The Russian war against Ukraine is changing the energy landscape.. What is India’s role? (article)

The global energy markets are witnessing profound transformations as a result of the continuation of the Russian war against Ukraine, which resulted in a geopolitical crisis. These transformations highlighted India’s role as a pivotal player, amidst its growing noticeable influence in the global oil market.

This war provided exceptional opportunities for India to increase its purchases of Russian oil at a discount, in the wake of Western sanctions and the Russian crude price ceiling imposed by the European Union and the Group of 7.

The European Union countries stopped buying Russian oil, starting on December 5.

Later, the G-7 allied with the European Union, to set a price ceiling for Russian crude at $60 per barrel, and to limit Russia’s economic influence.

This led to a significant increase in India’s imports of crude oil from Russia, which at the same time resulted in easing domestic inflation and rating India as the fastest economy not at risk of recession in 2023.

In response, India’s imports of Russian crude oil have grown exponentially, reaching $31 billion in the year from March 2022 to March 2023, compared to just $2.5 billion in the previous year, according to Indian government data.

This increase has propelled Russia to become India’s largest exporter of commodities, overtaking Iraq and Saudi Arabia.

The following graphic – prepared by the specialized energy platform – shows the destinations of Russian oil transported by sea:

Exporting imported crude to western markets

This development is accompanied by disputes, as part of the imported crude is refined in India, and then exported to Western markets as fuel, such as diesel and aviation fuel.

This practice effectively undermines efforts to reduce Russia’s oil revenues, which have increased since the European Union’s ban on Russian crude imports.

In this regard, European Union officials became increasingly concerned about the growing fleet of shadow tankers, which transport Russian oil, and lead to the purchase of oil above the price ceiling imposed by the Group of 7 countries, which is $60 a barrel.

The measures proposed by the European Commission, and agreed by EU member states, aim to prevent such vessels from entering EU ports and to enhance transparency about ship-to-ship oil transfers.

In contrast, these measures have drawn criticism from countries with large maritime industries, such as Greece, Cyprus and Malta, and from market analysts who see the package adding compliance pressures for companies, while easing it significantly.

The following graphic, prepared by the Specialized Energy Platform, shows how India became the largest exporter of fuel to Europe:

India’s role in the global oil market

India’s role in the global oil market is becoming increasingly prominent, buying cheap Russian oil, refining it, and exporting the finished product to the West.

This situation means that higher oil prices may persist due to global supply disruptions and lower production.

In addition, Western sanctions have prevented Indian oil companies from reaping about $400 million in dividends from Russia.

Meanwhile, Moscow’s oil production has increased, but federal budget revenues from fossil fuels have fallen by nearly 36% from the previous year, exposing Russia to a growing financial gap that must be filled to keep its armed forces funded.

The long-term impact of Russia’s war on Ukraine on global energy supply chains and trade relations is expected to be profound.

India unwittingly supports the West

By acting as a “laundry” country, India unwittingly props up the West, helps avert an oil supply shock and stifles Moscow’s energy revenues.

As a result of the evolution of these dynamics, India’s prominence in the global oil market continues to grow.

The following graphic – prepared by the specialized energy platform – shows the list of crude oil exporters to India during the month of March 2023, and the value of exports in billion dollars:

For its part, the United States has shown its neutrality with regard to India’s purchase of oil from Russia, while expressing the hope that India will continue to benefit from the price ceilings set by its Western allies, as stated by the spokesman for the US National Security Council, John Kirby.

Despite the challenges, India is well positioned to benefit from this shift in the global energy landscape.

This shift in dynamics has prompted countries such as Argentina, Ecuador, Egypt, Iraq, Mauritius, Nigeria and Sudan to increase their imports from India.

The shift entailed the need for the Arab world to re-evaluate its strategies in the changing energy landscape, and to recognize India’s growing influence in the global energy market.

The following graphic – prepared by the specialized energy platform – shows the list of importers of Indian oil derivatives during the month of March 2023, and the value of imports in billions of dollars:

Deals between Indian companies and Rosneft

Meanwhile, Bharat Petroleum Corporation, an Indian state-run refiner, is in the negotiation stages with Rosneft, a Russian oil refiner, to buy approximately 6 million metric tons (43.8 million barrels) of low-priced Russian crude.

It is expected that this deal will be based on the Dubai crude standard, and if this deal succeeds, it will strengthen India’s relationship with Russia, which has become its main oil supplier, especially after Western sanctions on Moscow.

In addition, this would underscore Rosneft’s continued shift towards aligning oil prices with the Middle East benchmark widely used in Asia, away from the mainly European-focused Brent index.

Under this potential agreement, Rosneft will deliver between 6 and 7 cargoes per month, each containing approximately 700,000-720,000 barrels, until March 2024, to Bharat Petroleum Corporation.

The agreement – currently – is awaiting approval by the Board of Directors of Bharat Petroleum Corporation, and that approval will lead to an increase in the proportion of Russian oil purchased by the third largest oil importer in the world.

Russian crude sold to Bharat Petroleum Corporation will be priced at $8 a barrel below the Dubai benchmark.

Elsewhere, Indian Oil Corporation (IOC), the country’s main refiner, entered into an agreement with Rosneft to buy up to 1.5 million metric tons of oil per month in April.

The price of oil was assessed according to the Middle East standard, with discounts ranging from $8 to $10 per barrel.

The Dubai index is mainly affected by oil trading in Asia and the Middle East, while Brent crude oil is generally used to price crude oil from Europe, Africa and South America.

Like most Indian refiners, Bharat Petroleum Corporation also makes spot purchases of Russian oil, primarily through traders, Reuters reports.

In addition, in the ongoing contract negotiations, Bharat Petroleum Corporation plans to import a variety of Russian oil types, including Sokol, Farandi and Urals grades.

If the Bharat Petroleum Corporation deal goes through, it may not only strengthen India’s partnership with Russia, but also align Rosneft’s prices with the benchmark of the Middle East, thus confirming the growing influence of the Asia-Pacific region in global oil markets.

In turn, Russia, which accounts for nearly 40%, has emerged as the main exporter of oil to India in 2023.

Against this backdrop, India will need to strategize for the future by significantly increasing its oil storage capacity.

Specialist Energy Platform Consultant Dr. Anas Al-Hajji recommends this course of action, taking into account long-term scenarios of a changing energy landscape.

The following graphic – prepared by the specialized energy platform – shows global crude oil stocks:

* Velina Chakarova is a political affairs specialist in energy-producing countries.

*This article represents the opinion of the author, and does not necessarily reflect the opinion of the energy platform.