Oil is the second biggest energy for India. It accounts for 29 percent of the total energy in the country. Although coal is the biggest energy, oil is more sensitive to inflation as it directly impacts the common people. Nearly 65 percent of oil is used in the major daily consumer goods that are moved by road transport, due to inadequate rail transport. During April – October 2022, the price of a basket of oil increased by 29 percent. This triggered inflation to 7.4 percent, lending an unbearable impact on the middle – and lower-income group people in India. The notable feature of oil energy is that while all other energies, including coal, are indigenously sourced, oil is import-based energy. Nearly 90 percent of crude oil is imported. Given these, oil has become more significant to the frequent policy changes, as it is linked to global economic and political situations. Currently, 58 percent of crude oil is imported from OPEC countries, such as Iraq, Saudi Arabia, UAE, and Kuwait. Recently, the USA also emerged as a major supplier of oil to India.
Although Russia is the second largest exporter of oil in the world market and India and Russia have long-standing political bonhomie, oil import from Russia is meagre. Only 2 percent of oil is imported from Russia. However, the situation changed after the Ukraine war. Oil imports from Russia sparked up and reached nearly 14 percent during the first quarter of 2022-23 (April-June). Given these, the analysts turned busy with various assumptive forecasts over the dependence on Russia for the future oil energy of India. Should India shift to Russia for major oil supply and sustain it for a longer period? Even though Russia will face a glut with EU and USA sanctions and will likely offer incentives to unleash the oversupply of oil, will it be beneficial to depend on Russia for oil energy in the long run? There are several hinges to relying on Russian oil sanctions. Come December, G-7 and EU countries will impose sanctions on Russian oil. The major part of the sanctions is the price cap on Russian oil.
EU is the biggest importer of Russian oil. More than half of Russian crude oil exports to the world goes to the EU. With the sanctions of G-7 and EU countries, Russia will face a glut in oil supply. Given these, will India diversify oil imports from Russia and reap the benefits of a glut in Russian oil? At present, India imports Russian oil at a discounted price, which is cheaper by 15 -16 percent, according to the media. Nevertheless, the major headwind to expanding the import of oil from Russia into India will be the sanctions against Russian oil. This is because nearly 80 percent of oil imported from Russia to India is moved by western tankers. Given the EU sanctions and price cap on oil, western tankers will be reluctant to move oil, in the wake of losing the services of insurance, finances, broking and navigation, if the prices are above the cap. This will lead to a scarcity of tankers to move Russian oil. In other words, western tankers can move only Russian oil, which will follow the price cap. This means western tankers can move Russian crude, provided the Russian discounted oil supply to India is at par or below the cap price. Further, had India been able to cling to the Rupee payment arrangement, Russian oil would have been a major shield to India’s oil energy conundrum.
Related Posts:
