The ongoing war between Russia and Ukraine, which has resulted in the largest oil supply crisis in decades due to sanctions, has also provided India with the opportunity to meet its energy needs at affordable prices. The two largest state-owned oil companies, Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation Limited, have bought nearly five million barrels of Russian crude in recent weeks.
Russia is the second largest oil exporter in the world after Saudi Arabia. However, Moscow is forced to slash its crude oil following Western sanctions related to its military operation against Ukraine, which have led many countries to suspend their purchases of Russian oil.
This has certainly attracted attention in Western countries because this expensive purchase is the opportunistic purchase of the world’s third largest crude importer instead of a significant structural change. However, that could change if the dark international politics and the future trajectory of Russian oil prices shed some light.
India bought three million barrels of Russian crude oil last week at 20% below world standard prices, with shipping and insurance costs accepted by the seller. On Wednesday, Reuters reported that Indian Oil, the country’s leading refiner, had bought an additional three million barrels of crude from Russia’s Urals and private refinery Nayara Energy had acquired 1.8 million barrels.
With Brent crude futures at $ 117, it would be difficult for a country with an energy import of 4% of GDP to reject these large discounts. India imports more than 85% of its total crude oil demand: 1.25 billion barrels over the past 12 months, according to Credit Suisse, which estimates annual imports could rise to 1.5 billion barrels a year.
But despite India’s frustration at meeting its needs, “deals” in Russia are now small. The processing of a significant amount of Russian Ural crude oil will incur additional costs for Indian refineries. The long trade route between Russia and India is already subject to buy volatility. But the main uncertainty is the risks associated and emerging from the situation in Ukraine.
For one, oil prices have been very volatile since the start of the war last month. While Indian buyers are considering a drastic shift to Russian oil, it would make little sense to alienate Middle Eastern suppliers who supply more than 60% of imports or invest in new transport capacity until further clarification on prices and sanctions on Russia.
It is clear that India’s decision to buy Russian crude oil is based on a realistic assessment, and that energy exemptions from Western sanctions indicate that India’s oil imports have not been violated. As already mentioned, India imports about 85% of its crude oil demand, of which the United States accounts for 8%. In contrast, Russian oil imports to India are less than 3.0 percent.
While India’s state oil companies are buying crude oil at a discount from Urals, the private sector, especially Reliance, which operates the world’s largest refinery in Jamnagar, Gujarat, is likely to back away from such imports due to its market exposure and fundamental fears. Affected by US sanctions.
Author: Ismail Valverde Ambris