India went on bargain hunting for Russian crude as the conflict prompted Moscow’s traditional buyers to shun those barrels and traders, stuck with shipments, started offering big discounts. India has opted to import crude from Russia despite pressure from developed nations to shun shipments in the wake of Moscow’s decision to attack Ukraine.
The country has emerged as the second-largest buyer of Russian crude after China. Russian oil accounts for 12% of the country’s total oil purchase against less than 1% before the war. In July, Russia became India’s second-largest oil supplier, relegating Saudi Arabia to the third spot. Although Riyadh won back its position in August, Russia remains the third-largest oil supplier for India, Reuters reported, quoting trade data.
Data sourced from the commerce department showed that during April-July, India’s mineral oil imports from Russia soared over eight times to $11.2 billion, compared with $1.3 billion in the corresponding period last year. Since March, when India stepped up imports from Russia, imports have topped $12 billion, against just a shade over $1.5 billion last year. Around $7 billon of these imports took place in June and July.
Oil prices are critical for India as it meets 83% of demand through imports, which makes the economy vulnerable. The country’s oil import bill doubled to $119 billion in 2021-22, stretching government finances and weighing on the post-pandemic economic recovery.
Earlier this month, finance minister Nirmala Sitharaman had told a seminar that importing oil from Russia was part of the inflation management strategy and other countries were also doing something similar.
To put things in perspective, refiners buy oil and not the government. But cheaper oil has a positive impact on macroeconomic parameters of the economy. They keep costs down, the current account deficit in check by lowering the import bill and reducing dollar demand. The government’s subsidy bill also comes down, leaving money for social welfare and infrastructure.
This is the second time that bargain hunting in the global oil market has saved India money. In 2020, when oil prices crashed as the pandemic shut down the world, the government filled up strategic reserves and refiners stored oil in ships to save Rs 25,000 crore when prices rose later, first reported by TOI on May 5 that year.
The flow of Russian oil to India continues as traders work around sanctions-related issues in shipping, insurance, and banking to keep shipments attractive enough for interested buyers.