Stopping Russian oil imports would power India, the world's third-largest oil importer and shopper, to depend on restricted alternate options, doubtlessly driving world crude costs as much as USD 100 per barrel amid rising demand and tight provide.
“Profit from Russian oil imports is approach lower than exaggerated media numbers,” brokerage CLSA stated in a report.
Whereas “some media shops have estimated the profit within the vary of USD 10 billion to USD 25 billion for India from Russian crude imports, we calculate the online annual profit to India from Russian crude imports to be a lot smaller at simply USD 2.5 billion or a small 0.6 bpc of India's GDP,” it stated.
India's import of Russian oil surged dramatically following the Ukraine warfare, rising from lower than 1 per cent of its complete crude oil imports to just about 40 per cent.
This sharp enhance was pushed by steep reductions supplied by Russia after some Western nations' purchases to punish Moscow for its invasion of Ukraine. Whereas the shift helped India safe reasonably priced vitality provides, the Trump administration criticised the purchases, accusing New Delhi of profiteering by shopping for discounted Russian oil and exporting refined gas to areas together with Europe. India has maintained that its actions don't violate any worldwide legal guidelines, as there aren't any sanctions on buying Russian crude. The European Union solely just lately imposed a ban on importing gas derived from Russian crude. Moreover, the US has not sanctioned the acquisition of Russian crude oil or its refined merchandise.
At current, India imports 36 per cent of its oil wants from Russia. Of the 5.4 million barrels per day (mbpd) of imports, 36 per cent (1.8 mbpd) of crude oil got here from its prime provider, Russia, in 2024-25. Different key suppliers of crude oil to India are Saudi Arabia (14 per cent), Iraq (20 per cent), the UAE (9 per cent) and the USA (4 per cent).
Whereas many EU nations have banned imports of Russian oil, a worth cap was launched for different nations buying Russian crude oil. Indian imports have adhered to this worth cap.
Russia exports about 4.3-4.8 mbpd (complete output of 9.2 mbpd), which is about 5 per cent of the general crude oil provide. In addition to India, China is the opposite huge importer of Russian crude oil, with an estimated 2 mbpd of oil imported from the nation over the previous 12 months.
Stating that the online profit from discounted Russian crude is way decrease than media experiences, CLSA stated the headline worth low cost for Russian crude versus Dubai crude seems massive as a result of its USD 60 worth cap, significantly at instances when the Brent crude worth rises above USD 75 per barrel.
“Nonetheless, the online achieve to Indian importers is way smaller than this seen low cost, as there are a number of delivery, insurance coverage and reinsurance-related restrictions for Russian crude. Due to this fact, Indian refiners import Russian crude on a price, insurance coverage and freight (CIF) foundation, landed in India. Thus, the landed worth of Russian crude is at a far decrease low cost,” it stated.
Indian oil advertising corporations (OMCs) have highlighted that the low cost of Russian crude averaged round USD 8.5 per barrel in FY24, however this low cost fell to USD 3-5 in FY25 and has declined to about USD 1.5 per barrel within the current months.
“Utilizing a mean low cost of USD 4 per barrel would indicate a complete annual benefit of simply USD 2.5 billion captured by Indian importers in FY25, ie, equal to 0.6 bps of India's GDP. Nonetheless, present reductions would take down the annualised beneficial properties from this import to simply USD 1 billion,” the report stated.
Though it's simplistic to have a look at Russian crude oil imports in isolation, refining is a enterprise the place one would wish to maintain a balanced slate of enter crude. So, a better share of the inferior high quality Russian crude would require refineries to additionally purchase an even bigger share of higher high quality, costlier crude oil. Due to this fact, to know the actual beneficial properties of Russian oil imports, one must examine if there are beneficial properties within the common worth of crude imported by India.
“To our shock, the import knowledge of the federal government reveals no clear beneficial properties from Russian oil imports, because the unit worth of Indian crude oil imports has moved from a reduction versus Dubai pre-FY22 to a premium over the previous couple of years. So, any such massive achieve shouldn't be discernible from the Indian oil import knowledge,” it stated.
It went on to state that the worth of crude oil, which is transformed into fuels comparable to petrol and diesel, might rise to USD 90-100 per barrel if India stops importing Russian oil. “With only some consumers buying Russian crude, any stoppage from India could make it troublesome for Russia to seek out consumers for presumably 1 million bpd or 1 per cent of world provide within the close to time period. Though India ought to be capable to simply safe provide from different sellers, such a provide disruption might drive a spike in crude oil worth to USD 90-100 per barrel and would drive up inflation internationally, in our view.”
CLSA argued that Indian imports of Russian oil present a much-needed examine on crude oil costs, in addition to curbing the danger of world inflation. “Economics apart, we consider the problem of Russian crude oil imports has now turn out to be a political one with India reiterating its freedom to decide on its commerce companions inside the purview of world commerce guidelines.”
