India and China Step Up as Russia's New Go-To Refineries for Crude Oil

Europe: Clean petroleum products exports from India and China to Europe are on the rise, indicating that a section of their Crude oil imports from Russia is being re-exported. The oil trade has seen a new pattern emerge in the last few months, with both Crude and products being affected. Following price caps on Crude and products from Russia, India and China have taken the lead in importing Russian oil while Europe and G7 countries have steered clear. Despite the ban on clean petroleum products, Russian exports in Q1 2023 have been 3% higher than the same period last year. The total exports in Q1 2023 also account for 29% of the total exports recorded over 2020, 2021, and 2022, raising questions about the effectiveness of the ban.

According to recent reports, Europe has reduced its intake of clean petroleum products from Russia by 47% when compared to the same period last year. This trend suggests that the continent is gradually distancing itself from Russian goods. Furthermore, the changing trade dynamics in Crude oil have affected product trade, leading to the inevitable arrival of Russian oil in Europe through alternative routes. Notably, China and India, who have emerged as major importers of Russian oil, refined the Crude and exported the finished products to Europe.

To comprehend the role of China and India in the trade shift, examining their Crude oil imports and product exports to Europe is crucial. In Q1 2023, China witnessed a 54% rise in Russian Crude oil imports, which reached 13,467.12 kt in comparison to the previous year's same period (8,740.45 kt). Similarly, product exports to Europe experienced a boost of 24%, reaching 390.49 kt compared to the same period last year, and 17% higher than the entire year of 2021.

India's Crude oil import volumes from Russia in Q1 2021 were significantly higher than Q1 2022, with a shipment of 17,645.38kt compared to 1,597.49kt respectively. This surge in India's import of Crude oil can be attributed to the country's attempt to capitalize on lower prices. The imported Crude oil from Russia is processed in India and is then exported to European ports, leading to an 18% increase in Q1 cargoes compared to the same period last year. Furthermore, cargoes recorded since the beginning of 2023 have made up for 37% of 2022 cargoes. These statistics indicate that India is compensating for the Russian products, which boosts tonne miles and supports freight rates.

The ban on Russian Crude and products by the G7 and the European Union has caused a shift in trade routes. India and China, for instance, are benefiting from lower prices as they continue to purchase Crude oil for domestic use and export refined products to third countries. It's worth keeping a close eye on India's Crude imports for the rest of 2023 to see if they'll continue to grow at similar levels. With the presence of price caps, if India continues to refine Russian oil for Europe, it'll create more value along the route, offering higher freight rates for product tankers.