India’s top refiner Indian Oil Corporation (IOC) will no longer accept cargoes of Russian crude oil and Kazakh CPC Blend on a free-on-board (FOB) basis due to insurance risk, according to a tender notice and a source familiar with the matter.
The letter was sent on Monday to traders who submit cargo offers into IOC’s regular crude oil buy tenders. It was in December 2021, during the visit of Russian President Vladimir Putin to India, that IOC renewed its contract with Rosneft to buy up to 2 million tonnes (MT) of crude oil in 2022 from the Russian major through the Black Sea port of Novorossiysk.
With operations in the Black Sea getting affected after several ships getting hit, insurers were hesitant to give cover to shipping majors in the region and were also charging an additional war premium of 2-3 percent too. However, the reports did not specify whether the company will be considering the import of Russian crude on a cost, insurance, and freight (CIF) basis.
IOC bought 2 million barrels of Russian Urals for the first time in two years earlier this month. A source at another state refiner, Bharat Petroleum Corp, said his firm mostly buys Urals on a delivered basis, whereby freight and insurance are included, unlike in FOB.
The source added that traders were not offering Russian barrels. Russia and Kazakhstan are small suppliers to India. In December, the two countries accounted for 64,000 barrels per day (BPD) out of 4.7 million BPD.
Based on the FOB mechanism, it is the buyer who charts a vessel and lifts the crude from a terminal in the producing country and also pays for the cost of shipping the crude. On the other hand, the CIF model is the one that India used for its crude transactions with Iran since sanctions started. In this model, the seller incurs the costs and pays the freight, including insurance charges.
IOC first entered into a deal with Rosneft in February 2020, as a strategy to diversify its crude basket, which was heavily dependent on the Middle East. India at present is importing crude from at least 25 countries. The 2020 deal was also to import around 2 MT of crude through Novorossiysk.
Based on the deal, though the company could have purchased around 1.7 MT of crude oil in 2021, it bought only a single parcel as the cost of importing crude from Russia was not viable for India, compared to that of its main source, West Asia.
IOC is a shareholder in several Rosneft production projects like Vankorneft and Taas-Yuryah. It was also in talks with Russian petrochemicals company SIBUR for setting up a dual-feed cracker along with downstream units at IOC’s Paradip refinery in Odisha.