India imported a record 1.62 million barrels per day of Russian oil in February, up 29 per cent from January’s 1.26 million barrels a day, which was also a record.
- It is now higher than combined imports from traditional suppliers Iraq and Saudi Arabia.
- The rise in Russian imports has been at the expense of Saudi Arabia and the United States. Oil import from Saudi fell 16% month-on-month and that from the U.S. declined 38%.
- Refiners continue to snap up plentiful Russian cargoes available at a discount when compared with other grades . And this oil is converted into petrol and diesel at refineries and exported to Western markets like Europe.
- After Russia invaded Ukraine in February 2022, many Western countries and their companies shunned purchase of Russian crude oil.
- As mounting international pressures lowered appetite for its crude oil elsewhere, Russia began offering steep discounts to oil refiners in India and few other countries on direct sale of their crude oil.
- India being the world’s third-biggest consumer and importer of crude oil, utilised the offer to ramp up purchase of oil at cheap prices.
- From a market share of less than 1% in India’s import basket before the start of the Russia-Ukraine conflict in February 2022, Russia’s share of India’s imports rose to 1.62 million barrels per day in February, taking a 35% share.
Why has India continued oil purchase from Russia?
- Unprecedented surge in global commodity prices led to inflationary pressures. The Indian basket of crude oil prices also soared to as high as $130 per barrel.
- India’s retail inflation (measured by Consumer Price Index or CPI) accelerated to 8-year high of 7.79% in April 2022, thus implying most of India’s inflation was imported. Rapidly growing economy of India requires affordable energy in order to improve the lives of its citizens.
- Russia offered steep discounts in the initial phase soon after the Ukraine war began – $20-30 per barrel. Though they have narrowed significantly and stand at just $7-8 on a delivered basis. However, it is still cheaper than viable alternatives.
- Russia has long-standing trade and strategic relationships with India, and along with offering steep price discounts is also accepting payments (through VOSTRO accounts) in local currency to keep trade flows strong.
- While India — the world’s third-largest consumer of crude oil — depends on imports to meet over 85% of its oil requirement, the country is a net exporter of petroleum products as its refining capacity of 250 million tonnes per annum, which is higher than its domestic demand.
- As a large refining hub that has ramped up purchases of discounted Russian oil, India now finds itself playing an increasingly prominent role in the global crude oil and refined products supply map.
- While the European Union (EU) weans itself off refined petroleum products from Russia, Indian refiners, particularly private sector companies, are rushing in to fill the gap.
- In the run-up to the EU’s ban on Russian petroleum products from February 5 — owing to the Ukraine invasion — India saw its refined product exports to the region rise for five straight months.
The exports touched 1.90 million tonnes in January, the highest monthly volume in the first 10 months of the current fiscal.
- In the four months leading to the EU’s ban on Russian refined products, the region’s share in India’s petroleum product exports rose from 16% to almost 22%.
- India’s petroleum product exports to EU countries rose 20.4% year-on-year in April-January to 11.6 million tonnes.
- While the West was irked at India’s rising purchases of Russian oil in the aftermath of Moscow’s invasion of Ukraine. Major Western powers like the US are comfortable with the rising supply of Indian refined products to Europe.
- This is mainly because refiners in countries such as India are ensuring that the global oil and refined products market remains balanced and adequately supplied despite Russian oil and products being shunned by numerous countries.
- In fact, a number of experts see higher purchases of Russian oil and rising exports of petroleum products from countries like India as critical for the success of the price caps on Russian oil and refined products which were imposed by G7 countries and their allies without causing a global supply shock.
- This provides an opportunity for Indian refiners – particularly export-oriented private sector companies like Reliance Industries and Nayara Energy – to increase purchases of discounted Russian crude.