Since the day the G7 started talking about capping Russian crude oil price, all eyes have been on India’s response, which is one of the largest consumers. Now that the price cap of $60 a barrel coupled with the European Union import ban on Russian seaborne crude oil have come into effect from December 5, it is hardly a surprise that the focus is again on India.

India, on its part has adopted a mature diplomatic stance and has let the market dictate the situation. This shows that New Delhi now has a voice in the global oil market, which till a few years back went largely unheard.

“Our sanctions do not target India,” said an EU official. Neither does the EU sanctions on Russian crude oil nor the price cap directly impact India. Reason being simple, India anyway is buying oil from Moscow at discount which keeps the price lower than the cap, if media reports are any indicator.

But, what could be worrisome for India is the financial services sanctions on doing business with Russia that comes into play. Here also, the Indian refiners can opt for port of delivery deals, where the responsibility to deliver goods at the place of landing is vested with the carrier of goods.

Dave Ernsberger, Head of Market Reporting & Trading Solutions at S&P Global Commodity Insights, said, “It is clear that markets are taking some time to digest the true impact of the price cap concept for crude oil. Early indications are that India, and a few other importing countries, are unlikely to explicitly buy oil in line with the price cap, and Russia has indicated it won’t sell oil through such a mechanism either.”

“Oil prices have yet to show a meaningful response as this plays out, and it is possible that an alternative market, with alternative financing, shipping and insurance, will develop for Russian crude oil from here which may, ironically, ultimately keep headline prices somewhat stable in general,” he added.

So, where does India stand in this situation?

According to Vandana Hari, Founder and CEO of Vanda Insights, “India has already ratcheted up its Russian crude imports, which is reducing its import costs and forex outflows. The challenge will be to keep that up or even absorb more Russian barrels in the coming months if the discounts remain attractive.

“Workarounds will need to be found for the embargo on EU and G7 shipping and insurance services as India is not signing up for the price cap. Continuing to buy on a CIF — Cost, Insurance, and Freight, these are the fees a seller pays to cover the costs, insurance, and freight of a dealer’s order when it’s enroute — basis will probably be the best course of action. As Russian crude prices turn even more opaque than in the recent months, refiners will need to be extra vigilant to ensure they are getting a fair deal, especially compared to their counterparts in China,” she added.

So, what should India worry about?

Dominant player

As per the International Energy Agency (IEA) estimates, India will contribute a quarter (25 per cent) of the growth in global energy consumption in the next two decades. BP estimates that India’s energy demand will double, while natural gas demand is expected to grow five-fold by 2050. Clearly, India as a big consumer will have a dominant position.

At present, India has been cleverly balancing its diplomacy and commercial deals. Given the fact that today the US too is among India’s top five hydrocarbon suppliers, therefore, unlike in the past it cannot put undue pressure on India to curb its oil trade with Russia.

Be it oil or gas, India today imports from many countries including Russia. From 27 countries earlier, India now sources hydrocarbons from 39 countries. The price is decided on a purely commercial basis. The government closely monitors the global energy markets as well as potential energy supply disruptions as a fall-out of the evolving geopolitical situation.

India has also been stating that if it doesn’t buy Russian crude then it will lead to destruction in oil prices. Petroleum and Natural Gas Minister Hardeep S Puri has been quoted as saying that India’s energy strategy is mindful of commitments to the global commons, to Green Transition and ensures Energy Availability, Affordability and Security to all. He has also underscored the importance of ensuring reliable energy supplies to maintain balanced energy markets.

In fact, Prime Minister Narendra Modi, at the Closing Session of G-20 Summit in Bali on November 16 said “India is taking charge of the G-20 at a time when the world is simultaneously grappling with geopolitical tensions, economic slowdown, rising food and energy prices, and the long-term ill-effects of the pandemic. At such a time, the world is looking at the G-20 with hope...”

Global play

During the session on Food and Energy Security at the summit, the Prime Minister had said, “India’s energy-security is also important for global growth, as it is the world’s fastest growing economy. We must not promote any restrictions on the supply of energy and stability in the energy market should be ensured...”

Unlike in the past when India buckled under global pressure, this time around it is standing firm. If traders are to be believed India is also striking better deals with other producing nations, which would ease the pressure on its finances. What India now needs to do is to maintain an upper hand in the market, strike better deals and keep commercial and political factors apart. Not an easy task but definitely feasible.