As oil continues to rally in the wake of fresh American sanctions on Russian supplies, India may tap a recent free trade agreement (FTA) with the UAE to source larger volumes of crude oil from the West Asian country to fill in any gap created by a potential disruption in supplies from Moscow, sources told FE.
“This (getting more oil from the UAE) is one of the options available to India, and there are others. But the bigger problem is that you are not going to get cheap oil if the Russia-Ukraine conflict lingers on and western sanctions on Russia keep piling up,” one of the sources said. However, it’s still too early to gauge the precise impact of the American sanctions on the oil market, the source added.
The UAE, India’s third-biggest oil supplier after Iraq and Saudi Arabia, accounted for 10% of the country’s crude oil imports between April and January this fiscal, while Russia wasn’t a large exporter and made up just 2.2%. Even if other products are included, purchases from Russia were just over 3% of India’s total petroleum imports during the period.
On Tuesday, finance minister Nirmala Sitharaman expressed concern over rising global crude oil prices and indicated that the government was weighing the options of tapping alternative oil sources to keep domestic supplies steady. She also added that the recent price surge has beaten the Budget expectations of oil price movement.
India and the UAE clinched an FTA on February 18, under which New Delhi will gain greater, duty-free market access to many labour-intensive sectors, while Abu Dhabi will have easier access to India’s petroleum, metal and minerals sectors. The UAE has also been the first international partner to invest in India’s strategic petroleum reserves programme. These leave the necessary space for New Delhi to enhance its reliance on Abu Dhabi to improve oil supplies.
Another source said the worry is that if more and more European nations start shunning Russian oil, their reliance on other crude oil sources will go up, potentially inflating the global prices. This will complicate the situation. However, sanctions-hit Iran could turn out to be one big source of supplies if it manages to get into a deal with the US to take advantage of the situation, the source added.
Oil prices have risen by about 30% since Russia undertook military operations in Ukraine on February 24, which led to the US and its European allies imposing a clutch of sanctions on Moscow. On Tuesday, US President Joe Biden announced a ban on Russian oil and other energy imports, while Britain pledged to phase out its purchases of Russian oil and oil products by the end of this year.
However, on Wednesday, oil fell to inch towards $125 a barrel in volatile intra-day trading, as Russia announced a new ceasefire in Ukraine to allow civilians to move out and market participants began to assess the US ban. Brent crude dropped 1.8%, to $125.71 a barrel at 1105 GMT, having risen above $131 in early trading. Still, any flare-up in the Russia-Ukraine tensions will potentially cause prices, which are already hovering around a seven-year high, to surge again.