Indian refiners have saved at least $10.5 billion in foreign exchange by purchasing discounted Russian crude oil between April 2022 and May 2024. This significant saving has been a result of ramping up oil imports from Russia following the outbreak of the war in Ukraine, according to an analysis by The Indian Express of India’s official trade data.
The Shift in India-Russia Oil Trade
Transformation of Trade Relations
Major Shift in Trade Dynamics
Oil has become a major pillar of the India-Russia trade relationship following the Ukraine war.
Russia, once a minor player in India’s oil trade, is now New Delhi’s biggest oil supplier.
The war in Ukraine and subsequent sanctions on Russia led Moscow to offer discounts on its crude oil, which Indian refiners capitalized on.
Impact of Sanctions and Discounts
With Western buyers reducing oil imports from Russia post its February 2022 invasion of Ukraine, Russia began offering discounts.
Indian refiners significantly increased their purchases of these discounted barrels.
This booming trade has made Russia one of India’s top trade partners, transforming the traditional trade dynamics between the two countries.
Diplomatic and Strategic Implications
Diplomatic Tightrope
India faced criticism from the West for increasing oil imports from Russia, with allegations that it was financing Russia’s war efforts.
India’s Stance: As the world’s third-largest consumer of crude oil with over 85% import dependency, India emphasized its need for energy security and affordability.
Prime Minister Narendra Modi’s recent comments in Moscow highlighted India’s position, stating that the India-Russia oil trade brought stability to global energy markets.
Financial Savings and Economic Impact
Analysis of Savings
FY24 Savings
The total value of India’s oil imports was $139.86 billion.
Without the discounts, the import bill would have been $145.29 billion, indicating a saving of $5.43 billion.
FY23 Savings
The total oil import bill was $162.21 billion.
Without the discounts, it would have been higher by $4.87 billion.
April-May FY25
The estimated savings due to Russian discounts was around $235 million.
Broader Economic Benefits
Discounted Prices
The average landed price of Russian crude in FY24 was $76.39 per barrel, compared to $85.32 from other suppliers.
In FY23, Russian crude was $83.24 per barrel, compared to $96.31 from other suppliers.
Market Influence
Discounts offered by Russia prompted other major suppliers like Iraq to offer discounts as well, further benefiting Indian refiners.
Price Stability
The savings enabled Indian fuel retailers to maintain stable petrol and diesel prices despite international market volatility.
Detailed Insights into Trade and Market Dynamics
Cost Factors
Freight and Insurance
The higher costs of freight and insurance for Russian crude, due to Western sanctions, meant that the discounts were less significant on the landed price.
Moscow faced increased freight and insurance costs, which reduced the overall effective discounts for Indian refiners.
Market Share and Supply Chain Dynamics
FY24 Market Share
Russian crude accounted for nearly 36% of India’s oil imports, totaling 232.31 million tonnes (1.70 billion barrels).
Russia maintained a similar market share in the first two months of FY25.
FY23 Market Share
Russia had a market share of 21.5%, rising significantly from the beginning of the year.
Russia displaced traditional suppliers like Iraq and Saudi Arabia to become India’s largest source of crude oil.
Long-term Trade Impact
Supply Chain Shifts
The shift in supply chains has not only altered India’s oil trade but has also impacted global oil markets.
The India-Russia oil trade has rebalanced the global oil market, keeping prices in check and ensuring energy security for India.
Future Prospects and Challenges
Continuing the Trend
Ongoing Trade Relations
The ongoing trade relationship between India and Russia is expected to continue, with potential further savings and economic benefits.
Indian refiners may continue to benefit from discounted Russian oil, depending on future geopolitical developments and market conditions.
Economic and Strategic Considerations
Economic Impact
The continued purchase of discounted oil is crucial for India's economy, ensuring energy affordability and security.
Strategic partnerships with Russia could enhance India's global trade position and economic stability.
Conclusion
The strategic purchase of discounted Russian oil by Indian refiners has resulted in substantial financial savings and helped maintain energy security. This shift in trade relations underscores the dynamic nature of global energy markets and the geopolitical complexities involved.
Importance for Competitive Exams
This article is crucial for aspirants preparing for UPSC CSE, UPSC CAPF, Assistant Commandant, Essay writing, current affairs, NDA, CDS, SSB Interview, AFCAT, IAS, IB ACIO, and other competitive exams. It provides detailed insights into international trade, geopolitical strategies, and economic policies. Understanding these aspects can significantly aid in answering questions related to global trade dynamics, energy security, and international relations in these examinations.
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