The Story Behind Affordable Russian Oil

By Sanjeev Oak

When the Russia-Ukraine war began in February last year, fuel prices in India skyrocketed. However, a strategic decision to import discounted oil from Russia while reducing dependence on traditional Gulf suppliers stabilized domestic fuel prices. Despite global volatility, Indian consumers have yet to see the full benefits of these discounted imports.

Rising Share of Russian Oil Imports

India’s imports of discounted Russian crude are expected to account for 40% of the country’s total crude imports this month. In April, it made up 36%. Analysts predict this could rise to 50% by next month. Despite Western sanctions and a price cap on Russian oil, India has continued to prioritize these imports, reportedly purchasing barrels at a $13 discount against the global average of $80.

Government officials assert that the country’s trade policies with Russia are driven by national interests, ensuring uninterrupted oil imports. Analysts believe the benefits of lower crude prices will trickle down to Indian consumers in the next two months.

Declining Market Share of OPEC

The surge in Russian oil imports has reduced the market share of OPEC countries in India’s crude basket to a 22-year low. In 2022-23, OPEC’s contribution fell significantly, and projections suggest further decline this year. Russia has overtaken Iraq as India’s top oil supplier, with Saudi Arabia dropping to third place.

Why Russia Is the Preferred Supplier

Russia’s aggressive pricing strategy has outcompeted traditional suppliers from the Middle East, Africa, and Latin America. For instance, Indian refiners processed a record 5.13 million barrels per day (bpd) of crude last year, driven by cost-effective Russian imports. Indian companies have also prioritized exports of refined products like gasoline and diesel to maximize profits.

Impact of OPEC’s Production Cuts

OPEC’s decision to reduce production by 1.6 million bpd starting in May is expected to further bolster Russia’s role as India’s primary supplier. Experts believe OPEC’s cutbacks could unintentionally benefit Russia by increasing its market share in Asia.

Broader Implications for Global Oil Markets

Russian oil exports from Western ports have reached a peak of 2.4 million bpd, with March figures showing a total of 10.8 million bpd in production. This contradicts earlier statements by Russian officials about reducing output. The discrepancy raises questions about the actual implementation of Russia’s production cut commitments.

Pakistan Joins the List of Buyers

Pakistan has also entered the fray, becoming the third country to secure discounted oil from Russia. The country has placed an order for 100,000 bpd, with deliveries expected in May. This move, driven by Pakistan’s economic challenges, highlights the growing appeal of Russian oil amidst global sanctions.

Consumer Impact and Outlook

While discounted Russian oil has helped stabilize Indian fuel prices, significant reductions at the pump are expected in a couple of months. By then, Russian crude could account for half of India’s total imports, potentially offering relief to Indian consumers after a prolonged period of price stability.

India’s approach, balancing its energy needs with geopolitical realities, underscores a pragmatic stance in an era of shifting oil markets.