Indian refiners are estimated to have saved around $3.3 billion in the first half of the current financial year (FY24) through their purchases of discounted Russian crude oil, shows an analysis of India’s official trade data for April-September. Russia, which used to be a marginal supplier of crude to India before the war in Ukraine, was New Delhi’s largest source of oil in April-September, accounting for almost 39 per cent of India’s overall oil imports by volume and nearly 36 per cent by value.
India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85% of its requirement. Crude oil also tops the list of India’s merchandise imports by value. With Western buyers cutting oil imports from Russia in the wake of its February 2022 invasion of Ukraine, Moscow started offering deep discounts on its crude. Indian refiners have been lapping up these discounted barrels, catapulting Russia to the top spot among New Delhi’s oil suppliers.
The total value of India’s oil imports for the first six months of the ongoing financial year was $63.86 billion. Had Indian refiners paid for Russian oil the average per-barrel price they paid for crude from all other suppliers put together, the oil import bill would have been $67.14 billion, shows the analysis by The Indian Express. The value of oil imports from Russia for the period was $22.84 billion. In terms of volumes, India imported a total of 111.51 million tonnes, or 817.35 million barrels, of crude oil in April-September. Oil imports from Russia for the period stood at 43.38 million tonnes, or 317.96 million barrels.
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The average landed price of Russian crude for Indian refiners for the April-September period was $71.83 per barrel, $10.32 lower than the average landed price of non-Russian barrels, as per the analysis. It translates into an effective discount of 12.6 per cent to the average price of oil imported from other supplying nations.
In the overall scheme of India’s foreign trade, $3.3 billion may not appear to be a significant amount, but the savings are substantial for the country’s major oil importers–Indian refiners like Indian Oil Corporation, Reliance Industries, Bharat Petroleum Corporation, Hindustan petroleum Corporation, and Nayara Energy.
The government releases commodity-wise and country-wise trade data with a lag, and so far, data till September has been made available. While the price of crude oil depends on grades and their prices can vary substantially, the average landed price of crude and import volumes from the supplying countries were used for computations as the government does not release grade-wise data.
In April-September, Iraq was India’s second-biggest oil supplier with a market share of 20.4 per cent by volume, followed by Saudi Arabia with a 14.3 per cent share. Prior to the war in Ukraine, Iraq was India’s top supplier of crude oil, followed by Saudi Arabia. In the corresponding six months of last year, Iraq and Saudi Arabia accounted for 24.2 per cent and 17.9 per cent, respectively, of India’s crude oil imports by volume. Russia was in the third spot with a share of 15.8 per cent.
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Compared to the next four major suppliers of crude to India during the first half of the current financial year, the landed price of Russian oil was at discounts ranging between 6.3 per cent–in the case of Iraq–and 19.3 per cent–in the case of Saudi Arabia. The United Arab Emirates was the fourth-biggest supplier of crude to India during the period and Russian crude was 18.8 per cent cheaper than oil supplied by the former. In the fifth spot was the United States (US), and Russian oil supplies to India were at an average discount of 18.9 per cent to US crude, the computations show.
The effective discounts, while significant from the point of view of Indian refiners, are not as high as what had been initially anticipated. Relatively higher cost of freight and insurance for Russian crude as compared to oil from other suppliers is seen as the most likely reason. Most of Russian oil bought by Indian refiners is on delivered basis, which means that shipping and insurance is arranged by the seller. With Moscow facing Western sanctions over the Ukraine war, freight and insurance costs for ferrying Russian oil shot up. This suggests that while the discounts might have been deeper on the actual price of oil, the effective discount on landed price, which includes freight and insurance costs, was much lower.