India's Oil Conundrum: Weaning off Russia's Discounted Supply

India's economy has thrived with its imports of Russian oil, saving Indian companies $13 billion over two years. However, President Trump has imposed a 25% tariff on Indian goods, citing India's cooperation with Russia's "killing machine." India's leaders have vowed to resist, but legally and technologically, it's not impossible to reconfigure the global seaborne traffic and abandon the Russian oil habit. The question remains: how tough would it be for India to make this shift, and what are the implications for its economy?

Key Takeaways:

• India imported just 1% of its oil from Russia before the Ukraine war, but increased imports to around 2 million barrels a day, accounting for over a third of its total inflow, by May 2023.
• ICRA, an Indian rating agency, estimated that importing Russian oil at a discount saved Indian companies $13 billion over two years.
• Reliance Industries' oil refinery in Gujarat, India, is the world's largest and can switch intake almost instantly to different oil grades, making it easier to switch suppliers.
• India's refineries, particularly those in Gujarat, are interoperable with different grades of crude, and can switch suppliers without significant disruptions.
• Canceling contracts with shippers and Russian suppliers using "force majeure" could be done, but securing new contracts would be more challenging.
• Within about a year, buyers for Reliance and Nayara Energy could probably line up enough non-Russian oil, but would have to sacrifice their wartime profits.
• The overall benefit to India's $4 trillion economy from imports of Russian oil has been relatively small, and the country's government controls prices carefully to smooth out fluctuations.

Statistics:

• India imported 2 million barrels of oil a day from Russia by May 2023, accounting for over one-third of its total oil inflow.
• Indian companies saved $13 billion over two years by importing Russian oil at a discount.
• India uses about 5 million barrels of oil a day, just behind China and the United States.
• The Russian oil imported by India was mostly consumed domestically, powering vehicles, portable generators, and other uses.
• India's government controls fuel prices carefully, adjusting fuel taxes and other fees to smooth out fluctuations.

Sources:

• "India imported less than 1 percent of its oil from Russia when the war began in February 2022, but has held steady at around two million barrels a day since May 2023." (According to the article, no date specified)
• ICRA, "Estimated savings of Indian companies from importing Russian oil at a discount over two years: $13 billion."
• Duttatreya Das, analyst at Ember, a global energy think tank, "We are at a technological stage where that is really not a constraint" regarding switching oil suppliers.
• Reliance Industries, "The world's largest oil refinery, located in Gujarat, India." (No date specified)