Russia emerges as second largest oil exporter to India

Russian oil into India started as a trickle, picked up in the last few months and has now become a virtual deluge. For May 2022, Russia has overtaken Saudi Arabia to become India's second-largest oil supplier. Of course, Iraq still remains the largest exporter of oil to India, Russia has managed to displace Saudi Arabia from the second slot. About a year back, Russian oil accounted for just about 1% of the Indian monthly oil import basket. In May 2022, Russia accounted for a whopping 16% of India’s oil import basket.

What is it that has coaxed India to import as much as 25 million barrels of oil from Russia in the month of May 2022? This trend started once the Russia Ukraine war began about 100 days back. Not only did the US and UK sanction Russian oil, now their biggest customer, the EU, has also decided to wind up purchases of Russian oil by 2027. That would be a big blow since the EU accounted for the biggest chunk of oil exports from Russia. But that is just one part of the story.

A desperate Russia was trying hard to find buyers to substitute the slack created by EU and also Japan. In the last few months, Russia has offered hefty discounts ranging from $25/bbl to $35/bbl to make Russian oil attractive. China and India have gone overboard to buy Russian oil at discounted rates. China has emerged as the largest oil buying country from Russia, overtaking Germany in the process. In the case of India, not only did Russia overtake Saudi Arabia in terms of oil supply to India but also got huge discounts. 

It was like hitting two birds with one stone for India. On the one hand, buying Russian oil in time of crisis allowed India to cement its ties with Russia. On the other hand, amidst rising crude prices and a spike in consumer inflation, the discounted Russian oil came as a blessing in disguise. It was therefore hardly surprising that India made the best of the situation and sharply increased its oil imports from Russia. After all, when Joe Biden goes overboard to hobnob with Saudi Arabia when it suits him, you know what diplomacy is all about.

The discounts on Russian oil have widened further after the European Commission slapped sanctions on Russian crude. This was in protest against human rights violations in Ukraine. The move by EU was aimed at building pressure on the Russian economy, which is heavily dependent on oil exports. Moscow replied with record discounts on oil and other big importers like China and India have chipped in to bridge the gap.
 

It is reported that India got a discount in the range of $30 a barrel, which is a discount of nearly 25% on the current international crude price. One only has to look at the change in oil import quantity into India from Russia between April 2022 and May 2022. For instance, in April 2022, India imported 277,000 barrels from Russia. In May 2022, that number almost tripled to 8,19,000 barrels. Today, India is the third largest importer of oil in the world after the US and China and imports about 85% of its daily needs. Discounts are a huge relief.

How will Russia survive with these sharply lower prices. The reality is something different. It is estimated that the reduction in demand and the heavily discounted price for Russian oil is costing Russia nearly €200 million per day in May. However, the increase in demand from China and Russia has made up for the loss of EU market share. The irony is that although Russia is selling oil at a discount of 25%, its average export price realization is more than 60% higher compared to last year. So, Russia is actually better off and India is gaining too.