Times are a-changing with India’s commitment to stop directly or indirectly buying deeply discounted Russian oil that met a significant part of its requirements for imported oil since 2023. As its import dependence is as high as 88%, the cost of diversifying its supplies has serious implications for India’s energy security.
Discontinuing purchases of cheaper Russian oil is important for the framework of an interim trade deal with the US that lowered tariffs from 50% to 18% on our goods.
There is no doubt that this condition sharply constrains India’s sovereign right to access energy supplies from anywhere in the world depending on the cost—which was our rationale for accessing cheaper supplies from Moscow in the first place.
So far there has been no definitive statement from the ruling dispensation as to whether or not we did commit to stop purchasing Russian oil.
Commerce and Industry Minister Piyush Goyal, however, has clearly emphasised that buying oil from the US or Venezuela is now in India’s strategic interests while underscoring that purchasing decisions on energy continue to rest with Indian companies.
US narrative on India-US agreement and Russian oil
The US, for its part, is clear that such imports from Russia will be closely monitored and secondary sanctions will be re-imposed if there is any breach.
Even if there has been no explicit announcement by India to halt such imports, Indian refiners are avoiding Russian oil for delivery in April and are expected to stay away from such trades.
Only earlier contracts are going through with imports winding down below 1 million barrels per day (bpd) by March and eventually dropping much further to 500,000-600,000 bpd as compared to 1.7 million bpd last year.
The big question
The big question naturally is whether accessing oil from the US or Venezuela will come at no additional cost or is costlier than Russian oil. Unfortunately, the dynamics of the global oil market that is supposed to be awash with supplies does not offer much room for comfort in this regard.
Brent spot prices—which fell by one-fifth last year—are up with geopolitical tensions amidst prospects of a US strike on Iran. Instead of a crash in prices to sub-$60 a barrel due to excess supply, they were up to $70 a barrel in end-January and now hover at $68 a barrel.
Thus, the current conjuncture to consider non-Russian options does not bode well for India. A degree of caution is definitely warranted on its part as it looks to the US or Venezuela, amidst serious doubts regarding the latter’s ability to supply more oil without massive investments.
There is no option for India but to bolster its energy security by reversing the steady decline in domestic oil output that has been happening for various reasons, including low investment due to obstructive regulations, high taxation, and declining output from mature fields. We also lack the technology for deep water exploration.
These are interesting times for deep-sea drilling and India must go all in to incentivise the global oil majors to help in this regard. Improving relative self-sufficiency must be taken up in a mission mode to prospect for oil with the latest technologies in our offshore basins and boost domestic output over the medium term.
This is the best way to reassert our strategic autonomy on the energy front that has been circumscribed by the interim trade deal with the US.