In a move that could further strain relations between the West and India, Reliance Industries, India's largest private refiner, has signed a historic 10-year deal with Russia's state-owned oil giant Rosneft. The agreement is valued at roughly $13 billion annually based on current prices. This marks the biggest ever energy deal between the two countries.

The deal will see Rosneft supply nearly 500,000 barrels of crude oil per day (bpd) to Reliance, accounting for a significant 0.5% of global oil supply. This strengthens energy ties between India, the world's fastest-growing energy market, and Russia, which is currently under heavy Western sanctions due to its invasion of Ukraine.  

“Russia is currently under western sanctions over its ongoing war with Ukraine,” the several media reports highlight. While details remain confidential, Reliance did confirm they work with international suppliers, including Russia, and deals are based on market conditions.  

This strategic move by India comes at a time when the country relies heavily on Russian oil. With sanctions causing a global oil price hike, India has benefitted from cheaper Russian crude, currently priced $3 to $4 per barrel lower than rival grades. Notably, Russia has become India's largest oil supplier after the European Union halted imports in response to the war.  

The Reliance-Rosneft deal is expected to further challenge competitors, particularly those in the Middle East like Saudi Arabia. India's growing importance as a driver of global oil demand, especially with China's slowing growth, makes it a battleground for major oil producers.  

Under the terms of the agreement, Rosneft will deliver a mix of Russian crude grades and fuel oil to Reliance's massive Jamnagar refinery complex in Gujarat. The details include:  

•              20-21 Aframax-sized cargoes (80,000 to 100,000 metric tons) of various Russian crude grades delivered monthly.  

•              Three cargoes of about 100,000 tons each of fuel oil delivered monthly.  

•              Annual review of pricing and volumes to reflect market dynamics.

This significant supply boost represents nearly half of Rosneft's seaborne oil exports, potentially limiting availability for other traders and intermediaries. Notably, Reliance previously purchased 3 million barrels of crude per month from Rosneft in 2024, and Rosneft has been a regular supplier through intermediaries.  

The deal, approved by Rosneft's board in November, will commence deliveries in January 2025 and extend for ten years with a potential ten-year extension. Pricing details remain confidential, but media reports suggest premiums for light sweet grades like ESPO, Sokol, and Siberian Light to be set against Dubai quotes. The majority of the supply, however, will be medium-sulphur Urals crude, popular with Indian refiners, priced at a discount of $3 per barrel to Dubai quotes.  

This historic deal has significant implications for the global oil market and geopolitical landscape. It strengthens India's energy security while potentially straining relations with the West. The coming months will reveal how this deal impacts global oil prices and competition among major producers vying for a share of India's booming energy market.