India’s savings from buying discounted Russian oil are about $2.5 billion each year, which is much less than what some media stories said before, which ranged from $10 to $25 billion. A research report said this on Thursday. If India stops buying Russian oil, it might have to rely on other sources, which could lead to higher global oil prices, possibly reaching $100 per barrel, because there’s more demand and less supply.
A brokerage firm, CLSA, said the benefit India gets from Russian oil isn’t as big as some media reports suggest. They calculated that the real annual gain for India is only around $2.5 billion, or about 0.6 percent of India’s GDP. Some media outlets had said the benefit was as much as $10 to $25 billion, but CLSA thinks that’s much too high.India started buying a lot of Russian oil after the Ukraine war. It went from barely 1% of its oil imports to nearly 40%. This increase happened because Russia offered big discounts after some Western countries stopped buying its oil as a penalty for invading Ukraine.
This helped India get cheaper oil, but the Trump administration criticized India, saying it was making money by buying discounted Russian oil and then selling refined fuel to Europe and other areas.India says it isn’t breaking any international rules because there are no sanctions on buying Russian crude. The EU only recently banned importing fuel made from Russian crude, and the US hasn’t banned buying Russian crude or its refined products.
Right now, India gets 36% of its oil from Russia. Of the 5.4 million barrels per day India imports, about 36% (or 1.8 million barrels per day) comes from Russia. Other major suppliers for India are Saudi Arabia (14%), Iraq (20%), the UAE (9%), and the US (4%).Many European countries have banned Russian oil imports, but a price cap was set for other countries. India follows this cap. Russia produces about 4.3 to 4.8 million barrels per day, making up around 5% of the world’s total oil supply. Besides India, China is another big buyer of Russian crude, importing around 2 million barrels per day.
CLSA said the price discount for Russian crude compared to Dubai crude looks big because of the $60 price cap, especially when Brent crude prices go over $75 per barrel. However, the actual benefit for Indian importers is much smaller because of extra costs like shipping and insurance. Indian refiners buy Russian crude based on cost, insurance, and freight (CIF), which means the landed price in India is much less discounted.
Indian oil companies said the average discount for Russian crude was about $8.5 per barrel in the fiscal year 2023-24, but it dropped to $3-5 in the next year and now is about $1.5 per barrel. Using an average discount of $4 per barrel would mean a total annual benefit of $2.5 billion, which is about 0.6 basis points of India’s GDP. With current discounts, the annual savings would be only $1 billion. Looking at Russian oil imports alone is not enough because refining is a business that needs a balanced mix of crude oils. More Russian crude would mean buying more expensive, better quality oil. Therefore, to know the real benefit from Russian oil, we need to check the average price of oil India imports.
Surprisingly, data shows no clear advantage from Russian oil because the price of crude oil India buys is now more expensive than Dubai crude, compared to before.CLSA said if India stops buying Russian oil, global oil prices could jump to $90-$100 per barrel. This is because only a few countries are still buying Russian oil. If India stops, Russia might not find enough buyers for about 1 million barrels per day, which is 1% of the global supply. While India can get oil from other sources, this disruption could cause oil prices to rise and lead to higher inflation worldwide. CLSA believes India’s imports of Russian oil help keep oil prices stable and reduce the risk of global inflation. They also mention that the issue has become political, with India emphasizing its freedom to choose trade partners under international rules.
