India's Oil Heist
India's ongoing intervention in the global crude oil economy has prevented a price spiral and resulted in some handsome returns. EPISODE #145
Dear Reader,
A very Happy Monday, and Gandhi Jayanti to you.
Crude oil prices are once again nudging the $100 threshold, sufficient to ring alarm bells across the world.
Significantly, it also puts the spotlight on India’s out of the box intervention in the crude oil economy. Ignoring western sanctions, taunts, it continued to trade with Russia for the purchase of crude oil. Surprisingly India got away with this audacious stand in the face of Western pressures. Why?
This week I explore the why and what about India’s intervention in the crude oil economy. Do read and share your feedback.
A big shoutout to Surendra, Premasundaran, Aashish, Ranjini, Vandana and Gautam for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by all you readers. Gratitude also to all those who responded on Twitter and Linkedin.
The cover picture is taken by Natalya Letunova of a Russian oil tanker in Murmansk and is sourced from Unsplash.
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Crude Oil Blues
The breakout of conflict between Russia and Ukraine roiled the world economy, which had only just begun to get back its bearings in the aftermath of the once in a century pandemic with dodgy origins in Wuhan, China.
Given the key role of Russia as a global supplier of energy including crude oil, in particular to Europe, the impact manifested in the commodities markets—food grain prices too went through the roof after exports from Ukraine suffered on account of the war and the loss of supplies sourced from Russia following the imposition of sanctions by the Western bloc.
Most analysts feared that crude oil prices too would go into a spiral and may even breach the $200 per barrel. Luckily, this eventuality did not occur. And, for this world should be grateful to India.
Despite pressure—from both western nations and their vigilante media who sought to isolate India as a renegade—India continued to import from Russia. The reality of facing economic devastation too worked in limiting outrage.
In fact, India was procuring Russian supplies at a rate below global market rates. This prompted some to call it India’s oil heist—importing cheap from Russia and re-exporting it with a mark-up on the value added products like petrol, diesel, and aviation fuel.
Not surprising then that the proportion of crude oil, products in the country’s total exports jumped by almost a third from 14.26% in the four months ended July 2019 to 18.35% in the same period ended July 2023 (the period for which the latest data is available).
For the record, Russia has never been the main source of crude oil imports for India. However, in the post-war period this proportion has surged to a record 40%, upstaging traditional suppliers like Saudi Arabia.
As the war progressed and scarcity became more apparent, the India connection assumed even greater significance for the world.
The Dutch Connection
The above graphic makes clear the new dynamics of India’s crude oil trade. It has emerged as a key pillar of the country’s exports.
Compared to 2019-20—just before Covid struck—India’s trade in crude oil has grown rather sharply. Import of crude oil surged by nearly 60% to $162.21 billion. Compared to the covid year, 2020-21, the growth is abnormal—a skewed comparison we should avoid.
Ironically, Russian crude oil continues to drive Europe. Only that, in the post Russia-Ukraine war, the supplies take a detour through India—price for the claim to hold the moral high ground.
One entry point for Europe is Netherlands. In 2019—the pre-covid year—India’s exports to Netherlands were around $9 billion. Three years later this had more than doubled to a little under $20 billion. In fact, the country has become the top destination for Indian exports of petroleum products.
According to data sourced from the commerce ministry, the top three destinations for petroleum exports from India and their percentage share in total petroleum exports in the first quarter ended June of 2023-24 are:
Netherlands (15.55%);
United Arab Emirates (8.65%);
Australia (7.02%).
Over the same period in 2019-20 the top three destinations were:
United Arab Emirates (13.63%);
Singapore (13.13%);
Netherlands (12.12%).
This reordering of rankings is no accident. It is a direct outcome of the ongoing war and the subsequent economic sanctions imposed by the West.
The Gains
One obvious fallout of this has been the gains accruing to India’s oil refineries. Equipped with the fourth largest refining capacity behind United States, Russia and China, India has bridged the deficit caused by Russia’s idle capacity. A case of being at the right time, right place.
