 "How India saved $13 billion by importing Russian crude oil")
India has saved billions of dollars this financial year – and did so by importing crude oil from Russia.
So says a study from the Investment Information and Credit Rating Agency (ICRA).
India is one of the biggest consumers of crude oil around the world as well as one of the largest importers.
India imports oil from Russia, Saudi Arabia, Iraq and the UAE as well as liquefied natural gas (LNG) from Qatar through the Strait of Hormuz, which is a narrow sea passage between Oman and Iran.
But how did India save billions of dollars? And why did this happen?
Let’s take a closer look:
How did India save billions?
Russia is India’s top supplier of crude oil.
According to The New Indian Express, New Delhi’s share of crude imports from Russia spiked to 36 per cent in the 11 months of the 2024 fiscal year.
That’s up from just two per cent in the 2022 fiscal.
Meanwhile, oil imports from West Asian nations such as Saudi Arabia, the UAE and Kuwait fell to 23 per cent from 34 per cent.
According to an ICRA report, the imputed unit value of imports from Russia was 16.4 per cent and 15.6 per cent lower than the corresponding levels from West Asia in FY 2023 and 11 months of FY2024, respectively.
Impact Shorts
More ShortsThe report quoted energy cargo tracker Vortexa as saying New Delhi imported 1.36 million barrels of crude oil per day from Russia in March 2024.
This, compared to 1.27 million barrels per day in February.
New Delhi imported $3.61 billion worth of crude oil from Russia in February 2024 and $4.47 billion in January 2024.
New Delhi imported $2.6 billion worth of crude oil from Saudi Arabia in February, as per data from the Ministry of Commerce and Industry.
New Delhi also imported $2.24 billion worth of crude oil from Iraq that month.
It is the discounts on Russian oil that generated huge savings in the oil import bill.
“ICRA estimates this to have led to savings in India’s oil import bill amounting to $5.1 billion in FY2023 and $7.9 billion in 11M FY2024, thereby compressing India’s current account deficit (CAD)/GDP ratio by 15–22 bps in FY2023-24,” the ICRA study states.
And it looks like the trend is set to continue.
New Delhi in April imported more oil from Russia and less from Iraq and Saudi Arabia compared to March, data from trade tracking agencies Kpler and LSEG showed.
The imports during April went up by 13 to 17 per cent, the data showed.
Russia remained India’s top oil supplier in April followed by Iraq and Saudi Arabia.
Its oil imports from Iraq declined by 20 to 23 per cent, the data showed.
Why is this happening?
But why is India importing so much crude from Russia?
Because of the heavy discount being offered by Moscow in the backdrop of the Russia-Ukraine war.
Despite the West sanctioning Moscow, Prime Minister Narendra Modi-led government has stood firm in maintaining its ties with Russia.
The newspaper quoted industry insiders as saying Russia was offering a discount of around $30 per barrel in 2022.
However, that discount has been declining.
In 2024, New Delhi is getting a discount of less than $5 per barrel.
As per New Indian Express, the montly discount is down from around approximately 23% in the April-August period last year to an average of around eight in September-February.
This resulted in a huge decline in savings.
ICRA also said India’s net oil import bill could widen to $101-104 billion in current fiscal from $96.1 billion in 2023-24.
Any escalation in the Iran-Israel conflict could impart an upward pressure on the value of imports, the agency added.
“With India’s oil import dependency expected to remain high, if the discounts on purchases of Russian crude persist at the prevailing low levels, ICRA expects India’s net oil import bill to widen to $101-104 billion in FY2025 from $96.1 billion in FY2024, assuming an average crude oil price of USD 85/bbl in the fiscal,” ICRA said.
Additionally, any escalation in the Iran–Israel conflict and an associated rise in crude oil prices could impart an upward pressure on the value of net oil imports in the current fiscal year, it added.
According to ICRA’s calculations, a $10 per barrel uptick in the average crude oil price for the fiscal pushes up the net oil imports by around $12-13 billion during the year, thereby enlarging the CAD by 0.3 per cent of the GDP.
Accordingly, if the average crude oil price rises to $95 a barrel in FY2025, then the CAD is likely to widen to 1.5 per cent of GDP from our current estimate of 1.2 per cent of GDP for FY 2023-24.
CAD, which is the difference between value of India’s imports and exports, is estimated at 0.8 per cent in 2023-24.
India is more than 85 per cent dependent on imports for its needs of crude oil, which is converted into fuels such as petrol and diesel at refineries.
ICRA said the value of India’s imports of petroleum crude and products declined by 15.2 per cent YoY during April-February of last fiscal, even as volumes rose slightly in this period.
This was supported by the fall in average global crude oil prices as well as savings from stepped up purchases of discounted Russian crude.
‘Not asked India to cut oil imports’
The US in April said is has not asked India to cut Russian oil imports as the goal of sanctions.
It added that the G7-imposed $60 per barrel price cap is to have stable global oil supplies while hitting Moscow’s revenue.
“It is important to us to keep the oil supply on the market. But what we want to do is limit Putin’s profit from it,” Eric Van Nostrand, who is performing the duties of US treasury assistant secretary for economic policy, said in New Delhi, referring to Russian President Vladimir Putin.
Van Nostrand said that buyers can purchase Russian oil at deeper discounts outside of the price cap mechanism, if they do not use Western services like insurance and broking, thus limiting Moscow’s sales avenues.
“They (Russia) have to sell oil for less,” he said.
The sanctions are intended to limit the options available to Russia to three: sell its oil under the price cap, offer deeper discounts to buyers if they circumvent Western services, or shut its oil wells, Van Nostrand added.
The price cap imposed by the Group of Seven (G7) wealthy nations, the European Union and Australia bans the use of Western maritime services such as insurance, flagging the transportation when tankers carry Russian oil priced at or above $60 a barrel.
Anna Morris, acting assistant secretary for terror financing at the US treasury, said that G7 nations had the option to review the price cap depending on market conditions or other factors.
With inputs from agencies
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