Modi’s Oil Strategy: Is India Rethinking Its Russian Crude Imports?

Following several months of increased imports of Russian crude by India, the trend may finally begin to wane as it stockpiles enough to meet the country’s demand. India has favoured Russian crude in recent months due to its discounted prices, making its oil much cheaper than Middle Eastern alternatives. But moving out of peak season, India’s oil demand is expected to fall over the coming months before rising again next year. Further, Russia is expected to reduce its oil exports in line with fellow OPEC+ member Saudi Arabia’s voluntary production cuts. 

Since the Russian invasion of Ukraine, India has been importing large amounts of Russian crude thanks to its highly competitive oil prices. As Russia undercuts OPEC by heavily discounting its crude, several countries, including China and India, have been taking advantage of the opportunity to stockpile low-cost oil while demand is high. This move has been criticised by many governments around the world following the gradual introduction of sanctions on Russian energy by the U.S. and EU over the last year. President Biden and several other state leaders have urged countries around the globe to restrict the import of Russian oil and gas to condemn the ongoing war and harm its economy. 

But Indian Prime Minister Modi has repeatedly defended the country’s decision to increase imports of Russian crude as a means to meet India’s growing energy demand. India has repeatedly asked high-income countries to support the development of its renewable energy industry in support of a global green transition, which has continually fallen on deaf ears. The country’s reliance on oil and gas is still significant and Modi believes as a low-income country it should be permitted to purchase whatever oil is being offered at the lowest price, having failed to see support for its energy industry from the U.S. and Europe. 

In June, India’s imports of Russian crude hit a record high of 2.2. million bpd, accounting for about 40 percentof India’s crude imports, following 10 consecutive months of increases. In the previous month, its imports of Russian oil surpassed the combined imports of its two next biggest suppliers, Saudi Arabia and Iraq. India is the third-largest importer of crude in the world, making it a significant market for Russia to capture. Before the Russia-Ukraine war, India imported very little Russian crude. But since Putin began to offer discounted crude, to ensure it kept selling its energy products to those still interested in buying them, India has been steadily increasing its imports. 

However, India’s ability to import more Russian oil has likely reached a limit as it goes into its lower-demand monsoon season. Janiv Shah, a senior analyst at Rystad Energy, stated “India will look to continue Russian crude imports, but perhaps it has reached its limit, hampering any additional barrels.” Shah explained, “I would say 2.2 million b/d will be the peak this year … We believe India’s imports of Russian crude will see a slight downward correction to two million barrels per day. That will be the sustainable level of buying.” This forecast has been echoed by other energy experts. 

India’s high energy demand season is in the winter months before it slows during the rainy season for around four months. During this time, lots of construction projects stop and several refiners have plans to use the low season to carry out maintenance on their facilities. Its oil demand has already begun to decrease, falling by around 3.7 percent month-on-month in June. Meanwhile, Russia’s ability to export larger amounts of crude may also have reached its limit. The country’s oil exports decreased by around 600,000 bpd to 7.3 million bpd in June, the lowest amount since March 2021. 

In addition, Russia pledged to reduce its oil exports in July in solidarity with Saudi Arabia’s quota cuts. The OPEC leader said it would reduce its oil production in an attempt to boost oil prices, following a steep decline in recent months, something that Russia may have contributed to. Russia has been undercutting OPEC+ oil prices to attract consumers and continue selling crude, to the detriment of other OPEC+ members. But it seems that Putin was only willing to push Saudi Arabia so far. 

Although India’s imports of Russian crude may remain stable for the rest of the year, depending on the state of the conflict and Russian oil prices, Indian refiners may well try to increase their Russian crude imports even further in 2024. Although India’s refiners will likely want to maintain their relationship with long-term Middle Eastern crude exporters. The country’s imports of oil from the Middle East are thought to have decreased by around 21.7 percent in June compared to the beginning of the year, although India has some minimum purchase agreements and does not want to rely solely on Russia for its oil.