MUMBAI: The shift in India’s oil imports to favor Russian crude has been a remarkable development in recent times. Previously, India relied heavily on suppliers from the Middle East, the US, and West Africa. However, Russian oil now accounts for a staggering 46% of India’s oil imports, compared to less than 2% before the Ukraine invasion, according to data from analytics firm Kpler. This shift has not only provided a boost to the Russian economy but has also allowed India to acquire cheaper fuel, helping to control inflation.
The average cost of Russian crude delivered to Indian shores in April was $68.21 per barrel, significantly lower than the price of Saudi oil at $86.96 per barrel.
Despite this surge in Russian oil imports, there are concerns about the sustainability of this trend. As discounts on Russian crude narrow for India, the Kremlin is facing increasing financial pressure, requiring funds to address domestic threats to President Vladimir Putin’s rule. While the shift has been beneficial for both Russia and India so far, there are factors that could limit further expansion. Infrastructure plays a significant role, as the refineries visible from Elephanta Island were not designed to process Russian crude.
The Bharat Petroleum Corp Ltd (BPCL) site, for example, was built for processing less sulfurous domestic Indian crude. Increasing the intake of Russian crude would require additional investments in infrastructure and potentially expensive re-purposing. Refinery configurations and the fear of overdependence on a source that could face sanctions-induced interruptions also pose limitations.
Furthermore, India lacks the commercial tanks necessary for blending different types of oil, unlike countries like China. However, blending Russian crude in storage tanks could make it more suitable for Indian refineries struggling to process it, potentially allowing for a modest increase in imports. Estimates suggest this increase could range between 200,000 and 400,000 barrels per day.
However, there are concerns that a long-term shift towards Russian crude could damage relations with existing partners, particularly oil producers in the Middle East. Indian refiners have mainly focused on spot purchases of Russian oil, and discussions for securing more stable flows from Russia have been progressing slowly.
The willingness of state-owned refiners to increase their intake of Russian barrels will be crucial for any further surge in imports. The government would need to provide the necessary guidance and incentives to induce refiners to increase their purchases.
The politics surrounding such purchases cannot be ignored, as India and Russia have a close relationship deeply rooted in security, with Moscow being India’s largest supplier of weapons. On the other hand, the US is concerned primarily with ensuring that India’s oil purchases remain cheap, minimizing revenues to the Kremlin while maintaining the flow of tankers.
In summary, while India has significantly increased its reliance on Russian crude oil imports, there are challenges that could limit further expansion. Infrastructure limitations, potential sanctions, concerns about damaging relations with existing partners, and the need for government support all factor into the equation. However, the political and economic dynamics between India and Russia continue to play a significant role in shaping the future of their oil trade relationship.
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