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Russian President Vladimir Putin (right) talks with Indian Prime Minister Narendra Modi (L) during a visit to the Zvezda shipyard, while the head of Russian oil giant Rosneft, Igor Sechin (centre), accompanies them , outside the far eastern Russian port of Vladivostok in September. January 4, 2019, before the start of the Eastern Economic Forum hosted by Russia.
Alexander Nemenov | afp | fake images
The days of India buying cheap Russian oil might be over.
Broad U.S. sanctions against Russian energy companies and oil-carrying ship operators will complicate India’s efforts to continue importing cheap Russian crude and could boost inflation in Asia’s third-largest economy, analysts said.
The country could be facing a potential oil crisis, said Bob McNally, president of Rapidan Energy Group.
“India will be more affected than China by the sanctions, as India imports a much larger amount of oil from Russia than China,” he told CNBC.
Last Friday, the The US Treasury announced sanctions on two Russian oil producersalong with 183 ships that are mainly oil tankers that have been transporting barrels of Russian crude oil. Currently, the US sanctioned tankers are still Crude oil is allowed to be discharged until March 12..
The South Asian nation imported a significant 88% of its oil needs between April and November 2024, little change from the previous year, according to government data. About 40% of those imports came from Russia, data from trade intelligence firm Kpler showed.
Of the 183 tankers recently sanctioned, 75 of them had already transported Russian oil to India in the past, according to data provided by Kpler. Last year alone, the 183 sanctioned tankers transported around 687 million barrels of crude oil, of which 30% were sent to India.
“The majority of these barrels went to Indian refineries and therefore the impact will likely be greatest there,” BNP Paribas senior commodities strategist Aldo Spanier said in a research note following the sanctions.
The new US sanctions were deeper and broader than markets expected, and the disruptions are expected to be amplified, Spanier added.
India’s Ministry of Petroleum and Natural Gas did not respond to a request for comment from CNBC.
Oil prices year after year
The sanctions also come at a time when India is poised to overtake China as the world’s largest oil consumer by 2025, accounting for 25% of total global oil consumption growth.
Rising demand for fuels for transportation and home cooking will spur growth of 330,000 barrels a day this year, the most of any country, according to U.S. forecasts. The Energy Information Administration showed.
India consumed 5.3 million barrels per day in 2023, the latest EIA data showed. This consumption is expected to have increased by 220,000 barrels per day last year.
India was not always so dependent on Russian oil.
As recently as 2021, Russian oil accounted for only 12% of India’s oil imports by volume. By 2024, that proportion had risen to 37.6%, Muyu Xu, senior oil analyst at Kpler, told CNBC.
The catalyst for the increase in oil imports was the war in Ukraine, which led some Western countries to impose sanctions against Russia and reduce their purchases of Russian crude oil. As Russian oil prices fell, India was able to get cheap supplies from companies that were not under sanctions.
The discount for Russian Ural crude oil to the global benchmark Brent has averaged around $12 a barrel from August to October, according to the S&P Global report. most recently published data last November. In 2024, Russia’s Urals were also $4 cheaper per barrel compared to Iraq’s oil, one of the India’s major crude oil import sourcesKpler data shows.
“If India were to fully comply with US sanctions, we could see a sharp drop in Russian crude oil arrivals in February and potentially March,” Xu added.
Supply disruptions to India could reach 500,000 barrels per day, Rystad Energy senior analyst Viktor Kurilov shared via email.
No more cheap alternatives?
While the impact could eventually be mitigated as affected importers rush to look for alternative suppliers in the Middle East, some industry observers say relief could still take a few weeks or months to materialize.
Even then, the price of oil from these alternative sources will not be as cheap. Global benchmark Brent crude oil recently advanced to a five-month high of around $80 a barrel following the sanctions announcement, after a year of languishing from oversupply and weak demand.
Middle East crude oil prices, which are among India’s alternatives, have also risen this week, data provided by Kpler suggests.
“Depending on how quickly Russia resolves its logistical challenges and how cooperative India and China are on sanctions, oil prices could soar for a few weeks,” Kpler’s Xu said.
Additionally, as Donald Trump’s inauguration approaches, the global supply of cheap Iranian crude oil also faces the risk of tighter sanctions. Iran It represents 4% of world oil production. in 2023, according to an EIA report published last year.
“It is (also) a double blow for the key importer (India), as Iran will likely face new sanctions pressures with the incoming Trump administration,” Helima Croft, global head of commodities strategy at RBC Capital Markets, told CNBC. .
If the new sanctions are combined with a possible cap on Iranian crude, Brent prices could rise further to $90 per barrel, Goldman Sachs wrote in a note published after the sanctions were announced.
A weak point of the Indian economy
The Indian economy is “significantly vulnerable” to fluctuations in oil prices, A research article published in 2023 established. Domestic retail prices of gasoline and diesel are rising “like rockets” in response to rising crude oil prices, Abdhut Deheri, assistant professor of economics at the Vellore Institute of Technology and M. Ramachandran of the research paper, said in the research paper. department of economics, Pondicherry University.
A Reserve Bank of India analysis in 2019 found that every $10 per barrel increase in oil prices could lead to a 0.4% increase in headline inflation.
“High oil prices, if passed on to consumers, could further damage their purchasing power at a time when income and GDP growth have slowed,” said ANZ economist Dhiraj Nim.
However, weak consumer demand could deter producers from passing the cost burden on to consumers, meaning it could hit companies’ profits, Nim added. Although if the government decides to assume the additional costs, it would affect its finances.
Not only will China and India have to pay more for the oil they consume, they will also have to pay more to get it to their shores because tanker rates have also increased, said Andy Lipow, president of energy consultancy Lipow. Oil Associates.
Combined with a stronger US dollar and weaker rupee, the impact on India’s economy will be magnified, Lipow said.
The Indian rupee recently fell to a record low as a result of pressure from a strong dollar and selling by foreign portfolio investors.
The country is no stranger to protests over high fuel prices. In 2018, Widespread protests throughout the country. against record gasoline and diesel prices caused the closure of companies and schools in several regions.
