Ashraf Engineer
March 8, 2025
EPISODE TRANSCRIPT
Hello and welcome to All Indians Matter. I am Ashraf Engineer.
Did you know that India’s daily oil consumption is roughly 5.5 million barrels a day, which accounts for 5% of the world’s total crude consumption and puts it among the top oil consumers in the world? India’s greatest source of crude is Russia, which makes for a remarkable 40% of its total oil purchases. This is up four-fold from 2021, a year before Russia invaded Ukraine. In fact, it was after the invasion that India became a major buyer of Russian oil, when the US enforced a price cap of around $60 per barrel on Russian crude. The objective was to limit Russian earnings from crude exports but India seized the opportunity to buy cheaper oil.
However, a fresh wave of US sanctions in January could expose India to an ‘oil shock’ by making it difficult to access Russian crude. As a result, India could be left scrambling for alternatives. In fact, it began reaching out to other suppliers as soon as the sanctions were announced.
How dependent is India on Russian crude oil and what lies ahead?
SIGNATURE TUNE
Our days of buying cheap Russian oil might be over. The sweeping sanctions announced by the US against Russia’s energy companies and ship operators will complicate the import of Russian crude and could push up inflation that’s already skyrocketing in India.
But let’s first look at how India came to be so dependent on Russian oil.
In the second half of 2022, after the invasion of Ukraine, a monthly oil trading partnership between Delhi and Moscow worth nearly $3 billion, or 1.85 million to 1.95 million barrels per day, took shape. Much of this oil was delivered via fleets of so-called dark or shadow tankers. These are ships with hazy ownership structures created through several companies that make it tough to know who actually owns them. It also means they can evade western sanctions.
It is estimated that, in 2023, 81% of the total value of Russian seaborne crude was transported by such tankers. So, Russia’s reliance on tankers owned or insured in G7 countries fell and this meant that the US and its allies had less power over prices to impact Russia’s oil revenues.
To get around this, on January 10 this year, the US announced fresh sanctions targeting the shadow tankers and maritime insurance providers.
The US imposed the sanctions on Russian oil and gas exploration and production firms Gazprom Neft and Surgutneftegas, both networks that trade Russian oil, and 183 vessels that may have shipped the cargo. Nearly 40% of the vessels sanctioned are said to have transported Russian oil to India in the past. The new sanctions were deeper than before and expected to disrupt supplies.
The timing couldn’t be worse. India is likely to surpass China as the top oil consumer this year, accounting for 25% of the world’s total oil consumption growth, on the back of demand for transportation and home cooking fuels. The daily demand is expected to rise by 3.3 lakh barrels per day — the most of any country, say US Energy Information Administration projections.
Don’t forget, this is also a time when the rupee is doing badly. That means we are spending more rupees for every dollar we use to buy oil in the international market.
The fresh sanctions have forced India, which imports nearly 90% of its crude, to hunt for alternatives. It has been reported that the government has reached out to Middle Eastern nations such as the United Arab Emirates, Saudi Arabia, Kuwait and Oman for supplies.
India’s economy is very vulnerable to fluctuations in oil prices because they impact retail prices of fuel, which then impact the prices of essentials. Reserve Bank of India analyses in 2019 showed that, for every $10 per barrel rise, headline inflation increased by 0.4%.
As I said, inflation is already sky-high and India can’t afford a further rise at a time when income and economic growth have slowed.
Costly fuel has led to fiery protests in the past, such as in 2018 when then record-high petrol and diesel prices shut businesses and schools in several places.
As things stand, India will not only have to pay more for crude but also for its shipping. One solution could be that oil companies absorb the higher cost without passing them on to consumers. But that would impact their bottomlines. Since many of the oil firms are in the public sector, it means that government finances would be strained.
The silver lining is that the sanctions don’t take effect till March 12, so India has time to stockpile crude. It seems also that India was looking to diversify sources anyway. A Reuters report said that the Organization of the Petroleum Exporting Countries’, or OPEC’s, share of India’s annual oil imports rose for the first time in nine years to 51.5% in 2024, up from 49.6% in 2023. Also, Minister of Petroleum and Natural Gas Hardeep Singh Puri is on record that the government was expanding its pool of crude suppliers from 27 countries to 39.
In such a scenario, how much Russian oil will reach India this year is an open question.
It’s worth taking a look at what happens to Russian oil once it arrives in India.
India has 23 oil refineries refining 249 million tons a year, making it the world’s fourth-largest refiner. Reliance Industries runs the world’s largest refinery in Gujarat, and has increased purchases of Russian oil. Along with India’s second-largest refiner Nayara – which Russia’s Rosneft owns 49% of – Reliance imports 45% of the Russian crude that comes to India.
Once refined, much of the products go to Indian consumers. But, there is a large surplus that is then sold to Europe and elsewhere. India’s petroleum exports to the European Union rose 20.4% year on year between April and January 2023 to 11.6 million tons.
So, it’s a lucrative business that is now under something of a cloud because of the sanctions.
It’s also worth reiterating that India wasn’t always this dependent on Russian oil. In 2021, Russia accounted for just 12% of India’s oil imports. It was only after the Ukraine invasion and the subsequent sanctions that Russian crude prices fell and India swooped in.
The discount of Russian crude, known as the Urals, to the global benchmark Brent has averaged $12 per barrel from last August to October. In 2024, Urals was also cheaper by $4 per barrel than Iraqi oil.
While it appears that supplies affected by the sanctions will eventually be made up by other sources, getting those agreements in place may take a while and they certainly won’t be as cheap. In fact, Brent prices are expected to register an upward trend.
Incidentally, Iran could have been a potential supplier for India but US President Donald Trump is hostile to it and sourcing cheap crude from there would be tough too. Iran accounted for 4% of the world’s oil production in 2023.
Now the fear is that, with sanctions in place and demand rising, Brent prices could rise for a while. That would mean a massive widening of India’s oil import bill and, consequently, inflation.
Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@allindiansmatter.in. Catch you again soon.
