).

PAYMENT, INSURANCE

Refiners are wary of sanctions, but in order to conduct business, India and Russia have established alternatives to western insurance, banking, and maritime services.

With insurance for the cargo, P&I, hull, and machinery that has been provided by Russian firms, Indian refiners purchase Russian oil on a delivered basis. Russian insurance is accepted in India.

Additionally, India recently developed a system to settle commerce in rupee terms with overseas countries using vostro accounts of international banks in India.

According to a representative of the ministry of commerce, on Tuesday, Russia’s Gazprombank created a vostro account with UCO Bank while VTB Bank and SberBank opened accounts with their own branch offices in India.

The central bank of India unveiled a new system for rupee-based international trade settlements in July of this year.