If India cuts oil imports from Russia and sources elsewhere to avoid US tariffs, the loss could be over Rs 35,000 crore in a year. According to the report, if India were to use $5-10 per barrel of crude oil instead of 1 million barrels per day (bpd) from Russia. So it may have to pay an additional oil bill of $1.8-3.7 billion annually. This proves that if India buys oil from any other country under the pressure of American tariffs, there will be a huge jump in its price and the country will suffer.

Natalia Katona, a freelance commodity analyst working in the UAE, said the impact could almost double if the source of oil was changed by about 2 million barrels per day, although this estimate was only a ‘sensitivity calculation’ and not a forecast of current price differences. However, availability of oil rather than price may be a bigger challenge.

Russia supplied about 1.9 million barrels per day (bpd) of oil to India in August, about 42 percent of India’s total crude oil imports. Katona said Indian officials have made it clear that energy security and national interests come first, so I hope India will diversify its sources of supply instead of retreating from Russian oil.

Peak season begins in India

Now the peak season of fuel demand is also starting in India, which lasts from October to March-April. During this period, crude oil requirements are expected to increase and refineries will operate at their full capacity, leaving little room for reduction in total imports. Oil from Russia is no longer cheap. Katona said Russian crude oil is selling at a premium of $8 per barrel compared to ICE Brent, but is still cheaper than oil from other countries. To keep their sales attractive, Russian suppliers also keep changing their prices according to oil prices in other countries.

Russian oil accounted for 52 percent in July

Prashant Vashisht, Senior Vice President and Co-Group Head, Corporate Sector Ratings, ICRA, said Russia accounted for around 52 percent of India’s crude oil imports in July, compared to around 48-49 percent in the previous months. Vashisht said that it would be very difficult to replace such a large amount of oil supply. It is unlikely that India will risk fuel shortages for its population just because of the threat of tariffs. He said that although India can go to Guyana, Nigeria, America and Brazil, it is difficult to find an effective alternative considering the quantity required. Also, communication will play an important role in this.

Shipping cost is also very high

When buying from distant markets, transportation costs are also very high. Katona said that a VLCC (Very Large Crude Oil Tanker) trip from Brazil to India currently costs $50-51 million, excluding the cost of crude oil. Brazil and Guyana can provide supplies and avoid conflict zones (chokepoints), but India has to compete with other Asian buyers such as Japan and South Korea. Ultimately, the most natural choice would be West Asia.

Oil from the Gulf countries is the only option

Nikhil Dubey, principal analyst of refining at Kpler, said that once the market stabilizes, the most natural choice would be West Asian crude because it is closer to India, has lower transportation costs and shorter turnaround times, and is of a suitable grade for Indian refineries. However, supplies from the Gulf countries are currently limited. According to reports, work on the East-West Pipeline has resumed, but loading at Yanbu has not yet started, leading to low oil availability. Dubey said that if India wants to replace a large part of Russian supplies, it will have to compete for the limited oil available elsewhere, which could lead to a rise in global crude oil prices.

Comparing Iran and Russia is not fair

This situation is more difficult than India’s previous decision to stop buying oil from Iran. India was buying about 313,000 barrels per day (bpd) of oil from Iran in early 2019, about 6% of total imports, while the figure from Russia was 1.9 million bpd this August. “I don’t think the cases of Iran and Russia can be directly compared,” Katona said. Replacing Russia with someone else would be a huge undertaking. China’s increasing purchases of crude oil and increased refinery activity over the past two months have increased competition for available cargo.