Russia’s crude grades from the Arctic, which used to be sold in Europe before the EU embargo, are now heading East to the two biggest buyers of Russian oil since the invasion of Ukraine—China and India.
Russia’s grades from the Arctic – Arco, Arco/Novy Port, and Varandey – have been selling at deep discounts in China and India as the EU embargo and the G7 price cap have further pushed more Russian crude to customers in Asia that have not joined the Price Cap Coalition, according to trade data and sources cited by Reuters.
“All these Arctic crudes usually go to the EU but now they have to go elsewhere,” a Singapore-based trader told Reuters.
India imported at the end of 2022 its first cargo of Varandey crude from the Timan-Pechora oilfields operated by Lukoil, per sources and vessel-tracking data from Refinitiv.
Before the Russian invasion of Ukraine, India was a small marginal buyer of Russian crude oil. After Western buyers started shunning crude from Russia, India became a top destination for Russian oil exports alongside China.
Russia overtook Iraq to become the single-largest oil supplier to India in November, as Indian refiners raced to stock up on Russian oil ahead of the December 5 price cap and associated bans on transportation services for Russia’s crude.
In China, independent refiners have seen their refining margins jump in recent weeks as they have been able to negotiate steeper discounts for their preferred Russian crude grade, ESPO, even if they buy it above the G7 price cap.
While China hasn’t joined the Price Cap Coalition, the fact that a price cap now exists gives the world’s top crude oil importer, as well as other buyers of Russian crude such as India, more bargaining power to negotiate steep discounts for the Russian crude even outside the price cap mechanism, analysts say, writes Tsvetana Paraskova for Oilprice.com
In another development, Taliban Signs Oil Deal With Chinese, writes Julianne Geiger also for Oilprice.com
The Taliban’s signing of an international oil deal with the Chinese was televised on Thursday–its first international agreement since it took over Afghanistan in August 2021, according to the Diplomat.
The Taliban struck a 25-year deal with China-based Xinjiang central Asia Petroleum and Gas Co (CAPEIC) for the Amu Darya oil project. Under the terms of the deal, CAPEIC will invest $150 million per year over the next three years in Afghanistan, then $540 million per year for the next 22 years. The Taliban will carry a 20% share in the project but will have the option to increase its stake to 75%.
The Amu Darya oil project will encompass a 4,500 square kilometer area that will be explored over the next three years, during which between 1,000 and 20,000 tons of oil will be extracted, the Taliban’s Acting Minister of Minerals and Petroleum Shahabuddin Dilawar said.
The crude from Amu Darya will be refined in-country, but the Chinese could build the refinery.
The Amu Darya basin was previously estimated to hold up to 87 million barrels of crude. CNPC made a deal with the former republic government in Afghanistan over a decade ago to exploit the same resources. Under that former deal, the Afghani powers at the time claimed to be ready for production, according to the Diplomat, but work was stopped shortly thereafter. Since then, the project and its prospects haven’t been the topic of much discussion.
Russia also signed a preliminary deal with the Taliban back in October to provide key fuels to Afghanistan—although officially, Russia recognizes it as a terrorist group, Iran has showed a willingness to trade with the Taliban as well.
The Taliban’s rule over Afghanistan is precarious and unrecognized by the world. And like Russia, the Taliban has found itself mostly cut off from the global banking system.