New Delhi: The global oil landscape has already shifted significantly due to the Russia-Ukraine conflict, and the latest US sanctions on Russia's energy companies are raising concerns about inflation in developing economies as oil prices soar to unprecedented levels.
Over the past few years, especially after the geopolitical tensions surrounding the Russia-Ukraine conflict in 2022, India significantly increased its imports of Russian oil. This shift was driven by discounted prices offered by Russia, making it an attractive option for India, which is one of the world's largest oil consumers. Now does this new US sanctions mean India’s days of buying cheap Russian oil could be over, what could be the alternative?
India’s former ambassador, KP Fabian tells ETV Bharat that it is crucial to consider how Trump, who aims to bring an end to the conflict in Ukraine, might approach this situation. He could potentially delay the implementation of current strategies. If he were to halt military assistance to Ukraine, it could lead to a ceasefire and negotiations.
“In such a scenario, Russia would likely demand the lifting of economic sanctions, compelling the West to comply. Furthermore, India should engage in discussions with the Trump Administration, which seems to be the direction indicated by the recent statements from the Ministry of External Affairs. Ultimately, it appears that the actions of the Biden Administration are not likely to deter India from continuing its hydrocarbon purchases from Russia”, said Fabian.
Last Friday, the U.S. Treasury imposed sanctions on two Russian oil producers and 183 vessels, mainly oil tankers involved in transporting Russian crude. Currently, these sanctioned tankers are allowed to unload crude oil until March 12.
On being asked about the impact on India after US announced sanctions on Russia, India’s Ministry of External Affairs spokesperson, Randhir Jaiswal on Friday, 17 January said, “We are in touch with the US authorities to clarify issues about the impact on Indian entities. India’s oil purchases have been and always are guided by its own energy security requirements along with prevailing global circumstances and market conditions”.
It is pertinent to note that as of 2024, India imported a significant amount of oil from Russia, with the volume increasing notably since the Russia-Ukraine conflict began in 2022. In 2023, India imported approximately 1.6 million barrels per day (bpd) of oil from Russia, making Russia India's largest supplier of crude oil, surpassing traditional suppliers like Iraq and Saudi Arabia.
In 2022, India imported around 750,000 barrels per day from Russia, and this number nearly doubled in 2023 due to the discounted prices offered by Russia amidst the global sanctions on Russian oil. India’s total oil imports typically range around 4.5 to 5 million barrels per day, meaning Russian oil accounts for nearly a third or more of India's overall crude oil imports in recent years.
According to sources, with the new US sanctions, Russian oil exports to India may fall to under 800,000 barrels per day by February, a significant decrease from more than a million barrels in December 2024.
Furthermore, Rajoli Siddharth, a Research Assistant with the ORF Strategic Studies programme, focusing on Russia's domestic politics and economy, opined that India has less than two months to continue to import sanctioned crude. The bigger problem for India is the difficulty of finding oil traders abroad for Russian crude. The direct costs for the consumers will increase. Considering the market shrinkage for crude imports, its likely purchases may decline. Further, the costs of facilitating oil trade from Russia will also increase.
He noted that it is unlikely that India would be hit hard by the sanctions. "The government factors in these externalities. We also have to factor in that the surge in oil imports took place only after 2022, so the value chain dependence on Russian oil has not increased yet. Thus, the domestic energy sector purchases gas according to the supply and demand factors", added Rajoli.
He pointed out that India buys oil at a discounted price from Russia, so India will be impacted, but not as much as others, while adding that it is necessary to also factor in how other actors across the world dependent on Russian oil would be impacted. This will result in a price shock across the World.
