Oil conundrum: On India’s energy imports from Russia.
India’s energy imports from Russia seem driven by confusion, not strategy.
Union Ministry of Commerce and Industry (MCI) data on India’s May crude imports show that receipts from Russia had reached the pre-sanction levels of more than 40%, which is also the highest in two years. Though India has defended this as commercially prudent, its yuan-based payments give China an edge to internationalise its currency at India’s expense, even if it has no bearing on the domestic strength of the Indian rupee due to strict capital controls. Oil import concentration from a single source, and paying a premium, is risky for India, which has long pursued a diversified energy strategy. Moreover, sourcing fuel from the Gulf spot market amid evolving sanctions has its own risks. Secondary sanctions could hit trade channels, exposing Indian refiners to severe supply shocks. India’s crude imports from Russia surged in June, while UAE shipments were at record levels as refiners sought to secure supplies after the Strait of Hormuz reopened. However, renewed Iran-U.S. hostilities have put those flows at risk. And even as Venezuela has emerged as a key supplier, increasing and unsustainably high one-country concentration could weaken India’s bargaining power, reduce flexibility, and erode its credibility as an independent balancing power.
MCI data highlight the price impact: Russian imports carried a $46-per-ton premium. Import value surged 83% amid a 2% fall in volume, likely diminishing Indian refiners’ margins on refined products using Russian crude. While spot purchases have enabled refiners to capture discounts of up to $10 per barrel on Russian Urals crude relative to Brent during some periods, after February this year, narrowing discounts, weaker product cracks, and geopolitical risks have moderated gross refining margins. India must strike a balance between having long-term stable contracts with multiple producers, and selectively using the spot-market to mitigate the procurement risks. Until the Russia-Ukraine conflict, nearly 70% of India’s crude imports came through long-term contracts, particularly from West Asia. True, India cannot overlook the diplomatic costs as Russian energy dependence risks sanctions. When Russian crude was cheap because of discounts on account of the Ukraine war, India reduced imports under U.S. pressure; now when it is being sold at a premium because of the Iran war, India is moving back to Russian crude. India must expand its strategic petroleum reserves to cushion temporary disruptions. Whether it increases or cuts down Russian oil imports, India seems to make decisions that are far removed from any sense of strategic autonomy.