India eyes Russian crude import amid price surge

Facing a surge in global crude oil prices, India is considering importing larger volumes of Russian crude as Moscow is offering a discount of over $20 a barrel at the Indian coast in addition to covering transportation risks, two officials aware of the development said.

The Russian offer would help India to calm rising pump prices to some extent, they said, requesting anonymity. Retail rates of petrol and diesel were raised by 50 and 55 paise a litre, respectively, on Sunday, the fifth hike in six days, which made petrol costlier by ₹3.70 a litre and diesel by ₹3.75 since an unofficial freeze on prices were lifted on 22 March.

It is the priority of the government to ensure India's energy security and provide fuel at affordable rates to its people, especially at a time when other oil producers are unwilling to raise output to calm the global oil price surge, the officials said.

"The Western nations have no inhibition to import energy from Russia in very large quantities. America, which is self-sufficient, has no interest in putting pressure on the OPEC (Organization of the Petroleum Exporting Countries) to increase production," one of them said. "India is the third-largest importer of crude after the US and China, and imports about 85% of requirements. It cannot afford to turn down the offer, especially when there is no explicit sanction against Russian crude."

Three state-run refiners have already committed to buy 6 million tonnes of Russian crude, and other refiners are negotiating terms with Russian oil companies for another 4 million tonnes, the second official said.  

So far, India imported a small quantity of Russian crude, which was less than 1% of its total crude oil imports, he said. In 2021-22, India imported only 0.419 million tonnes of Russian crude compared to a total import of 175.9 million tonnes, official data till January 31 show. In 2020-21, the volume was only 0.633 million tonnes.

"Earlier, import from Russia was minuscule because of economic reasons such as transportation cost, insurance fee, quality of crude and pricing. Now with the discount, risk-free delivery at the doorstep and surging international oil prices have made Russian crude viable for Indian refiners," he said.

Companies are free to take decisions purely on commercial considerations as international oil prices have skyrocketed because of supply concerns, he said. Benchmark Brent crude jumped 25.58% to $120.65 per barrel on Friday from $96.84 on 23 February, a day before Russia declared war against Ukraine.

"When European Union can buy Russian crude, why can't India?" the second official asked.

There are expectations that there will be some price corrections amid the European Union's decision to avoid restrictions on Russia and ease supply worries relating to Kazakhstan, brokerage Kotak Securities said in a 25 March report. "The EU is highly reliant on Russian energy supply and wants to avoid any negative impact on economic activity and inflation," it said.

India is concerned that high oil prices would stoke inflation and adversely impact economic growth, experts said.

"India is a net importer of crude oil and it is estimated that every 10% increase in crude oil prices impacts the current account deficit by ~30 bps (basis points) and CPI (Consumer Price Index) inflation by ~40 bps and GDP by ~20 bps, all else remaining constant," said Shibani Kurian, senior executive vice president and head, equity research at Kotak Mahindra Asset Management Company.

"However, unlike the past, this time around there are a few offsets from a domestic standpoint, which includes high forex reserves, strong FDI (foreign direct investment) flows and improvement in export growth," Kurian said.