Why in News?

India’s crude oil imports witnessed a significant shift in December 2024, with increased reliance on West Asian countries like Iraq and the UAE.

This adjustment comes as Russian crude oil supplies dwindled due to heightened domestic demand.

What’s in Today’s Article?

• Key Drivers of India’s Oil Imports
• Rising Role of West Asia in India’s Oil Imports
• Price Dynamics of India’s Oil Imports
• Future Outlook of India’s Oil Imports
• Conclusion

Key Drivers of India’s Oil Imports:

• Prior to the war in Ukraine:
  • Iraq and Saudi Arabia were the top two suppliers of crude oil to India.
  • But as the West started removing itself off Russian energy supplies following Moscow’s February 2022 invasion of Ukraine, Russia started offering discounts on its crude.
  • Indian refiners took advantage of the situation, importing discounted barrels from Russia.
• Shift towards West Asia:
  • Russia’s domestic demand surge:
    • Russian refineries operated at higher capacities post-autumn maintenance, reducing export volumes.
    • Seasonal demand in Russia capped oil exports, impacting Indian refiners reliant on Russian crude.
  • India’s imports from Russia:
    • Imports of Russian crude dropped 17% to 1.48 million barrels per day (bpd).
    • Russia’s market share in India’s oil basket declined to 31.5% from 38% in November.

Rising Role of West Asia in India’s Oil Imports:

• Iraq’s increased share:
  • Iraq emerged as a key beneficiary, with imports jumping 29% to 1.13 million bpd.
  • Iraq’s share in India’s oil imports rose from 18.7% in November to 24% in December.
• UAE’s growing presence:
  • UAE imports hit a 32-month high of 530,000 bpd, up 22.1% month-on-month.
  • UAE’s share increased to 11.2% in December, up from 9.2% in November.
• Saudi Arabia’s moderate gains:
  • Imports from Saudi Arabia rose 4.4% to 649,000 bpd.
  • Riyadh’s market share grew marginally to 13.8%.
  • However, Saudi Arabia was unable to capitalise on the opportunity due to its barrels being priced higher than Iraqi and Emirati oil.

Price Dynamics of India’s Oil Imports:

• Comparative pricing:
  • Russian Urals crude was priced $5.5 per barrel cheaper than Saudi Arabia’s Arab Light.
  • Iraq’s Basrah Medium crude was competitively priced, only $0.80 higher than Dubai crude.
• Impact on Indian refiners:
  • Discounts on Russian crude have shrunk but remain attractive due to India’s large import volumes.
  • Even marginal cost savings on oil significantly benefit India, which imports over 85% of its crude needs.

Future Outlook of India’s Oil Imports:

• Short-term trends:
  • Russian oil imports are expected to remain low in early 2025 due to domestic constraints.
  • Indian refiners are likely to rely more on West Asian suppliers.
• Potential rebound: Russian exports may recover during spring maintenance season, potentially resuming higher Indian imports by March-April 2025.

Conclusion:

• As the world’s 3rd-largest consumer of crude oil with a high import dependency level of over 85%, India is extremely sensitive to oil prices.
• The shift in India’s crude oil sourcing highlights the country’s agility in navigating global oil market dynamics.
• While Russia remains a critical supplier, the growing importance of West Asian nations like Iraq and the UAE underscores India’s strategic approach to maintaining energy security and cost efficiency.