Reliance, Rosneft Forge $13b Energy Alliance

Russia’s largest and most valuable state oil company, Rosneft, has agreed to supply nearly 500,000 barrels of crude oil daily to India’s Reliance Industries, which operates the world’s largest refinery, marking the biggest India-Russia energy deal ever, valued at $13 billion per year at current prices.

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The supplies for the 10-year deal will begin shipping in January 2025 and there is an option to extend the agreement for another 10 years. This agreement will account for 0.5% of the global supply and approximately half of Rosneft’s seaborne oil exports from Russian ports.

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Significantly, this deal comes ahead of the planned visit by Russian President Vladimir Putin to India in early 2025 on the invitation of India’s Prime Minister, marking the first visit since the Ukraine conflict and after US President-elect Donald Trump’s statement that he will end the war when he takes office in January 2025.

Western sanctions have led to a significant price reduction of Russian oil, making it at least $3 to $4 per barrel cheaper than competing grades. As of July 2024, India has surpassed China to become the world’s largest importer of Russian oil, which now comprises over a third of its energy imports.

Previously, India facilitated payments for Russian crude in Rupees, Dirhams, and Chinese Yuan. Reliance Industries has agreed to settle oil payments in Roubles, leveraging India’s HDFC Bank and Russia’s Gazprombank for the transactions.

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The Reliance-Rosneft deal is a challenge for competitors, including Saudi Arabia, as India is trying to diversify its oil imports to countries like Russia and Guyana.

Under the agreement, Rosneft will supply 20 to 21 Aframax-sized cargoes (ranging from 80,000 to 100,000 metric tons) of various Russian crude grades, along with three cargoes of approximately 100,000 tons each of fuel oil, every month to Reliance’s Jamnagar refinery in Gujarat. The pricing for the supplied grades is based on differentials to the average Dubai price for the loading month. The premiums set for the light sweet grades are approximately $1.50 per barrel for ESPO, about $2 per barrel for Sokol, and around $1 per barrel for Siberian Light, against Dubai quotes for 2025.