Russia pulled off a remarkable achievement this year to become India’s number one source of crude oil imports. This is despite public expression of displeasure by western countries. Since the beginning of the Russia-Ukraine war, India has been questioned for continuing to court Russia for cheap crude. The Indian government has made it clear that it will act in accordance with the national interest and points out that European countries are still buying Russian crude and gas despite several sanctions announced by NATO and the European Union.
New Delhi has made its stance clear on its purchase of Russian oil despite the US-backed G7 plan to cap the price of Urals crude to stop Moscow from profiting from its aggression in Ukraine.
In October, Moscow became India’s top oil supplier, surpassing traditional sellers such as Saudi Arabia and Iraq. Imports from Moscow accounted for 22% of India’s total crude imports in October. This is a tremendous jump considering Russian oil made up just 0.2% in the total imports in the year leading up to the Ukraine invasion in February. Moscow supplied 9.35 lakh barrels per day (bpd) crude oil to India in October, the highest in the history.
Why is India keen on Russian crude
India is the third biggest crude oil consumer in the world and one of the biggest importers. The nation relies on imports to meet more than four fifths of its energy needs. At the time when various geopolitical situations have led to a free fall in the value of the Indian currency, and the domestic economy is burdened by runaway inflation and high fuel prices, India cannot afford to ignore the Russian offer for cheap crude oil supplies. It has no option but to grab the offer, even at the risk of angering the western alliance.
India’s crude oil imports
India remains vulnerable to spikes in crude oil prices with 85% of its daily requirement of 5 million barrels is met through imports. Currently, the country looks to keep all its options open with the aim of buying the cheapest crude oil available. According to earlier estimates by the Reserve Bank of India (RBI), a 10% spike in oil prices could depress the real GDP growth by 20 basis points over the baseline.
In May, Russia was offering India a $16 per barrel discount on the average import basket price of $110 a barrel. While it was later reduced to $14 a barrel in June, even then India saved on precious money as the Indian crude basket averaged $116 a barrel. In August, Russian crude oil was cheaper by $6 a barrel. This was at the peak of the Russia-Ukraine war when countries sweated to buy crude.
India never openly criticised Russia for the geopolitical conditions that it has caused for the world to suffer from. Indian policy makers, however, began to express concerns about the impact of the conflict on the global economy, food and fuel prices. While Prime Minister Narendra Modi has expressed unhappiness over the continuing conflict, external affairs minister S Jaishankar’s visit to Moscow assumes great significance as hopes regarding India’s role in de-escalating the war gained traction.
India’s changing crude partners
The Russian invasion caused a swift change in the composition of India’s crude imports. Currently, New Delhi imports from a mix of countries, but the top three exporters account for 60% of total crude imports. These three are Russia, Iraq and Saudi Arabia. Before the invasion, the order looked a bit different with Iraq leading, followed by Saudi Arabia and the United Arab Emirates (UAE). At one time, Colombia was also a larger supplier of crude to India.
India is looking to diversify its import sources of crude oil further and is considering purchase from countries such as Guyana, Canada, Gabon, Brazil and Colombia. These countries are already supplying crude but not in significant quantities. Policymakers have long red flagged India’s crude oil dependence and it is a wise move to not only diversify oil partners but also to look at other energy sources so that India can be energy self-reliant and hence unaffected by situations outside.
The state-run oil refiners are keeping their options open amid the uncertainties caused by the Russia-Ukraine war. They expect the possibility of a change in flows soon with most of West Asian crude going to meet the need of the European markets. They are clear about the need to diversify their supplies to ensure a steady flow of crude.
The threat of Western sanctions
Many have been asking the question since the beginning of the war whether India can cut off ties with Russia in the face of western criticism. It has been more than eight months since the start of the Russia-Ukraine war. While the pressure on the Indian government to comply with western sanctions by cutting off oil trade, New Delhi chose to ignore such criticism. Experts believe there is no reason for India to quit the deal now and the rising oil imports from Moscow is a testament to the same. Were India to give in to the pressure from the West, it would have already done so instead of waiting so long.
New Delhi has not only been reluctant to endorse the G7 proposal to cap the price of Russian oil but has also said that it is left with no choice but to buy Russian oil to check the rising inflation at home. This is also the time when the price of oil is breaking the back of governments worldwide as energy prices went off the roof amid Russian invasion.
Indian ministers have said that India’s fundamental obligation is towards its citizens. The country’s independent policy on the Ukraine conflict has won praises from President Vladimir Putin. Putin recently underscored India’s importance in global affairs stating that it will grow in the days ahead and that the future belongs to India. He even went ahead and called Prime Minister Modi a true patriot. All of this signals one thing, the strategic importance of crude oil and those who hold this precious asset.