Even as Russian crude oil volumes slipped in August 2022 from the record numbers of June and July, West Asian countries including Iran and Iraq simultaneously became more aggressive putting India in a sweet spot where it can explore with Russia, Iraq and Saudi Arabia for better deals.
As per Crisil, prior to February, Russia’s share in the annual Indian crude import rarely crossed an average of 2-3 per cent (against 18 per cent in July), with freight costs and logistical challenges acting as key roadblocks to higher procurement.
Russia became India’s second biggest crude oil supplier in June, narrowing the gap with top supplier Iraq and displacing Saudi Arabia, backed by high discounts of up to $35 per barrel in some cases. However, the scenario started changing from June as global prices started tapering and Saudi Arabia slashed rates.
As of August, Russia is offering a $5-7 per barrel discount to India, lower from $10-12 in June and $15-16 in May, trade sources said adding that this could go up in the next 3-6 months, if Russia’s trade gets impacted further.
On the other hand, Iraq has also stepped up the pressure and is now offering crude at around $7-9 per barrel lower, particularly in case of Basrah Heavy grade, which is quite similar to the Russian Ural grade. Saudi Arabia has already cut its price in June.
“Russia has emerged as an alternative to Iraq and Saudi Arabia. Discount was the key as there are considerable logistics costs ($5-6 per barrel). In the current scenario, it will still figure among top suppliers, but in the medium term it won’t sustain as Gulf countries ramp up production and are offering some discount,” a top official from an oil marketing company (OMC) said.
Crisil Research Director Hetal Gandhi said, “Going forward, Crisil Research expects India’s import of Russian crude oil to moderate compared with the levels witnessed in the last few months, albeit still higher than the average levels witnessed in the last few years.”
However, the moderation of crude oil prices in the last month coupled with the easing of supply — especially with increased production from Middle East and African countries — is expected to marginalise the arbitrage and impact India’s incentive of further increasing Russian crude imports, she pointed out.
On India’s energy needs, a top government official said, “India has to keep on exploring competitive energy sources due to its huge requirements, and the speculative nature of oil markets. We will buy from sources that offer us at the most competitive price.”
Russia vs West Asia
Historically, India has relied on Middle East suppliers such as Iraq, Saudi Arabia, and the UAE for majority of its crude oil requirement which was around 230 million tonnes in FY22.
“For Iraq, Crisil Research expects the country to still account for a significant share of Indian crude imports in the short to medium term, with Saudi Arabia and UAE expected to cater to any swings created by the potential reduction in Russian crude oil imports,” Gandhi added.