Daijiworld Media Network - New Delhi
New Delhi, Sep 26: India could face an additional $1.8 billion to $3.7 billion a year in crude oil costs if it replaces 1 million barrels per day (bpd) of Russian oil with supplies that are $5 to $10 a barrel more expensive, according to a Financial Express report.
Replacing around 2 million bpd could broadly double the additional cost, although the estimate is a sensitivity calculation rather than a forecast of the current price differential, UAE-based freelance commodity analyst Natalia Katona told Financial Express.
The bigger challenge for India, however, could be securing sufficient alternative crude rather than the price alone.
Russia supplied around 1.9 million bpd of crude to India in August, accounting for about 42 per cent of the country's crude imports, according to data cited in the analysis. Indian authorities have prioritised energy security and national interests, suggesting that any change in sourcing would more likely involve diversification rather than a sharp reduction in Russian crude purchases.
India is also entering its peak fuel-demand season, which generally runs from October through March or April. Crude requirements are expected to rise during this period as refinery operations move towards maximum capacity, leaving limited scope to reduce overall imports.
Russian crude is no longer cheap in absolute terms. Urals was trading at an $8-a-barrel premium to ICE Brent, Katona said, although it remained cheaper than competing grades. Russian suppliers have also been adjusting their offers against rival barrels to keep their crude commercially attractive to buyers.
Prashant Vasisht, senior vice-president and co-group head of corporate sector ratings at Icra, said Russia accounted for around 52 per cent of India's crude imports in July, compared with about 48-49 per cent in earlier months.
“Replacing such large volumes would be extremely difficult,” Vasisht told Financial Express, adding that India was unlikely to risk fuel shortages because of a tariff threat.
India could seek additional supplies from Guyana, Nigeria, the United States and Brazil, but replacing the entire Russian volume would be difficult because of the scale involved, Vasisht said. Negotiations with suppliers would therefore be important.
West Asian crude could emerge as a longer-term alternative because of the region's proximity to India, lower freight costs, shorter transit times and the suitability of its crude grades for Indian refineries, said Nikhil Dubey, lead analyst for refining at Kpler.
For now, however, Gulf supplies remain constrained. The East-West pipeline has reportedly resumed operations, but loadings at Yanbu are yet to restart, keeping physical availability tight.
The scale of the challenge is considerably larger than India's earlier reduction in Iranian crude purchases. India was buying around 313,000 bpd from Iran in early 2019, accounting for roughly 6 per cent of its total crude imports, compared with around 1.9 million bpd sourced from Russia in August.