Potential financial losses for India warned by analysts due to halt in Russian crude oil imports
India is grappling with the potential impact of high fuel prices and the impending need to cap retail prices, according to analyst Sumit Ritolia of Kpler. This comes as the nation considers alternatives to Russian crude oil, which has become increasingly scarce due to global political pressures.
Several potential sources for substitute crude oil have been identified, including Middle Eastern grades, West African crudes like Nigerian and Angolan, US crude, Iraqi crude, and Latin American (LatAm) oils. However, each of these alternatives presents its own set of challenges.
Middle Eastern crude, while providing 60-70% of the substitute volumes in a balanced replacement strategy, is priced tightly to official selling prices (OSP), limiting any cost advantage. Freight and credit costs are also higher, making it less economically advantageous than Russian oil. Despite this, Middle East crude is more reliable given existing trade ties and infrastructure compatibility.
West African crudes, such as those from Nigeria and Angola, are generally lighter and yield more gasoline and naphtha, with less diesel compared to Russian crude. This makes them less ideal for India's distillate-heavy energy demand. Their cost tends to be higher, and long-haul freight and credit costs reduce scalability. These serve as tactical fillers rather than core replacements.
US crude is lighter than Russian crude, producing fewer distillates (diesel and jet fuel), which are key for India’s needs. This causes a mismatch in product yields and economic downsides. Additionally, higher freight costs and limited arbitrage make US crude a less preferred alternative.
Iraq is a significant supplier of medium sour crude that fits Indian refinery configurations and ranks third in crude supply to India after Saudi Arabia and the United Arab Emirates. Indian refiners value Iraqi crude for its quality and pricing; Iraq’s exports cater well to India's distillate demands. Its reliability is considered good, and it is a stable source potentially substituting some Russian imports, especially under increased political pressure.
Crudes from Latin America offer moderate potential but generally do not match Russian crude in cost, quality, or delivery reliability. These are considered tactical fillers along with African and US crudes.
Despite these challenges, India can technically replace Russian crude with a blend of Middle Eastern, West African, US, Iraqi, and Latin American crudes. However, none match Russian oil’s combination of low cost, high suitability for distillate production, and supply reliability. Transitioning away from Russian crude imposes economic trade-offs such as eroding refining margins, higher freight and credit expenses, and a shift toward lighter crudes that produce less diesel—a crucial Indian market product.
The recent diversification to Nigerian crude and increased imports from Iraq highlight India’s strategy to mitigate risks while adapting to global political pressures. However, if Russian oil becomes inaccessible, India could face an additional $3-5 billion in annual import costs based on a $5 per barrel premium on 1.8 mb/d.
The halt of Russian crude oil imports could cause refiners to arrange up to 2 million barrels per day (mb/d) to fill the gap, potentially leading to a shake-up in sourcing, blending, and exporting. This could result in a mild yield shift and a small reduction in primary throughput rates, as margins will no longer command a significant premium against regional benchmarks.
India's limited storage capacity further constrains its ability to manage disruptions, according to Ritolia. If global prices rise further, the financial burden could increase significantly. The recent SBI Research report predicts that a complete halt of Russian crude oil imports to India in FY26 could increase India's fuel bill by $9 billion, and in FY27 by $11.7 billion.
In conclusion, while India is exploring various options to replace Russian crude oil, the process is complex and fraught with economic challenges. The nation will need to carefully balance cost, quality, and reliability to ensure a stable energy supply in the face of global political tensions.
- India's analyst Sumit Ritolia of Kpler suggests that the country is faced with the potential impact of high fuel prices and the need to cap retail prices, as it considers alternatives to Russian crude oil.
- The potential sources for substitute crude oil include Middle Eastern grades, West African crudes like Nigerian and Angolan, US crude, Iraqi crude, and Latin American oils.
- Middle Eastern crude, providing 60-70% of the substitute volumes in a balanced replacement strategy, is priced tightly to official selling prices, limiting any cost advantage.
- West African crudes, such as those from Nigeria and Angola, are generally lighter and yield more gasoline and naphtha, with less diesel compared to Russian crude.
- US crude is lighter than Russian crude, producing fewer distillates, which are key for India’s needs, causing a mismatch in product yields and economic downsides.
- Iraq is a significant supplier of medium sour crude that fits Indian refinery configurations, and its exports cater well to India's distillate demands.
- Crudes from Latin America offer moderate potential but generally do not match Russian crude in cost, quality, or delivery reliability.
- Transitioning away from Russian crude imposes economic trade-offs such as eroding refining margins, higher freight and credit expenses, and a shift toward lighter crudes that produce less diesel.
- The recent diversification to Nigerian crude and increased imports from Iraq highlight India’s strategy to mitigate risks while adapting to global political pressures.
- If Russian oil becomes inaccessible, India could face an additional $3-5 billion in annual import costs based on a $5 per barrel premium on 1.8 mb/d.
- The halt of Russian crude oil imports could lead to a mild yield shift and a small reduction in primary throughput rates, as margins will no longer command a significant premium against regional benchmarks.
- India's limited storage capacity further constrains its ability to manage disruptions, and if global prices rise further, the financial burden could increase significantly.
- In conclusion, while India is exploring various options to replace Russian crude oil, the process is complex and fraught with economic challenges, and the nation will need to carefully balance cost, quality, and reliability to ensure a stable energy supply in the face of global political tensions.
