As more shippers and middlemen join the trade, the impact of Western sanctions against Moscow is lessened.

Since the full-scale Russian invasion of Ukraine, in February 2022, exporters had to offer steep discounts to shipping companies and traders so that they would move their crude oil and risk sanctions.

The United States and European Union have imposed a $60 price limit per barrel for Russian oil sales. This means that Western shippers and insurance companies can only take part in the Russian oil trade when the oil is below this price.

Five traders and Indian officials said that Russian exporters struck deals to deliver their flagship Urals crude oil to Indian refiners this month at a discount of $3.50 to $3.50 compared to Brent crude, the global benchmark.

This is the smallest discount on Urals since Reuters began monitoring Russian oil prices for India in early 2023. The discount then was as high at $20 per barrel. Brent oil is currently trading at about $82 a barrel. However, freight costs also play a role.

The declining discount is a sign that Russia has found new buyers for their oil. India, which has no sanctions against Moscow, became the largest buyer of Russian crude oil by sea after European refiners stopped importing.

This also reflects a rise in the number of shippers transporting Russian oil.

According to Michelle Wiese Bockmann of maritime data group Lloyd's List Intelligence, "You're seeing more ships circumventing sanctions by operating outside Western jurisdiction."

According to Lloyd's List Intelligence, over 630 tankers, some older than 20-years-old, are involved in the shipping of Russian oil and sanctioned Iranian crude.

According to the data group, most of these operators are located in China or the United Arab Emirates and represent about 14.5% the global tanker fleet.

According to Lloyd's List intelligence, the shadow tanker fleet numbered between 280 and 300 vessels before the Ukraine war.

According to traders, the price cap created an initial shortage of ships to transport Russian oil to India and China. Freight rates reached up to $20 million for a tanker on a one-way voyage.

They say that freight costs for shipping Russian crude oil to India fell to $5-5.5 millions in June, a level close to the pre-war levels. The Russian oil companies will earn more money from their sales due to lower freight costs.

The drop in tanker numbers comes despite the fact that U.S. sanctions against Sovcomflot, a Russian shipping company, have led to 15 tankers being removed from Moscow's fleet.

As a result, Russian exporters are able to charge higher rates. According to LSEG, the average price of Urals Oil at Baltic ports this year has been $69.4 per barrel, compared to $54.8 during the same period in 2023.

The Russian Energy Ministry did not immediately respond to a Reuters' request for comment.

Sanctions still in effect

The Kremlin Treasury and Russian oil exporters are still getting less than before the war.

Although Russian oil does not trade in Europe at the moment, a theoretical assessment values Urals crude around minus $10 compared to the "dated Brent benchmark". Before the war it was usually sold in Europe for plus or minus $1-2 a barrel.

Western powers claim that sanctions have deprived Russia of $100 billion in lost revenues from oil, on top of the $280 billion confiscated in central bank assets. This estimate was seen by Reuters.

Gazprom has also suffered heavy losses after EU sanctions slashed imports of the Russian gas monopoly.

Officials from the United States say that they will make it more costly for Russia to use its shadow fleet to sell oil. Western officials estimate that Russia has spent $8 billion to boost its shadow fleet.

"Russia continues to invest billions of dollars in new shipping infrastructure including new vessels to operate outside of the price cap regime. The money that would have otherwise gone to tanks, according to a U.S. Treasury spokeswoman, is now going to tankers.

The G7 leaders met in Italy last week and discussed the importance of tightening sanctions against Russia.

Still Cheap

Even with a smaller discount, Russian crude remains cheaper for Indian refiners compared to competing supplies such as Saudi Arabia.

Ship tracking data revealed that Indian purchases of Russian crude oil hit a record high for nine months in April. India is the world's second-largest oil importer after China.

Source with an Indian refiner said, "We're taking as much Russian crude oil as possible to save on import costs". He asked to remain anonymous as he was not permitted to speak to media.

The Indian Prime Minister Narendra Modi promised to strengthen energy ties between Russia and India.

The Chinese government has also pledged a closer partnership with Moscow, and stated that energy cooperation would grow as tensions rise with the West. Reporting by Jonathan Saul, Reuters, MOSCOW; Nidhi verma, NEW DELHI; additional reporting by Timothy Gardner, WASHINGTON. Editing by Mark Potter.