Did India-Russia Bromance Help The Former To Reduce Their True Oil Bills?
Russia's market share in India's import basket increased from less than 1% at the commencement of the Russia-Ukraine crisis in February 2022 to 1.62 million barrels per day in February, accounting for 35% of total imports.
It appears that Indian refiners are benefiting from higher refining margins due to processing cheap Russian oil. The Indian crude oil basket price, designed to represent the cost of India’s crude imports generally, has yet to begin accounting for the heavily discounted Russian oil flooding the country. Because local refiners rely on Russia for around one-third of their needs, the cost of imports would be far lower than the one indicated by the Indian basket.
Sunil Kumar Sinha, the chief economist at India Ratings and Research, says this will have domestic consequences in policymaking and consumer pricing. The Indian crude oil basket has been an important reference for the government on policy, taxation and petrol pricing. In the preceding month, the domestic gas price was equivalent to 10% of the Indian basket crude price.
The ratio of sweet and sour crude.
According to the ministry’s Petroleum Planning and Analysis Cell (PPAC), the Indian basket is derived from sour grade and sweet grade crude oil processed at Indian refineries in the 75.62: 24.38. The cell determines the Indian basket price using two worldwide benchmarks: the average of Dubai and Oman for sour grade and Dated Brent for sweet. According to a ministry official, the weighted average of these benchmarks has long functioned well to reflect the imported crude cost roughly. However, the basket was not intended to represent real import costs because refiners do not disclose such specifics, particularly Russian oil prices, with PPAC.
The Gulf nations have long been India’s largest supplier, primarily of sour grades, with prices largely tied to the averages in Dubai and Oman. Since the start of the Ukraine conflict, Russia’s flagship crude oil Urals has traded at a $20-30 per barrel discount to Brent, the most widely used oil benchmark. Before the conflict, the Urals were roughly the same price as Brent. Russian oil has increased its proportion of Indian imports to 35% in recent months, up from about 20% for the whole 2022-23 period.
Why is the crude displayed at such steep discounted prices?
The Russia-Ukraine conflict has allowed our country to meet its energy needs at a lower cost. At the beginning of the last year, two large state-run oil companies, IOC and HPCL, acquired 5 million barrels of Russian crude oil.
After Saudi Arabia, Russia is the world’s second-largest oil exporter. However, Moscow is compelled to sell its crude oil at a steep discount because Western sanctions tied to Russia’s military activity in Ukraine caused several countries to cease importing Russian oil. Our country saw this as a golden opportunity, and state-owned oil firms purchased Russian oil for $20-25 per barrel, compared to the current worldwide pricing of $110 per barrel (as of March 2022).
Some statistics related to oil imports in India.
Russia’s market share in India’s import basket increased from less than 1% at the commencement of the Russia-Ukraine crisis in February 2022 to 1.62 million barrels per day in February, accounting for 35% of total imports.
Russian imports have increased at the cost of Saudi Arabia and the United States. Oil imports from Saudi Arabia plummeted 16% monthly, while those from the United States fell 38%.
- In February, Iraq supplied 9,39,921 barrels of oil per day (bpd).
- Saudi Arabia delivered 6,47,813 bpd of oil.
- The UAE provided 4,04,570 barrels per day.
- The United States provided 2,48,430 bpd.
Conclusion.
Russia’s market share in India’s import basket increased from 0.2 per cent before the outbreak of the Russia-Ukraine war to 35% in February 2023. All these favours seem an opportunity for our country now, but will it remain the same in future also? This is because Ukraine’s Minister claimed that India is purchasing Russian oil at the expense of their suffering. This statement may be enough to tarnish our country’s image on the global platform.
Also, will New Delhi incur profits from this cheap Russian discounted oil, or is it followed by invisible waves of rudeness as this oil is bought at transferring losses to the US? Though the White House had earlier said that India’s decision to buy discounted Russian oil is not breaching any of the US sanctions; however they highlighted this attempt by our country as a support of Russian leadership. Let’s see how much this discounted Russian crude costs to Indian image and relations on global platforms!
