In recent times, India’s reliance on cheap Russian crude oil has faced a significant shake-up as traditional suppliers from the Middle East return with more attractive conditions. This transformation is driven by various factors that have prompted India to reassess its energy procurement strategy.
Table of Contents
The Shift Away from Russian Crude
India’s dependence on Russian oil has long been a crucial aspect of its energy policy. However, recent shifts have signaled a departure from this reliance. Oil Minister Hardeep Puri emphasized this transition when he stated, “Our dependence on Russian oil is going to decrease sharply.” This assertion reflects a growing sentiment in India that the cost viability of oil from the Gulf region has become much more attractive.
Russia’s Dominance and Its Decline
Following Russia’s invasion of Ukraine, India’s consumption of Russian crude oil surged dramatically. This surge effectively displaced Saudi Arabia and Iraq as India’s primary oil suppliers. Russian oil went from being a negligible component of India’s oil imports to accounting for nearly half of its supplies in May.
Rising Prices and Diminishing Discounts
Despite the initial appeal of cheap Russian crude, rising prices have eroded the discount on Russian oil. This has reduced the attractiveness of spot purchases from Russia, driving India to explore alternative sources, including those with term contracts. Moscow’s plans to extend export curbs have further incentivised India’s diversification efforts.
Decreased Imports from Russia
The data speaks volumes about India’s changing oil import dynamics. In August, imports from Russia declined for the third consecutive month, falling to 1.57 million barrels a day, a 24% decrease from the previous month and the lowest since January. Despite this decline, Russia remains India’s top oil supplier. Concurrently, Indian refiners reduced shipments from Iraq, another significant source of crude, by 10%, while imports from Saudi Arabia saw a substantial increase of 63% in a single month.
India’s Pragmatic Approach
Oil Minister Hardeep Puri reiterated India’s commitment to securing its oil supply, stating, “I am very clear. We are in the market today, and we will buy from whomever.” He emphasized that the government is not involved in the buying decisions of India’s refiners but instructed them to adhere to the Group of Seven price cap on Russian oil.
Economic Vulnerability and Political Concerns
India’s energy reliance is significant, with over 86% of its oil demand being met through imports. This makes the country highly susceptible to fluctuations in crude prices. Economists estimate that every $10 increase in oil prices leads to a more than $10 billion rise in the current account deficit and lowers the GDP by about 0.5%. Additionally, rising fuel prices adversely affect households, posing a major concern for Prime Minister Narendra Modi’s government, particularly as the country approaches elections. In response, New Delhi has taken measures to mitigate the impact, such as reducing cooking fuel prices for all consumers by 18% and keeping diesel and gasoline prices unchanged since May of the previous year.
In conclusion, India’s energy landscape is in flux as it recalibrates its oil import strategy in response to changing geopolitical and economic factors. The country’s diversification efforts underscore the need for flexibility and adaptability in securing its energy future amidst global uncertainties.
