India depends on foreign purchases to meet around 85% of its oil needs, making it one of the most vulnerable countries in Asia to rising oil prices.
The ongoing conflict between Russia and Ukraine had fueled fears of supply disruptions, pushing the price of Brent crude oil to a 14-year high of $130 a barrel earlier this month. Prices have now cooled down a bit and are currently hovering around $105 a barrel.
There was a lot of speculation that rising crude oil prices would drive up gasoline and diesel prices in India, especially after the results of state polls. However, retail gasoline and diesel prices remained unchanged for a record 130 consecutive days. Rates were last revised on November 4, 2021, when international oil prices were $81-82 per barrel.
On November 4, 2021, excise duties on petrol were reduced by Rs 5 per liter and those on diesel by Rs 10 to relieve consumers reeling from record prices.
International rates have since hit multi-year highs, but retail prices have remained stagnant.
India buys only a fraction of its oil from Russia, but has been hit hard by soaring global oil prices due to Western sanctions against Moscow, the world’s second largest exporter of crude.
India’s basket of crude oil jumped to $112.59 a barrel as of March 11, after averaging $84.67 a barrel in January and $94.07 in February.
Release more oil reserves
In a written response to Parliament, Oil and Natural Gas MoS Rameswar Teli said India could release more oil from national stockpiles if needed.
“The Indian government is ready to take all appropriate measures deemed appropriate to mitigate market volatility and calm rising crude oil prices,” Teli said.
The minister said the government is “closely monitoring global energy markets and potential disruptions to energy supplies as a fallout from the evolving geopolitical situation”.
Resumption of crude oil supplies from Iran and Venezuela
According to reports, India is also eagerly awaiting the resumption of crude oil supplies from Venezuela and Iran to hedge against high prices globally.
Responding to further questions during Question Time at Rajya Sabha, Oil Minister Hardeep Singh Puri said oil exports from Venezuela and Iran had been hit due to the sanctions.
The two countries are among those with the largest oil reserves in the world and were major suppliers to India before US sanctions halted purchases.
“We hope and expect that oil, not only from Venezuela, but from other countries under sanctions, will become available,” he said.
“I hope that we will all collectively use our margin of persuasion (…) to ask the international community to make more oil available, including from Venezuela,” he added.
Indian oil companies will make deals with Venezuela and “also (with) Iran” as soon as their oil hits the market, he said.
The minister also hoped that “apart from the oil that will become available for countries that until then did not supply because of the sanctions, the more existing OPEC will increase its production” to cool the price of oil.
He added that rates in India had only increased by 5%, compared to more than 50% in countries such as the United States, Canada, Germany and the United Kingdom.
Russian oil at a discount
The government is also considering accepting Russia’s offer to buy its crude oil and other raw materials at discounted prices for payment via a rupee-ruble transaction.
“Russia offers oil and other raw materials at a very favorable price. We will be happy to accept it. We have problems like tanker, insurance coverage and oil mixtures to solve. Once we get that, we’ll accept the rebate offer,” a government official told Reuters news agency.
After the US and UK imposed sanctions on Russian oil, some international traders avoided getting involved. However, the sanctions do not prevent India from importing the fuel.
Russia has urged what it describes as friendly nations to maintain trade and investment ties.
India has long-standing defense ties with Russia and abstained in a United Nations vote condemning the invasion, despite New Delhi calling for an end to the violence.
Rupee payments for trade?
Reports also suggest that the government is developing a mechanism to facilitate trade with Russia using the rupee.
The government is discussing how trade can be settled in rubles and rupees as Indian exporters await payments of around $500 million that were blocked after sanctions on Russian banks, Reuters reported.
According to the proposed mechanism, the ruble could be deposited in an Indian bank after converting it into rupee and vice versa. There are, however, concerns about how to peg currencies, as well as how to balance trade, as India is a net importer of Russian goods, including defense equipment.
The government is also preparing a list of items it can export to Russia to reduce the current trade deficit by about $5 billion. She wants to opt for a floating exchange rate given that the ruble has collapsed in recent weeks.
AIE members moved to build a cushion
Earlier this month, members of the International Energy Agency (IEA), including India, agreed to release 60 million barrels of oil from their emergency stocks.
IEA members hold emergency reserves of 1.5 billion barrels. The 60 million barrels represent 4% of these stocks. This equates to 2 million barrels per day for 30 days compared to a daily global supply of around 100 million barrels before the pandemic.
India has a daily consumption of 4.5 million barrels of crude per day and has an inventory of 39 million barrels, or approximately 8 to 9 days supply, spread over three sites.
In November, the Center had agreed to release 5 million barrels of its stockpile as part of a US-led initiative for a coordinated release by major oil consumers such as China, Japan and South Korea. South in order to cool prices as oil prices crossed $80 per gun brand.
It was the first time that India dipped into its emergency reserves to intervene in the market.
(With agency contributions)