Indian banks wary of sanctions for buying Russian oil in excess of price cap

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Some lenders said they would not handle payments exceeding the price limit imposed by the West

Indian banks are concerned that they may not be able to process payments for Russian oil if they breach the price cap set by the EU and G7 countries, Millennium Post reports, citing oil industry sources.

India, along with China, emerged as a key buyer of Russian crude after Western countries shunned supplies due to sanctions. New Delhi has been a top importer of Russian oil for six consecutive months, enjoying steep discounts offered by Moscow. However, this may change following OPEC+ production cuts, which have helped to drive Urals crude close to the $60 per barrel price cap.

Earlier this month, the OPEC+ group, which includes major oil producers Russia, Saudi Arabia, Iraq and Kuwait, shocked the markets by announcing output cuts of 1.16 million barrels per day (bpd) on top of those already introduced in November. The announcement sent Brent crude prices soaring above $85 a barrel.

The State Bank of India and Bank of Baroda have informed refiners that they will not handle payments for Russian crude bought above the $60 a barrel price limit, the outlet said, citing an unnamed refinery executive. Indian lenders are monitoring prices at loading ports, before shipping and logistics costs are added, said the executive who is involved in seeking financing for his company’s purchases of Russian oil.

While India imports Russian oil on a delivered basis, banks are demanding details on so-called free-on-board prices to ensure they comply with the price ceiling. Oil prices above the cap will make them exposed to sanctions, which ban the use of Western shipping, banking and insurance.

However, Russia can still transport and sell crude at any price if it doesn’t use G7 and EU services or vessels.

An executive from a Mumbai-based refinery has suggested that buyers could turn to other banks which are less exposed internationally and would be willing to process payments without worrying about breaching sanctions.

The development comes as the International Energy Agency (IAE) reported that Russian oil exports surged to their highest level in almost three years in March, despite Moscow’s production cut and Western restrictions. The IEA also revealed in April that sanctioned seaborne crude was selling above the price cap for the first time since the penalties were imposed.

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