Historically, Russia has not been a significant oil supplier to India. It constituted merely 2 percent of India’s oil imports before the Russian invasion of Ukraine in the fiscal year 2021-2022. Following the Russian invasion of Ukraine, European nations, previously significant recipients of Russian crude oil exports, resolved to diminish their purchases of Russian crude oil to curtail Moscow’s oil revenue and finance the conflict.
Russia’s Growing Share in India’s Oil Imports
Over the past two fiscal years, Russia has emerged as India’s largest supplier of crude oil. During the fiscal year 2022-23, India purchased over 4 million barrels of crude oil per day, with around 0.8 million barrels daily sourced from Russia. During the fiscal year 2023-24, India imported over 4.7 million barrels of crude oil daily, with around 1.64 million barrels daily sourced from Russia, representing roughly 35 percent of India’s total crude oil imports. From April to September, the initial six months of the fiscal year 2024-25, India’s imports of Russian oil increased by 9.1 percent, attaining a daily average of 1.91 million barrels of crude oil.
Russia is supplying surplus oil to the Indian market at a discounted price, establishing itself as the predominant oil provider to the world’s third-largest oil importer. The rising proportion of Russia in India’s oil imports has occurred at the expense of OPEC members, particularly those in Middle East. The proportion of oil imports from Middle East countries to India is at a historic low.
Decline of Middle East’s Share in India’s Oil Imports
Historically, the Middle East has comprised approximately 60 percent of India’s oil imports. In the financial year 2022-23, it constituted 55 percent of India’s oil imports, which subsequently decreased to 46 percent in the financial year 2023-24. Saudi Arabia, Iraq, and Iran have been significant oil suppliers to India. Prior to the United States’ prohibition on Iranian oil imports in 2019, Iran ranked as the third-largest oil supplier, constituting around 11 percent of India’s oil imports for the fiscal year 2018-19. After these sanctions, India was compelled to cease all oil imports from Iran and sought alternative suppliers. During the fiscal year 2021-22, Iraq emerged as India’s primary supplier, followed by Saudi Arabia and the UAE, with these three Middle East nations collectively constituting over 50% of India’s oil imports.
Energy Security and Instability of Middle East
India has always relied on imports due to constrained domestic oil supplies. The Middle East has been a significant source; but, its volatility, arising from internal conflicts and external involvement, threatens India’s energy security. Saudi Arabia, Iraq, and Iran possess 78% of the region’s oil reserves and 36% of the world’s reserves. Nonetheless, all three are undergoing differing degrees of instability, jeopardising India’s energy security.
To strengthen its energy security, India has devised a strategy to diversify its crude oil importing sources. In 2006-07, India imported crude oil from 27 countries while as in 2020-21, it imported crude oil from 40 countries. Though India successfully increased the number of oil exporting countries to its energy basket but the overdependence on the Middle East has not come down and has remained over 60 percent. The major reason for the dominance of oil imports from the Middle East is relatively cheaper supply. India’s sourcing decisions have been influenced more by refinery politics than by geopolitics.
Russia’s Role in Reducing Overdependence on Middle East
In the last two years, Russia’s increased oil supply has helped India reduce its overdependence on the Middle East. The major reason for this increased Russian crude oil supply to India is that Indian refineries receive the Russian oil at a discounted price.
Can Russia Be a Long-term Stable Supplier?
Russia’s capacity to sustain its role as a reliable oil provider hinges on multiple factors, including its oil reserves. By the end of 2020, the Russian Federation possessed approximately 112 billion barrels of crude oil reserves, representing roughly 6.2 percent of global oil reserves, in contrast to the Middle East’s 835.9 billion barrels, which constituted about 48.3 percent of global oil reserves. In comparison to Russia, Saudi Arabia possesses almost three times, Iraq has 1.4 times, and Iran holds roughly 1.5 times greater oil reserves. Russia’s oil production is significantly elevated and nearly comparable to that of Saudi Arabia. Nonetheless, its oil production relative to its reserves is quite high—nearly threefold that of Saudi Arabia. According to the present production rate, Russia’s oil reserves are projected to last for the next 24 years. Russia possesses adequate oil reserves to satisfy India’s energy demand in the foreseeable future.
Discount on Russian Oil and Future Prospects
The primary determinant of Russian oil exports to India is the discount offered by Russia. Nonetheless, this discount is diminishing generally. The discount on Russian oil imports diminished from $8-10 per barrel initially to $3-4 by the conclusion of fiscal year 2024. According to ICRA, the discount on Russian oil diminished from 23 percent in the initial five months of fiscal year 2024 to 8 percent in the subsequent six months of the same financial year. In the initial five months, it resulted in savings of approximately $5.8 billion for India, in contrast to $2 billion during the subsequent six months. Russian oil, classified as a middling and sour grade, is unfeasible for India without discounts due to its impurities, elevated freight costs, and logistical challenges. This indicates that Indian refineries would persist in purchasing Russian crude oil as long as the discount offered by Russia remains appealing. Upon the cessation of the discount, Indian refineries may reevaluate their procurement of Russian oil.
Geopolitical Considerations and Future Risks
India has defied Western pressure to refrain from acquiring Russian oil, despite restrictions like the $60 price cap instituted by the G7 coalition aimed at Russian exports. In early 2024, the United States imposed sanctions on Russia’s premier tanker entity, Sovcomflot, along with other affiliated oil tankers, for contravening the $60 price cap. This resulted in a reduction of oil imports from Russia. In January 2024, India imported the least quantity of crude oil from Russia in the past 18 months, decreasing the proportion of Russian oil imports to India to 25 percent, a decline from 45 percent in May 2023, as reported by Vortexa. The Indian energy minister asserted that the reduction in oil supplies from Russia was attributable to the diminished discount on Russian oil, rather than payment-related complications.
The future of the oil trade between Russia and India will be contingent upon the geopolitical dynamics between Russia and the United States. If relations between the two nations further decline, there exists a possibility of stricter sanctions on Russian oil exports, which may impede India’s oil imports from Russia, compelling India to revert to an overreliance on the volatile Middle East region for oil supplies.
