Russia’s largest oil producer Rosneft ROSN.MM and India’s top refiner Indian Oil Corp IOC.NS agreed to use the Asia-focused Dubai oil price benchmark in their latest deal to deliver Russian oil to India, three sources familiar with the deal said.
The decision by the two state-controlled companies to abandon the Europe-dominated Brent benchmark is part of a shift of Russia’s oil sales towards Asia after Europe shunned Russian oil following Russia’s invasion of Ukraine more than a year ago.
Both benchmarks are denominated in dollars and set by S&P Platts, a unit of U.S.-based S&P Global Inc SPGI.N, but Brent is mostly used by European oil majors and traders, whereas Dubai is heavily influenced by Asian and Middle Eastern oil trading.
Rosneft’s chief executive Igor Sechin said in February that the price of Russian oil would be determined outside of Europe as Asia has emerged as largest buyer of Russian oil since the West imposed progressively tighter sanctions on the export.
Under the new deal, announced on March 29, Rosneft will nearly double oil sales to Indian Oil Corp IOC.NS, two of the sources told Reuters.
IOC and Rosneft did not immediately respond to Reuters emails seeking comment on the details of the agreement, which have not been previously reported.
Russian Deputy Prime Minister Alexander Novak said on Tuesday that Russian oil sales to India jumped 22-fold last year, but he did not specify the volume sold.
Rosneft would sell up to 1.5 million tonnes (11 million barrels) each month, including some optional quantities, to IOC in the new fiscal year from April 1, the two sources said.
They said that in 2022/23, IOC had a deal to buy 3 million barrels of Urals grade with an option to double the quantity every month priced at differentials to dated Brent on a delivered basis.
The new contract includes Urals crude, shipped from Russia’s European ports of Primorsk, Ust-Luga and Novorossiysk, and Sokol oil exported from Sakhalin which will be sold at a discount of $8-$10 per barrel to Dubai quotes on a delivered basis, three sources said.
The larger volumes and change in Russian oil pricing highlight closer ties between Moscow and India, which has now become the largest buyer of seaborne crude from Russia.
Indian refiners rarely bought Russian oil in the past due to higher freight costs compared with Europe, but after Urals prices fell to historical lows Russia has now replaced Iraq as top oil supplier to India in the last few months, data from trade sources showed.
Russia has been rerouting its energy supplies from traditional markets in Europe to Asia, mainly India and China, since the West imposed wide-ranging sanctions, including an embargo on seaborne Russian oil imports.
The European Union nations stopped buying Russian oil from Dec. 5 and the Group of Seven (G7) countries joined the EU in imposing a price cap on Russian crude of $60 per barrel. The move was aimed at cutting Russia’s oil revenue while maintaining stability on the global oil market.
India was the biggest buyer of Russia’s benchmark Urals grade crude in March. Deliveries to India are set to account for more than 50% of all seaborne Urals exports last month, with China in second place.
China, which buys Russian Urals at prices pegged against either dated Brent or ICE Brent, doubled its purchases of Urals oil in the first half of February compared to the same period of January, according to traders and Refinitiv Eikon data.