Russia invaded Ukraine in the last week of February 2022. In the year since, geopolitical tension has led to volatility in crude oil prices, new energy supply dynamics, increased focus on energy security, and a windfall for some. Here are the top takeaways on what the invasion meant for India’s energy story.
Russia now India’s top crude oil supplier
After the US imposed sanctions on Russia, the country’s crude oil was made available to countries including India at discounted prices. This price advantage made Russia the new favourite in India’s crude oil import basket.
Shortly after the war broke out, the oil ministry informed parliament that less than half a percent of India’s crude oil imports came from Russia. However, this changed dramatically, with Russia becoming the top source of crude oil to India in October, surpassing Saudi Arabia and Iraq, according to Vortexa, an energy intelligence firm.
Windfall gains tax
Crude oil prices have been volatile, first due to the pandemic and then the Russia-Ukraine war. The Indian crude oil basket was at $84.67 per barrel in January 2022, before the start of the war, moved to $116.01 in June 2022 and was at $82.53 this month.
India’s oil producers – Oil and Natural Gas Corporation, Oil India and private companies – sell oil to Indian refiners benchmarked to global prices. The sudden spike in global prices led to windfall gains for domestic oil producers, leading to the introduction of a windfall gains tax on domestically produced crude oil and export of petrol and diesel in July, when oil prices were at their peak. The tax remains in effect.
Gazprom shuts tap for GAIL
In 2018, GAIL signed a long-term liquefied natural gas-sourcing contract with the then Gazprom Marketing & Trading Ltd. for 2018-2040. The contracted supply, however, stopped in May 2022, after ownership of the Russian company’s unit was transferred to Germany and gas was diverted to meet Europe’s energy needs. The contracted supply of LNG remains suspended, forcing GAIL to consider alternative sources.
India bats for energy security
India has focused on energy security at global platforms. At the G-20 Summit in November, Prime Minister Narendra Modi made a pitch to protect India’s energy security and opposed restrictions on the supply of energy.
The oil ministry pointed out that India has been able to navigate through the crisis due to its four-pronged energy security strategy – diversification of supplies; increasing the exploration and production footprint; alternative sources, and meeting energy transition through gas-based economy, green hydrogen and electric vehicles.
India increased the number of its crude oil suppliers to 39 countries in FY22 from 27 in FY07, adding countries including Columbia, Russia, Libya, Gabon, and Equatorial Guinea, Hardeep Singh Puri, petroleum and natural gas minister, said in January, explaining India’s diversified sourcing strategy.
Right after Russian tanks rolled over the Ukraine border last year, the oil ministry said it was prepared to release supplies from its strategic petroleum reserves to mitigate market volatility and calm the rise in crude oil prices. However, the need for it did not arise.
In the Union Budget for FY24, Rs 5,000 crore has been earmarked to augment India’s strategic petroleum reserves.
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