Kathmandu, Jan 3: India is grappling with a significant challenge in its oil supply chain as a result of US sanctions on payments for Russian oil. Following the Russia-Ukraine war, India had increased its purchase of Russian oil, but complications in making payments due to sanctions are causing disruptions.

A report from Bloomberg reveals that cargo ships carrying crude oil from Russia, previously destined for India, are now redirecting towards Malacca Bay. Victor Katona, the chief crude analyst at Kepler, suggests that China appears to be intervening to assist the Russian tankers navigating through the seas.

Tracking data indicates that five ships laden with Russian oil are heading towards the Strait of Malacca, with the NS Century currently near Sri Lanka. The recent tightening of US sanctions on Russia has hindered India’s ability to make payments in US dollars for the increased oil purchases, leading to a decrease in the number of oil tankers arriving from Russia last month.

Despite India’s substantial oil imports from Russia at subsidized prices since the onset of the Russia-Ukraine conflict, payment-related issues have resulted in a notable decline in purchases. Kepler reports that Russian oil imports last month were the lowest since January 2023.

One of the primary factors contributing to this decline is the recent ban imposed by the US and its allies on five Russian vessels, including the NS Century, preventing them from exporting oil above $60 per barrel. The US has set this price cap in consideration of the ongoing war, determining that Russian oil cannot be sold for more than $60 per barrel. The NS Century, capable of carrying 700,000 barrels of oil, has been affected by this restriction.

In November 2023, a Russian tanker, the NS Century, loaded with crude oil, lingered near the Indian coast for over 10 days, raising questions about India’s willingness to allow it to dock. The vessel was reportedly en route to Vadinar port in Gujarat via South Korea.

While India has maintained a neutral stance in the Russia-Ukraine conflict, its large-scale oil purchases from Russia at concessional rates have put pressure on maintaining relations with the United States. Despite Russia’s suggestion to pay in Chinese yuan, India has been hesitant, citing discomfort in its relationship with China. Reuters reported in October 2023 that at least seven oil shipments to India had arrived without payment.

The complex interplay of global sanctions, oil prices, and geopolitical considerations is putting India’s oil supply chain under strain, prompting a reevaluation of its energy sourcing strategies in the face of evolving international dynamics.