Concerns have been looming large about the sanctions on Russian oil, which is heading for another major oil shock in the world. Russia is the second biggest exporter of oil in the world. The EU is the biggest importer of oil from Russia. The EU has prohibited maritime exports of Russian oil and levied a price cap of USD 60 per barrel in December 2022. These followed suit with the USA, G-7, and Australia for price capping on Russian oil. Angry Russia retaliated and banned the export of oil to these nations from February 1, 2023, for 6 months till July 1, 2023. About 80 percent of Russian oil exports are moved by western shippers. Most of these shippers are under insurance liability, provided by International Group (IG). Eventually, the maritime ban by the EU will restrict western shippers to move Russian oil. These two moves, viz. maritime insurance ban and price cap, vis-à-vis, a counter move by Russia to ban export to these nations, will engulf the world in another major global oil crisis.
Given these, oil prices are bound to rise in the world in 2023. Theoretically, it should have a spillover impact on India, since over 90 percent of India’s oil requirement is met by imports. As and when oil prices increased, the country succumbed to inflation above the affordable limit. Nonetheless, India has proven to be in a different situation with the sanctions. Various reports suggest that sanctions will not impact India as India was reticent to the sanctions. Consequently, India’s import of oil from Russia perked up since the advent of the Russia- Ukraine war, despite strong US objections. To ride over the sanctions, India and Russia have set up alternative arrangements. Indian refineries have accepted Russian insurance. Russian oil suppliers are trying to handle Urals oil transport to India themselves, using their vessels and shipping arrangement. Further, the Indian government has permitted nine Indian banks to open Vostro accounts with Russian banks. This will facilitate the deal with Russian oil in rupee trade in a currency swapping deal. Indian UCO bank has opened Vostro accounts with Russian Gazprombank and VTB banks. After the EU sanctions, China and India emerged as the biggest importers of Russian oil. India is better located to buy Russian Urals oil than China because of the shorter transport route and its refineries are well suited to refine Russian oil.
Russian oil price was much lower than the average basket price of oil imported into India. From April-October 2022, while the average basket price of oil was USD 102.5 per barrel, the average price of Russian oil was USD 94.1 per barrel. The prices of all other major suppliers were above the country’s basket price of oil. These let India reap a big advantage of saving foreign exchange outgo to import oil. During April-December 2022, India benefited by USD 1.5 million while increasing Russian oil imports. These demonstrate that India’s reliance on Russian oil will increase and is likely to be diversified from OPEC and oil-rich countries. In summing up, India is placed in an advantageous situation with the sanction on Russian oil. The decade-long deep and friendly political and economic relations with Russia will accentuate a new trajectory of energy trade, in addition to defense. In other words, oil dependency on Russia will increase India’s resilience to oil volatility, spearheaded by OPEC.
