Crude oil diplomacy

News: Recently, a few private-sector refiners decided to import larger quantities of crude oil from Russia. This is likely to impact India’s Crude oil diplomacy and diplomatic standing with Western allies and West Asia, currently the country’s top suppliers.

Last month, Russia became India’s second-largest oil supplier by overtaking Saudi Arabia.

Why there is an increasing import of Russian oil?

Significant discounts: This makes it a compelling option for refiners in the public and private sectors to buy Russian oil.

Maximising profitability: Since the price is discounted, there is no logical argument against private refiners maximising profitability by sourcing inputs from the cheapest available source. Further, the state-owned oil companies are doing the same.

Why Crude oil diplomacy is important for the Indian economy?

The market of the private sector refineries: State-owned refiners’ output is sold in the domestic market. But, a significant portion of private refineries’ production is exported, sometimes to markets that have imposed sanctions on Russia.

Even though India has officially taken a strictly “neutral” position vis-à-vis Russia’s invasion of Ukraine and the private players also do not violate any domestic political protocols, this is not considered appropriate.

Challenges to India’s relations with the US and their allies: Indian military’s dependence on Russian matériel and spares has created a discomfiture in the US and the European Union(EU).

Europe already seeks to cut its fossil fuel dependence on Russia. If India continues to import Russian oil then it might hamper India’s diplomatic position.

Pressure from other principal suppliers: Iraq is India’s largest supplier of crude oil. Saudi Arabia already felt compelled to cut prices, fearing an erosion in its market share. But this will not continue in the long run. They might pressurise India to reduce its import from Russia. This might be a reality soon as they become bigger suppliers to Europe in the near future.

What should be India’s Crude oil diplomacy?

India should do everything in its power to minimise economic tensions. Since commercial crude oil imports require licences, India could utilise this lever to good effect to secure India’s longer-term interests.

Source: The post is based on the article “Crude oil diplomacy” published in “Business Standard” on 24^th June 2022.