In a transaction-oriented world, India’s intervention solved for a vexing global problem. Undoubtedly this intervention has prevented the price spiral that experts feared when international crude oil prices topped $100 a year ago.
As the graph above shows the increase in margins—difference between import price of crude oil and the export price of petroleum products—accruing to domestic refineries vary between 50-100%. This has proved to be very lucrative for all refineries, including the privately owned ones in India.
This aside, it is apparent that Indian diplomacy has been very successful in addressing the sharp questions/remarks that have emerged from various quarters in the backdrop of Western sanctions. As a result, barring for the occasional outrage, India is getting a pass for its actions.
India’s new found boldness on the diplomatic front has a lot to do with the country’s willingness to give and take at the global high table.
It is willing to make sacrifices to do global good—in this instance its intervention prevented oil prices piercing the $200 barrier, which would have sent the already floundering world economy into a tailspin—even while holding its own in tough circumstances—like it did with China in the border row and is dealing presently with Canada over Khalistan terrorists.
This is a very important pivot in the country’s foreign policy stance, wherein it is willing to give and take—unlike in the past where it had little to offer and hence ended up pursuing a zero-sum game like walking out of multilateral negotiations; a strategy that more often than not dealt India the worst hand.
India is less reactive today. Instead it leans more on the side of being proactive. In short, India has signalled that it is willing to take on a larger global role.
The just concluded G20 summit deliberations in Delhi was yet another example of India’s success at the global high table: Achieving consensus among countries bitterly divided without compromising the interests of the global South.
This is no mean feat. It is a tacit recognition of India’s growing stature as a trusted intermediary and its new found ability to work outside its traditional comfort zones. As the Indian economy grows this global stature will only grow proportionately.
The world will be watching as to how India deploys this hard earned social capital. The big fear in Western minds is how China went rogue and turned on the very countries that had aided its rise.
For now, India’s pacifist record and slogan of Vasudhaiva Kutumbakam—the Sanskrit phrase which says ‘The World is One Family’—is assuaging these fears for the moment.
Recommended Viewing/Reading
Sharing the latest post of Capital Calculus on StratNews Global.
A few weeks ago, the Harvard Business Review, the prestigious journal published by Harvard University, published a piece with a provocative headline: Is India the World’s Next Big Economic Power?
The paper co-authored by Bhaskar Chakravorti, Dean of Global Business, Fletcher School, Tufts University. According to the authors, a happy constellation of circumstances will make possible the seemingly impossible. They are convinced that on this occasion India will not, unlike in the past, flatter to disappoint.
To understand why do watch this conversation with the erudite professor of business studies.
Sharing the link below. Do share your thoughts.
Till we meet again next week, stay safe.
Dear Anil
The title itself is very interesting because who would imagine that India can ever be linked with a Heist- that too an Oil Heist. You have mentioned that it's a case of being at the right place at the right time. It's also a case of the right people with the right attitude being in the right place. Now we have a leadership which is willing to take a calculated risk- a case in point being the making of the Covid vaccine while strongly standing it's ground against the powerful lot. In the case of the oil heist, we managed to ignore all the sanctions imposed by the Western countries at the risk of earning their wrath. Such a belligerent attitude from India was unimaginable in the past when we were contented being in a servile position. Ironically everything worked out very well for India and now the world should be grateful to India whose timely action prevented the costs of the crude oil going through the roof.
Dear Anil,
Interesting article!
India is the world s third largest energy importer and it buys more than 80% of its crude oil from international markets.At present Moscow is supplying around 40% of our crude oil imports.The world powers including G8 have placed sanctions and restrictions on Russia s oil exports since Ukraine war.
India s continuous import of the Russian crude is a win-win situation for the world oil market.
Again it reflects the power of Indian Diplomacy and balanced international relations.