India’s Russian crude imports prevented price surge, ‘havoc’ in global oil market, says petroleum ministry

“If they (Indian refiners) had not imported Russian oil into India, which may be a big number of 1.95 million barrels per day, that deficiency would have created a havoc in the crude oil market and the prices would have shot up by about $30-40,” a petroleum ministry representative was quoted as saying in a recent report of the standing committee on petroleum and natural gas. The report was tabled in Parliament on December 20.

“The crude oil market is such that in the market of 100 million barrels per day, if the OPEC (Organization of the Petroleum Exporting Countries) says that they are going to reduce it by one or two million barrels per day, prices increase by 10 to 20 per cent and reach up to $125-130. If India does not absorb–I would call it absorption–1.95 million barrels per day, these prices would have reached $120-130. It would have created a havoc,” the petroleum ministry representative added. The report did not name the representative. Usually, senior bureaucrats of the petroleum ministry represent the ministry before the standing committee.

India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. The country has a refining capacity of over 250 million tonnes per annum, or 5 million barrels a day.

From a marginal player in India’s oil imports before the war in Ukraine, Russia now tops the list of New Delhi’s crude suppliers. As the West began shunning Russian oil following Moscow’s February 2022 invasion of Ukraine, Russia started offering deep discounts on its oil to willing buyers. Indian refiners started snapping up the discounted Russian crude, irking many in the West, which wanted Russian oil to be shunned by buyers to curb Moscow’s ability to finance the war in Ukraine through oil sales. India has maintained that as one of the top importers of crude, it will buy oil from anywhere it can strike a good bargain.

While crude oil prices did breach the $100-per-barrel mark in initial months following Russia’s invasion of Ukraine, they retreated as oil markets regained supply balance. In 2023, the price of global benchmark Brent crude has not breached the $100 mark even once. Currently, Brent is hovering around $80 per barrel.

“Diplomatically, we are a sovereign country and could say that we have been doing what is good for the country as well as the world,” the petroleum ministry representative said.

On the question of difficulties being faced by Indian refiners in importing oil from Russia, the ministry told the panel that due to Western sanctions on Russia, challenges include payments and logistical arrangements like shipping and insurance. The ministry said in its submission that not all Indian banks “smoothly process” payment in dollars for Russian oil purchases.

“Due to economic sanctions…crude oil buyers are facing challenges in making logistics arrangement (ships availability, insurance for ships), getting insurance coverage for crude oil and making payments. Hence, Indian buyers…arrange import of Russian origin crude oil grades from the counterparties on delivery basis, where the seller takes responsibility in delivering crude oil (with suitable Insurance coverage) at discharge ports in India,” the ministry said.

With major Western powers imposing a $60-per-barrel price cap on seaborne Russian crude from December 5, 2022 and Russian oil being bought on delivered basis, Indian refiners have faced some issues with banks demanding documentary proof from them that the price of oil, excluding delivery-related overheads like freight and insurance costs, was indeed in line with the price cap.