This incredible turn of events for India in terms of energy supplies has happened very quickly—1 week! Indian refineries have purchased almost 30 million barrels of crude oil from Russia, a huge amount that is forcing supertankers headed to China to change course and return to Indian ports.

The increase in crude oil purchases is being driven by political events as well as instability in the Middle East due to the US/Iranian war and attacks against Iran near the Strait of Hormuz, which are affecting oil supplies throughout the world. For India, having energy security is necessary to survive; it isn’t just a negotiating chip for them.

Tankers Reverse Across Oceans

The worldwide oil shipment volume is constantly changing according to the latest vessel tracking data. The Aqua Titan tanker started sailing toward China with a cargo load of Urals crude from a Baltic port on January 29. While making this journey through the South China Sea on February 21, 2007, she again changed her original course and is now scheduled to berth at New Mangalore, India, on March 21. The Aqua Titan is an example of how rapidly the demand for oil in India is creating new market paradigms. An increasing number of vessels are expected to follow suit by leaving China and going directly to India with their cargoes as a result of these new shipping routes being established.

A second vessel, the Zouzou N Suezmax tanker, which was previously destined for Rizhao, China, has also changed her course. After loading a cargo of CPC Blend (produced in Kazakhstan), the Zouzou N will now arrive in Sikka, India, on or about March 25. This example illustrates how dramatic disruptions are occurring throughout the global supply chain, as traditional shipping routes that serviced China’s high demand for Russian oil are no longer valid and are simply being redirected toward India.

War Disrupts Historic Trade Flows

There has been a recent escalation of the US-Iran-Israel conflict, which continues to have an impact on the shipment of oil through the Strait of Hormuz, where roughly 20% of all oil transported by sea passes through. Iran has reportedly attacked many oil installations in the region, and there have been warnings of further attacks, creating a climate of fear for both producers and consumers of crude oil. Producers and consumers of both oil and gas in Saudi Arabia, Qatar, and other Gulf nations are experiencing increased threats to their energy production capabilities.

The current situation is going to have a significant impact on India, which relies on imported crude oil from the Middle East in order to meet its energy needs. The uncertainty around supply for refiners will result in potential supply interruptions as producers of crude oil in the Gulf nations deal with their own security concerns and possible logistics issues.

Indian refiners’ decision to pivot towards Russian crude oil is their way of trying to offset the instability of the Gulf region and the effect of that instability on the overall global oil market and, put simply, is a significant shift in the way India and the world at large conduct oil trades.

China Loses Ground

Russia’s largest customer has consistently been China for the last few months until recent developments. With countries like India showing new interest in Russian barrels, there seems to be a shift of buyers away from China and to countries such as Japan and South Korea, who are beginning to purchase Russian oil again after negotiating their own terms with Russia. This change will likely have targeted effects on the future supply of Russian oil as countries start to receive new temporary waivers to import oil from Russia. Prior to this change, Chinese oil refiners were hoping to turn their heavily discounted Russian crude purchases in recent months into longer-term contracts with Russian producers. However, as of late, it looks as though Chinese oil refiners may face increased pricing on oil due to increased competition from India.

Why India Is Betting Big

Indian refiners have an obligation to seek out alternatives as both a matter of necessity and of opportunity. With the possibility of disruptions in the supply chain coming from the Middle East, Indian refiners are looking for alternative sources to ensure that they will have enough crude to keep their massive refining complexes operating effectively all throughout India.

Urals crude from Russia has long been sold at a discount when compared with crude from the Middle East. The combination of the price advantage for Urals crude, along with the temporary waiver by the U.S. Government allowing an increase in the amount of Russian crude that can be imported into India, will make purchasing Russian oil even more appealing.

It has been made clear by the Government of India that they have acted in a manner consistent with their own national interests. Energy security is to be maintained independently of any political influences.

The tremendous population of India (1.4 billion people) will have a tremendous amount at stake. If the supply of crude drops, or if the price of crude skyrockets, it could spell disaster for India’s growth and have a very detrimental effect on Indian industry and consumer confidence.

Reactions from Markets and Governments

India’s decision-making will be closely monitored throughout the global energy marketplace through the remainder of 2023, especially in terms of whether or not the previous pattern continues, which could push global crude oil prices higher if Asian demand remains strong even in light of economic challenges.

Russia’s government welcomes increased purchases by India. Russia’s government believes stable long-term customers are very important given the sanctions from western countries against Russia and the ongoing war will cause disruptions in the international marketplace.

China has not formally protested against India’s purchases; however, there are reports of concerns within the Asian market regarding China’s ability to compete for future shipments and possibly increase the difference between the selling price and market price.

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