India will become one of the world’s most vulnerable nations if Russia does not comply with the sanctions imposed by the United States and the European Union and sell crude oil at the predetermined price.
India was the world’s third largest importer of crude oil in 2021, behind China (526 million tonnes) and the United States (305 million tons), as per Statistical Study of World Energy, PP, 2022).
India and China depend on tanker imports from the Middle East, Russia and elsewhere, unlike the US, which gets most of its imports via pipeline from neighbouring Canada.
According to the estimates provided by India’s Ministry of Petroleum and Natural Gas, the country’s yearly output of oil and condensate has been consistent at between 30 and 40 million tonnes for the past two decades.
Conversely, domestic oil consumption doubled from 103 million tons in 2002 to 202 million tons in 2021 (“India Oil and Gas Snapshot“, Oil Planning and Analysis Cell, November 10).
The first ten months of 2022 saw India consume a seasonal record 182 million tonnes, which was higher than the previous seasonal high of 178 million tonnes in 2019, which was reached in the year before the pandemic.
India is a country with a lower middle income that is increasingly industrialising and urbanising. As a result, the country’s consumption is rapidly increasing, even though its customers are subject to price variations and economic cycles.
Consumption has been up about 7% year-on-year over the past 12 months, although there were signs of a halving in October.
Insatiable consumption of oil
As a direct consequence of Russia’s invasion of Ukraine in 2022 and the sanctions imposed on its exports by the United States, the European Union, and other coalition partners, India emerged as a significant buyer of crude oil from Russia during that same year.
As a result of India and China increasing their crude oil and oil product imports from Russia, the United States and the European Union acquired more crude oil and fuel from illegal sources.
Because of India’s reliance on imports and the price sensitivity of its consumers, India would be particularly vulnerable if Russia responded by refusing to provide oil and gasoline at fixed prices. This is owing to Russia’s historical practice of pricing oil and gasoline below market value.
Both domestic refiners and consumers are in for a rough ride due to the lack of crude oil and the accompanying rise in oil and fuel costs.
Selling with a price cap
US and EU politicians have repeatedly said that it would not be rational to freeze or reduce exports to keep Russia exporting.
US Treasury Secretary Janet Yellen, who visited New Delhi on November 11, said the price cap would play into India’s hands by providing more leverage to buy Russian oil at deep discounts.
Yellen told reporters that Russian oil “will be sold at a bargain price, and we’re glad India got this deal” (US says India can buy Russian oil outside the ‘price cap’ but can’t use Western services).
Yellen has emerged as a key supporter of a price cap when the Biden administration attempts to sell the concept to oil purchasers and Asian nations who are sceptical of the idea.
As a result of India’s status as a key diplomatic partner in the context of the United States’ development of an “Indo-Pacific Strategy” to compete with China, the United States administration is eager to ease India’s concerns regarding the impacts of the price cap.
In recent weeks, the administration of the United States of America has scaled back its plans for an ambitious price restriction that would be strictly enforced. The administration has done this out of concern for rising prices, inflation, and the domestic and economic impact of importers such as India.
In the past few weeks, there have been rumours that the administration may declare the cap to be a success if Russia is granted any oil price decreases, regardless of whether or not the reductions were negotiated under the cap.
More strategic oil reserve releases
In contrast to the United States and China, India keeps only a small amount of oil in strategic stocks as a hedge against disruptions in imports.
In the end, the United States will be required to ensure that Indian refineries continue to get oil even if Russian oil exports are disrupted, requiring it to release additional barrels from its Strategic Petroleum Reserve (SPR).
The United States Energy Information Administration estimates that there are 396 million barrels of oil in the SPR even after a recent surge, which is equivalent to 50 and 55 million tonnes when converted using stable exchange rates.
The reserve is a set reserve; as a result, it cannot replace the flow of oil exports from Russia indefinitely, and the crude oil still remaining in the reserve does not satisfy the requirements for exporting oil from Russia.
Nevertheless, fresh releases of the SPR may afford time for politicians and India to explain their position and may also allow Russia to reply in opposition to the price ceiling.