The oil subsidy 2

Discounted Russian crude oil keeps flowing to India:

“It’s amazing that India is buying at these levels because the summer months – June-July – are the lowest in terms of overall demand due to the monsoon. But it seems the price is so good, they are just keeping on buying,” says Viktor Katona, lead crude analyst at data analytics firm Kpler.

The price and its discount to Brent or Dubai are both reported in USD per barrel. But the Russian suppliers tend to avoid US dollars and euros and prefer Chinese yuans or UAE dirhams. In reality, it seems, they have to also accept Indian rupees, which has created a new problem due to the chronic imbalance inherent in Russian-Indian trade:

But with imports from India stagnating, Russia is ending up with an excess of rupees, which its companies have trouble repatriating because of local currency restrictions. Deadlock over a solution has left Russia expecting the surplus to rise further…

Every quarter, the imbalance will likely generate the equivalent of $2 billion to $3 billion that Russia can’t use, according to Bloomberg Economics.

The Russian oil companies might eventually use their rupees to buy Indian assets, from government bonds to shares in refineries to gas station chains, and possibly companies beyond the energy sector. Not their first- or even second-best choice under “normal,” pre-2022 conditions. De-dollarization comes at a cost.

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