The world’s oil supply chain is almost always active, but when tensions flare in the waterways around the Strait of Hormuz, it can cause energy supplies to be disrupted around the world at an unprecedented rate. India has recently made moves to offset any potential disruption in its crude oil supply and now has more than 30 million barrels of Russian crude being shipped to Indian refineries. The increase in oil shipments to India represents a combination of geopolitical uncertainty, changes in the market, and a determination to secure future supplies.
A Surge in Russian Oil Shipments
Data from commodity analytics firm Kpler shows that India is set to take delivery of approximately 33 million barrels of Russian crude oil in the month of March. Approximately 10 million barrels are currently at Indian ports, and approximately 23 million barrels will be arriving over the next few weeks. The increase in shipments comes after the United States indicated it would issue a waiver for transactions involving already-at-sea Russian cargoes prior to a specific date, thus offering traders and refiners clarity as they move through a complicated sanctions environment. Nikhil Dubey, Kpler’s Senior Refining Analyst, noted that Indian refiners have commenced to expand their purchases now that they have been able to obtain destination information on tankers that were not previously clear on where they would discharge. The complete change in how crude deliveries are made is indicative of how quickly refiners are responding to secure supply during a time of volatility in the region.
India Never Fully Stepped Back
Indian oil purchases from Russia have been steady through political pressure and trade hesitancy; India has continuously imported products from Russia over the last several months without shutting down completely. While there are no sanctions on the crude itself, refiners had placed their own self-imposed bans on importing Russian crude because of the associated risks of market restrictions on Russian crude products in the export market, especially in Europe. Now that there has been a legal waiver, refiners have now become more comfortable with fulfilling shipments that are in transit.
Hormuz Disruption Forces Strategic Adjustments
The addition of Russian inventory is coming at a critical moment. Oil transportation activities through the Strait of Hormuz (SH) have been impacted by escalated tensions across West Asia. The SH corridor is an essential pathway for worldwide oil trade shipments, meaning any interruption will immediately impact global supply chains. As a result, Indian refiners are seeking alternative routes for oil supplies to minimise this risk. For example, refiners loaded around 10 million barrels (barrel = 42 gallons) from terminals along the Red Sea during the first four days in March. Refiners are actively securing cargo bookings via these alternate routes to ensure continued delivery stability.
Oil Prices Reflect Global Uncertainty
Due to the tightening of the global oil market, the price of Brent crude is now hovering around the $93/barrel range, while West Texas Intermediate (WTI) is at $91/barrel. Furthermore, we no longer see Russian oil being sold at a discount as it was before the start of the conflict in Ukraine in 2022; in fact, some contracts are now sold above the price of Brent crude.
The implications for India are significant, as India is the world’s fourth-largest refining location, capable of refining approximately 268 million metric tonnes/year; however, most of the crude comes from imports.
In February, India received approximately 1.04 million barrels/day from Russia, slightly more than from both Saudi Arabia and Iraq.
Higher prices also have economic implications; analysts estimate that each 1 dollar per barrel increase in crude price sustained for one year will act to increase India’s import bill by about ₹16,000 crore.
The expansion of Russian crude imports into India underscores a fundamental truth associated with changing global energy underlying transport; that is, the market for oil is most stable when the ability to ship & sell crude oil quickly and flexibly exists.
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