The removal of Russian crude oil from the global energy market could have serious repercussions for the global economy, experts said amid US President Donald Trump’s threat of secondary sanctions on Russian oil.
However, India’s approach of diversifying crude oil sources to mitigate supply-related challenges would help the country secure necessary oil supplies if secondary sanctions are imposed on Russian oil, they said. Currently, India buys around 30 percent of its crude oil imports from Russia.
Trump recently threatened to levy secondary sanctions on Russian oil buyers if Moscow failed to end the war with Ukraine. Russia is the world’s third-largest crude oil producer, accounting for approximately 11 percent of global oil supplies.
“Since the beginning of the war, Russian oil has not been stopped from coming into the market but instead price caps were imposed. If such (secondary) sanctions are put in place, crude oil prices would rise. It would have an inflationary impact on all commodities, and probably result in global recession,” said Prashant Vasisht, VP and Co-Head, Corporate Ratings, ICRA.
However, experts express doubts over the implementation of secondary sanctions as Trump’s stance on oil supply from Russia remains unpredictable. “Trump’s threat of secondary sanctions on Russian oil seems difficult to implement. Anyway, Trump has (been blowing) hot and cold around such tariffs and sanctions. So, we don’t really know,” said Hitesh Jain, Lead Analyst at Yes Securities.
More suppliers on board
Amid geopolitical crises and rapidly evolving global trade dynamics, India has been expanding its oil import portfolio to secure supplies as it is a net-importer of crude oil. The country depends on imports for over 85 percent of its total crude requirements, with around 30 percent sourced from Russia.
“There are several options available for India (for oil supplies). We have been diversifying our sources. Securing oil supply would not be a major challenge,” Harshraj Aggarwal, executive vice president at Yes Securities, told Moneycontrol.
“Russian oil supply (in India) is already on the lower side (from earlier levels) and the discounts have also narrowed currently to $2-$3 per barrel,” added Aggarwal. India’s oil imports from Moscow have slumped in recent months as the discounts on Russian oil narrowed from highs of $12-$13 per barrel to current single-digit discounts.
“The talks are currently preliminary. We don’t know as of now (regarding Trump’s decision). India would secure supplies from alternate sources. But taking out Russian oil from the global energy market would not be beneficial for any player. Direct sanctions on Russian oil have never been implemented,” said Prashant Vasisht, VP and Group Head at ICRA.
Given the geopolitical stress and its impact on the global energy market, India has been diversifying its crude oil sources to shield itself from supply-related challenges.
Union Minister of Petroleum and Natural Gas Hardeep Singh Puri had told Moneycontrol that India currently purchases crude oil from 40 countries, compared to only 27 suppliers in 2007.
Puri had said that India’s energy import strategy is dependent on discounts offered by the suppliers, as the country is looking to buy the cheapest oil available in the market.
India’s heavy reliance on Russian oil
India’s crude oil import from Moscow reached an eight-month high in March despite sanctions by the outgoing Biden administration on Russian oil entities, highlighting the inefficiencies in enforcement of the curbs.
India purchased approximately 1.9 million barrels per day (bpd) of Russian crude oil in March — marking an increase of 480,000 bpd month-on-month and 300,000 bpd year-on-year, showed data from commodity market analytics firm Kpler. India imported 1.47 million barrels of crude oil from Russia in February.
The rise in imports of Russian oil comes despite stricter sanctions on Russian oil by former US President Joe Biden. On January 10, the Biden administration imposed sanctions on Russian oil producers Gazprom Neft and Surgutneftegaz, as well as around 180 tankers shipping Russian oil.
India has also been ramping up crude oil imports from countries including the UAE, the US, Kuwait, and Nigeria, while maintaining close trade ties with traditional Middle Eastern suppliers such as Iraq and Saudi Arabia.
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