By Subrata Majumder
World is engulfed by oil conundrum. OPEC is no more in hegemony to stir oil shock. The global political conflicts and bi-polarization led the world oil price shock slipped from the Arab clutches.
With the breakdown of Israel-Iran war, threats loomed large on oil price hike. Iran’s attack on Israel and Israel‘s challenge for retaliation does not connote bilateral war only , but is akin to raise rage against entire Arab world, after the Israel Prime Minister Benjamin Netanyahu’s warmongering message in United Nations..
Hitherto, OPEC, where the major stake holders are Arab countries, has been the sole mastermind for oil price hike and oil shock. Given the world undergone multiple economic and political conflicts during the past two years, Arab world has been losing grip on global oil price hikes. Russia-Ukraine war and subsequent sanctions on Russia numbed Arab’s hegemony for oil turbulence in the world.
India is the 4th biggest global oil importer and Russia is the second biggest oil exporter in the world. Eventually, both played significant role to offset the Arab hegemony in the global oil price fluctuation. After the outbreak of Russia-Ukraine war, followed by sanctions on Russia, global landscape of oil supply undergone dramatic changes. It gave new lease of life to the importers shifting towards non-Arab world. India is a case in point.
India’s bold attempt to revive economic relations with Russia after the sanction, notwithstanding, West’s disquiet, paid dividend. Besides defense, Russia emerged an important trade partner of India, owing to surge in oil import from Russia.
Called by West against import of oil from Russia, despite sanctions against Moscow, India’s attempt for strategic changes in its foreign policy in the wake of economic emergencies was noteworthy. India’s External Affairs Minister S. Jaishankar said “India and Russia have always shared stable and friendships and Moscow never hurt the interests of New Delhi”.
In 2023-24, Russia emerged the biggest oil supplier to India and 5th largest trade partner. It accounted for more than one-third of India’s total oil import, viz, 35.7 percent, against merely of 1.9 percent in 2021-2022. This left India with a major success to dismantle its over-dependence on Arab oil. In 2023-24, India’s oil dependency on Arab slashed to 44.5 percent from 59.7 percent in 2021-22.
It is not only in quantity, Russia oil was one of the cheapest among others nations oil. USA and EU prohibited maritime exports of Russian oil and levied a price cap of US$60 per barrel in December 2022. Sanctions were also imposed on western shippers and insurances.
To avoid sanctions, India and Russia mutually set up alternative arrangements. Indian refineries have accepted Russian insurance, against the sanctions on west shippers and insurances. Russian oil suppliers handled Urals oil transport to India by themselves, using their own vessels and shipping arrangement.
Indian government permitted Indian banks to open vostro accounts with Russian banks. This facilitated to deal with Russian oil in rupee trade in a currency swapping deal. The Indian UCO bank has opened the vostro accounts with Russian Gazprombank and VTB banks.
Failing to ban Russian oil to India, West raised ire on India’s exports of petroleum refinery products, made out of Russian crude. India argued and challenged that Russian crude oil, converted into refinery products and exported from India, does not violate internationally recognized Rules of Origin. It asserted that crude, once refined in another country and classified for the purpose of trade, is reckoned as originating from the refinery country.
Eventually, when sanction was imposed on Russia in September 2022, the average Brent crude price sparked to US$ 100.93 / barrel in 2022. Against this, the sanction price ceiling of US$ 60/barrel on Russian crude was 40 percent cheaper than the global price led by OPEC and Arab world.
This helped India to refrain from raising petrol and diesel prices Concurrently, it imparted positive impact on inflation, unlike previous oil shocks. Inflation hovered around 6-6.5 percent in 2022-23, which is reckoned a comfortable zone for the growth of the economy.
Petroleum refinery products are the major items in Indian export basket. Nearly, one fifth of India’s total export is shared oil refinery products.
The moot point is that India escaped from the susceptibility to OPEC and Arab led global oil shock. The restoration of economic relation with Russia and India’s shift of oil dependency from Arab led OPEC to Russia beacons India’s new resilience to global oil conundrum.
It escaped from repeated OPEC threats for cuts in production and triggering oil prices which influenced vulnerability of oil influenced economy of Indian economy.
Oil is one of the primary energies in India. Nearly 30 percent of total energy is generated from oil. Oil is import intensive item. More than 90 percent of crude oil is imported in the country.
Unlike west, oil is mainly used for transportation in India. Nearly, 40 percent of oil energy is used for transportation. Eventually, oil is pivot to country’s inflation and economic growth. When world reeled under oil price hike, it imparts major impact on India’s inflation and the economy.
Owing to rapid development of transport system, most of the food items are transported by trucks. Food items carry substantial weightage in Consumer Price Index. Eventually, hike in diesel prices due to global oil prices triggered inflation.
Russian oil supplies have helped India in avoiding OPEC shock. During the past two years, since Russia merged the major supplier of oil, petrol and diesel, prices remained almost unchanged. For example, petrol and diesel prices fluctuated by 2 to 3 percent prices in 4 metros during the 2 years period of 2022 to 2024. (IPA
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