Recently, OPEC and some non-OPEC countries, including Russia, announced an oil output cut of around 1.16 million barrels daily. This move will bring the total volume of oil cut by OPEC + to 3.66 million bpd, according to Reuter’s estimation. Eventually, the output reduction could lift oil prices by US $ 10 per barrel, according to Pickering Energy Partners. The voluntary cut will start in May and continue till the end of the year. Panic hovers in the country on the eventuality of the rise in global oil prices. The immediate impact is the burden of inflation. When OPEC hiked the oil price, India faced a major headwind to its growth earlier. Nevertheless, the current hike in global oil prices could provide some space for India’s resilience, with Russia emerging as the major supplier. Russia could be a major shield, given the surge in oil imports from this country. Russia is the second largest producer and exporter of crude oil in the world. Notwithstanding, Russia has never been a better friend for India in the supply of energy, despite having a close political and defense relationship over six decades. It is an irony.
Oil is one of the primary energy sources in India. Nearly 30 percent of total energy is generated from petroleum crude oil. Others are coal, which is the biggest energy, natural gas, hydro, and nuclear. The irony of India’s energy resources is that while almost all the energy is domestically procured, oil is import-intensive energy. More than 90 percent of crude oil is imported into the country. Given these structural imbalances between oil and other energy availability, oil has been a major sensitive issue for the country’s inflation and economic growth. As and when the world reels under oil price hike, it has a major impact on India’s inflation and the economy. Since OPEC is the major supplier of oil to India, any move by OPEC to increase oil prices derails the momentum of growth. Around 70 percent of the oil was imported from OPEC in 2021 in India. Nevertheless, the era of OPEC dependency is plummeting with the outbreak of the Ukraine war and the USA and EU sanctions on Russia. A new era began with a major shift to Russia, leaving OPEC on the back bench for oil import. During April- January 2022-23, crude oil import from Russia sparked to nearly 20 percent of total oil import, or 38 million tonnes, a big leap from merely 2 percent or 4 million tonnes during the preceding period last year.
India’s increase in the import of oil from Russia could be benign to the war-trodden Russian economy. India is the second largest importer of Russian crude oil, after China. This will accrue larger revenue to Russia. This will help Russia to import largely from India. India is one of the biggest exporters of consumer items to Russia. To tide over the sanctions, India and Russia have set up alternative arrangements. Indian refineries have accepted Russian insurance. Indian UCO bank has opened vostro accounts with Russian Gazprombank and VTB banks. In summing up, it will be a great opportunity for the first time for India to escape any major impact on inflation owing to global oil price hikes, after the oil dependency on OPEC plummets.
