MC EXCLUSIVE New routes, more Russian barrels on cards as petroleum ministry, refiners draw up contingency plan

Petroleum ministry meets Indian refineries, charts contingency plans including alternative oil supply options as Middle East tensions escalate

• India explores alternative crude supply amid Middle East tensions
• Strait of Hormuz disruption may raise costs, impact oil imports
• Indian refiners may boost Russian oil purchases if needed

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India is putting in place a contingency plan, which includes exploring new routes and increased intake of Russian barrels, to secure crude supply as widening West Asia conflict poses risk to energy security, sources have told Moneycontrol.

The petroleum and natural gas ministry held multiple meetings with the oil marketing companies over the weekend, taking stock of the situation and charting contingency plans, including alternative regions and routes for supply of crude oil.

India meets 90 percent of its crude needs through imports and nearly 50 percent of it comes from Iraq, Saudi Arabia, the UAE and Kuwait , which now find themselves in the line of fire.

On February 28, the US and Israel jointly launched strikes on Iran, killing the country’s supreme leader Ali Khamenei. Iran has hit back with strikes on US bases and civilian infrastructure across the Gulf countries.

Shipping infrastructure has taken a hit and “blocking” of  key oil route such as the Strait of Hormuz, from where 20 percent of global oil supply passes through, is expected to hit the energy markets.

Benchmark Brent price rose to $79 a barrel on March 2, up from $72 on February 28.

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Movement of ships through the Strait of Hormuz has come to a standstill, industry sources told Moneycontrol. Nearly half of the India oil and 85 percent of its LPG imports passing through the strait.

The strait runs between the Persian gulf and the Gulf of Oman and is the only sea passage from the Persian Gulf to the open ocean.

Iran controls the strait north of the shipping lanes and Oman the south.

Any disruption will have a broader impact for the entire energy market, Prashant Vasisht, senior vice president and co-group head, corporate ratings, Icra Ltd said.

“If the strait is disrupted, Indian refiners will have to take longer routes leading to extended voyages and increased freight costs,” sources told Moneycontrol.

Russian oil to rescue?

India plans to secure crude through the Saudi East-West (to the Red Sea) and Abu Dhabi Crude Oil Pipeline (to Fujairah) to bypass the Strait of Hormuz, sources said.

Indian refiners are considering increasing their purchases of Russian oil if access to the Middle Eastern grades supply tightens, sources said.

Over the past few months, India’s dependence on Middle Eastern barrels has increased, as refiners have pivoted away from Russia after the US sanctioned major Russian oil producers Rosneft and Lukoil.

While announcing the India-US trade deal, US President Donald Trump also said India agreed to stop buying Russian oil.

According to analytics firm Kpler, there is a continued availability of Russian cargoes in the Indian Ocean and Arabian Sea region, including volumes in floating storage.

“Should Middle Eastern inflows tighten, Indian refiners could pivot back toward Russian grades relatively quickly,” Sumit Ritolia, lead research analyst, refining and modelling at Kpler said.

While India has a diversified crude import slate, Gulf crude retains a clear logistical advantage with a five–seven day voyage compared to 25–45 days of voyage from the Atlantic, according to Kpler.

Russia remained the largest supply of crude to India in February, with imports from Moscow reaching 1.1 million bpd even as imports remained significantly down from its previous high of 1.8 million bpd in November, Kpler data showed. In January, India’s Russian oil imports stood at 1.2 million bpd.

Imports from Iraq stood at 992,000 bpd against 1.06 million bpd in January while Saudi Arabia exported 1.04 million bpd in February compared to 774,000 bpd in January.