Iran-Israel conflict impact: India has increased its Russian oil procurement in June, with import volumes surpassing the combined purchases from Saudi Arabia and Iraq, amidst market instability following Israel’s significant offensive against Iran.
India, the world’s third-largest oil importer and consumer, acquired approximately 5.1 million barrels of crude oil internationally, which refineries process into products such as petrol and diesel.
According to preliminary analysis by global trade analytics firm Kpler quoted in a PTI report, Indian refiners are expected to purchase 2-2.2 million barrels per day of Russian crude oil in June, reaching a two-year peak and exceeding the total quantities acquired from Iraq, Saudi Arabia, the UAE and Kuwait.
India’s Shift To Russia, US Oil
- Following Russia’s invasion of Ukraine in February 2022, India shifted its oil procurement strategy significantly. The nation, which historically relied on Middle Eastern supplies, began substantial Russian oil imports due to attractive discounts resulting from Western sanctions and European boycotts.
- Russian oil imports to India measured 1.96 million barrels per day (bpd) in May.
- American oil shipments to India increased to 439,000 bpd in June, significantly higher than the 280,000 bpd acquired in the preceding month.
- Kpler’s projections indicate Middle Eastern imports for the complete month will approximate 2 million bpd, showing a reduction from the previous month’s acquisitions.
- India’s shift has been substantial, with Russian oil imports rising dramatically from under 1 per cent to approximately 40-44 per cent of India’s total crude purchases within a brief timeframe.
- Sumit Ritolia, Lead Research Analyst, Refining & Modeling at Kpler noted the substantial changes in India’s import approach over the past two years.Russian oil varieties (Urals, ESPO, Sokol) operate independently of Hormuz, utilising alternative routes via the Suez Canal, Cape of Good Hope, or Pacific Ocean.
- Indian refineries have developed adaptable refining and payment systems, whilst enhancing operations for diverse crude options. Alternative sources from the US, West Africa, and Latin America, despite higher costs, present increasingly feasible alternatives.
Iran-Israel war: Growing Middle East Tensions & India Impact
Currently, oil supply chains remain stable despite Middle Eastern tensions. “While supplies remain unaffected so far, vessel activity suggests a decline in crude loadings from the Middle East in the coming days,” Ritolia was quoted as saying.
“Shipowners are hesitant to send empty tankers (ballasters) into the Gulf, with the number of such vessels dropping from 69 to just 40, and (Middle East and Gulf) MEG-bound signals from the Gulf of Oman halving.”
The current MEG availability is expected to become more constrained shortly, which could necessitate India to reconsider its procurement approach.
The Strait of Hormuz, positioned between Iran’s northern border and the southern territories of Oman and the United Arab Emirates, functions as the primary channel for petroleum exports from Saudi Arabia, Iran, Iraq, Kuwait, and the UAE. The waterway also accommodates substantial liquefied natural gas (LNG) transportation, particularly from Qatar.
With increasing military tensions between Israel and Iran, the latter has indicated possible closure of the Strait of Hormuz, which facilitates one-fifth of global oil movement and significant LNG exports.
India’s dependence on this maritime route is substantial, with 40 per cent of its oil imports and half of its gas requirements passing through this narrow passage.
Kpler reports that apprehensions regarding potential Strait of Hormuz closure have grown following Israel’s offensive actions targeting Iranian military and nuclear facilities. Iranian hardline elements have suggested closure, and state media outlets predict oil prices could reach $400 per barrel.
“Yet, Kpler analysis assigns a very low probability to a full blockade, citing strong disincentives for Iran,” Ritolia said.
India Insulated?
India’s crude imports from Russia and the United States in June demonstrate this stability-focused combination. If conflict deepens or there is any short-term disruption in Hormuz, Russian barrels will rise in share, offering both physical availability and pricing relief. India could increase its reliance on the United States, Nigeria, Angola, and Brazil, despite higher transportation expenses.
Additionally, India has the option to utilise its strategic reserves, which cover approximately 9-10 days of imports, to address any deficits.
The administration could implement price support measures to control inflation if domestic rates increase, particularly for diesel and LPG.
Source: Times of India
