India’s Russian Oil Purchase: Warning Sign or Diversionary Maneuver?

Desperate times call for desperate measures.

The saying might sum up India’s recent decision to buy discounted Russian oil. While raising eyebrows in the West, the purchase in this period of rising prices likely represents an opportunistic purchase by the world’s third-largest crude oil importer rather than a significant structural shift.

That could change if gloomy international politics – and future price developments – for Russian oil clear up a bit.

India last week bought 3 million barrels of Russian crude at around 20% below global benchmark prices, with insurance and shipping paid by the seller. And on Wednesday, Reuters reported that Indian Oil,

the country’s leading refiner had bought an additional 3 million barrels of Russian Ural crude, and the private refiner Nayara Energy had bought 1.8 million barrels.

With Brent crude futures back near $120 a barrel, such huge discounts are hard to accept for a country whose energy imports account for a full 4% of gross domestic product. According to Credit Suisse, India imports more than 80% of its total crude oil needs – 1.25 billion barrels net over the last 12 months,

which estimates annual imports could rise to 1.5 billion barrels as the economy opens up. At that rate, every $1 price increase could cost India $1.5 billion annually.

But despite India’s desperation to refuel, its bargain buying in Russia is likely to remain relatively small for now.

Processing significant volumes of Russian Ural crude oil could entail additional costs for Indian refiners. But the biggest uncertainty is the risks related to the situation in Ukraine and the risks that arise from it, says Sushant Gupta, research director for refineries and oil markets in the Asia-Pacific region at Wood Mackenzie.

For one, oil prices have remained extremely volatile since the war began last month. Even if Indian buyers consider a dramatic switch to Russian oil, there is little point in alienating long-standing Middle Eastern suppliers, who supply more than 60% of its imports, or investing in new transport capacity until there is more clarity about future prices, transport and insurance costs. and whether Russian energy will ultimately be subject to severe sanctions. The longer trade route between Russia and India is already making purchases more vulnerable to volatility, according to Prashant Vasisht, vice president and co-group leader for corporate ratings at ICRA,

a branch of Moody’s.

Western sanctions energy carve-outs mean India’s oil imports are not a violation. India’s Oil Minister Hardeep Singh Puri told lawmakers two days ahead of the Reuters report that Indian buyers had secured a deal for about three days’ supply of oil from Russia, to be delivered over the next three to four months. Russia still accounts for less than 1% of the country’s total oil imports, he said.

New Delhi has been criticized by the West for its longstanding political and security ties with Moscow. But his recent oil buys at bargain prices probably shouldn’t keep drillers in Texas or politicians in Washington up at night — at least not yet.

write to Megha Mandavia at megha.mandavia@wsj.com

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