India is preparing to buy heavily discounted crude oil from its long-time ally Russia. The idea is to minimise domestic macroeconomic risks arising out of the Ukraine-Russia war.
The country meets 85% of its crude oil requirements through imports. However, only 1% (nearly 45,000 barrels a day in 2021) of its total crude oil imports come from Russia. While this may not be much, a discount on Russian crude will surely lower India’s import bill, The Times of India reported today (March 16).
Every 10% increase in crude oil prices would lead to a 0.3 percentage point-widening in India’s current account deficit (CAD), and in turn, a weaker rupee, Nomura Research said in a report recently.
On March 14, India’s oil minister Hardeep Singh Puri said the government was in talks “at the appropriate level of the Russian Federation” on crude oil. It was weighing issues related to insurance, freight, and payment, he said.
Reports suggest Russia will take care of shipping and insurance, two major hurdles before India due to high insurance rates and war risk premiums. The payment for such purchases can be made through a rupee-ruble arrangement.
India has, in any case, been trying to cut its oil dependence on the Gulf countries and diversify to Russia and the US.
The world’s third-largest crude importer has been traditionally buying Brent crude. But a nearly $25-discount for the Urals, Russia’s flagship crude blend, is lucrative enough for a shift.
India has been in a tight spot over its neutral stance on the Ukraine invasion. Earlier today, the US said India would not be violating US sanctions by purchasing discounted Russian oil, but such a move would put it on the “wrong side of history.”