Iran-Israel war compels Indian refiners to increase June oil purchase from Russia, US to offset supply risks

“Russian crude is acting as a critical buffer for India amid the escalating Middle East crisis. Over the past 30 months, Russian oil has steadily supplied over 35% of India’s total crude imports, a structural shift that has proven strategically valuable. Unlike oil from the Gulf, Russian crude reaches India without passing through the Strait of Hormuz - a chokepoint now under serious threat due to Israeli-Iranian tensions,” said Sumit Ritolia, senior analyst at Kpler.

Also Read: Iran-Israel conflict: Why India's energy sector is worried about Strait of Hormuz closure threat

As of now, the oil supplies from Middle East have not been disrupted. Oil Minister Hardeep Puri has assured India has enough oil stock for coming months, and New Delhi has diversified its oil sources to shield against any supply shock.

The Iran-Israel war that began on June 13 is a risk to India’s energy supplies from Middle Eastern countries, if Tehran acts on its threat and closes the Strait of Hormuz - a crucial chokepoint linking crude producers in the region with key markets worldwide.

Higher Shipping Costs

Despite no disruption to oil supplies from the Middle East, shipping and insurance costs have risen for oil refiners, owing to the Iran conflict. Refinery executives told Moneycontrol on June 16 that they are experiencing an 8-9 percent increase in shipping costs for crude being shipped to India from the Middle East region. This increases the landed cost of crude for the companies, affecting their bottomline.

Also Read: Iran-Israel conflict: Crude surge, threat to shipping lanes keeping oil refiners on the edge

Kpler data showed that India’s crude oil imports from Saudi Arabia and Iraq has declined so far in June on a month-on-month basis. Total supply from Iraq in June is expected at around 859,000 bpd, down from 1.07 million bpd in the previous month, while Saudi oil imports are down to 516,000 bpd from 580,000 bpd in May.

Quickly reacting to the geopolitical unrest, freight rates in the Middle East Gulf (MEG) have spiked—particularly for VLCCs (Very Large Crude Carriers). The cost of shipping crude from MEG to India since June 12 is up by almost 47 percent, Ritolia told Moneycontrol on June 18.

“Shipowners - worried about safety and unclear shipping conditions - are choosing to pause and wait, rather than send their vessels through the region. This ‘wait-and-see’ behaviour has led to fewer ships being available, which means oil companies looking to move crude out of the MEG must offer higher rates to attract ships willing to take the risk,” said Ritolia.

Diversify: India’s import strategy

While India boosted oil supply from Russia, imports also increased from countries such as the US, Colombia and Argentina in June. However, oil imports have so far stayed normal from the UAE, Qatar, Oman and Kuwait, which ship to India via the Strait of Hormuz route, unlike Saudi Arabia and Iraq.

“India is expected to rapidly diversify its intake toward the United States, West Africa (e.g., Nigeria, Angola), and Latin America (e.g., Brazil, Guyana) should the Strait of Hormuz be disrupted. These flows are already tested and viable for Indian refiners, though they come with a significant freight cost premium—voyages are longer and tanker availability may tighten under global re-routing pressure,” said Ritolia.

Kpler said it expects the share of Russian oil in India’s total oil import to further rise, as energy security may take precedence over economics for New Delhi. India is dependent on imports for around 90 percent of its total crude requirement.

Ritolia added that as insurance costs and freight rates for Gulf crude rises, Russian grades are expected to enable India to maintain refinery throughput and shield domestic fuel prices from extreme volatility. India also receives discounts from Russia on imports of its sour grade crude oil, or the Urals.