While the recent eruption of the conflict between Israel and Iran has not had any significant impact on the global oil markets as yet, any further escalation could hit Indian supplies of crude oil and refined oil products, analysts say. The key red sea route has largely been avoided by shippers after the conflict began, with shipping rates witnessing an uptick.
“There is no immediate impact as yet given that Iran, Israel and Lebanon are not significant oil trade partners for India, but in the event of a wider Middle East conflict, it can impact India given India’s continued reliance on crude oil from the region,” said Pulkit Agarwal, Head of India Content (cross commodities) S&P Global Commodity Insights.
He noted that shippers have been avoiding the Red Sea route for some time now owing to Houthi attack fears. “Owing to heightened tensions, there have been fresh attacks reported on ships in the Red Sea, leading to further slump in commercial shipping traffic. Shipping rates in the region have also seen a slight uptick.”
India’s export of petroleum products, which rebounded in September following a slump, can once again face a sluggish growth on the back of rising shipping costs if the situation continues.
India’s export of petroleum products in September rose by 36.4% to 1.55 million barrels per day against 1.13 million barrels per day in August, according to data from energy cargo tracking firm Vortexa. The increase in exports comes off the back of a widening arbitrage amid refinery maintenance in Europe.
September exports volume has been the highest since March 2022 due to softer cleaner tanker rates and increased demand overseas after the European refineries went under maintenance.
In the first six months of the current fiscal year 2024-25, the country exported 11.41 million barrels per day of petroleum products, almost unchanged from the same period a year ago.
“India’s clean product exports to Northwest Europe surged in September, off the back of a widening arbitrage amidst ongoing European refinery maintenance. Soft clean tanker rates have also supported the arbitrage,” said Serena Huang, head of Asia Pacific analysis at Vortexa.
Analysts do not see any real impact of the conflict between Iran and Israel on actual supply flow from the country. However, any further escalation could send the oil markets and flows in turmoil.
“The market is pricing in higher risk premiums, but we do not see any real impact on actual supply flow at the moment,” Huang said. “Vessel demand and supply fundamentals are still very much weighing on freight rates, offsetting any rise in risk premiums.”
Besides imports of Russian crude, the majority of India’s crude imports and product exports to the West of Suez transit via the Cape of Good Hope.
“For crude oil imports, Red Sea route has been continuing for India for Russian origin crude oil into India, even after the Houthi blockages,” Agarwal said. “That flow has largely been un-disturbed ever since the conflict started, and remains the only large-scale oil flow to continue despite the blockages.”
Indian refiners have been seen taking the Cape of Good Hope route for oil product exports ever since Red sea issues cropped up.
Many tankers are already opting for the longer route via the Cape of Good Hope for the delivery, resulting in higher shipping costs. Africa’s Cape of Good Hope shipping route can extend voyages for up to 14 days or beyond, as per industry people and analysts.
“To take just one specific example, the route from Jamnagar to Rotterdam takes 24 days via the Suez Canal and 42 days via the Cape of Good Hope,” Viktor Katona, lead crude analyst at Kpler had said.
Last year, 3.5 million barrel a day of refined product flows was shipped via the Suez Canal, a record annual high, making up 14% of total refined product flow, as per a Kpler’s report.
“In terms of the difference between the two routes – while it depends on the origin and destination ports, but as an example, the typical Singapore to Rotterdam sea voyage is almost 40% longer via cape as compared to Suez,” Agarwal said.
The country exports a variety of goods via the Red Sea including petroleum products. However, the traffic diversion from the Red Sea and around the Cape of Good Hope on the back of escalating tensions over the Sea has added ten days to Asia-Europe journeys while also increasing fuel costs, the government had said in its Economic Survey.
“Although global shipping costs returned to pre-pandemic levels by the middle of last year, container shipping rates have risen again,” the survey had noted. “Extended detours around the Cape of Good Hope have led to a significant surge in ocean freight rates, reaching up to $10,000 per 40-foot container. Moreover, the Suez Canal Authority has declared a 5-15% hike in transit fees for ships passing through the Panama Canal.”
The country’s top destinations for the exports in September were southeast Asia, northwest Europe, and the Middle East. Exports to Europe increased significantly to 465,485 barrels per day last month against 54,716 barrels per day in August. Supplies to southeast Asia also rose 88% to 312,557 barrels per day compared to the previous month. Exports to the Middle East also increased by 18% to 235,587 in August.
India primarily supplies petroleum products to countries in Europe and Asia. The country has emerged as a major fuel supplier to Europe in the past few months after European countries started boycotting Russian supplies post its invasion of Ukraine.
Not just India faces a threat in its export volumes of petroleum products, but the country’s own domestic consumption is seen registering a modest 3% growth in FY25, data published by the Petroleum Planning and Analysis Cell showed. The growth will be lowest since FY22.
The country’s demand for petroleum products including jet fuel, diesel, LPG among others is likely to grow to 239 million tonnes in the financial year 2024-25. The country’s consumption of petroleum products stood at 233 million tonnes last year.