India has emerged as a major buyer of Russian crude. But some caution is in order

News: India is the third-largest importer and consumer of oil in the world. Recently, a few private-sector refiners decided to import larger quantities of crude oil from Russia.

Historically India imported oil and crude from Iran, Iraq and Russia. Last month, Russia became India’s second-largest oil supplier by overtaking Saudi Arabia.

About crude oil and Russia

Crude is the raw natural resource extracted from the earth, subsequently refined into widely used products like petroleum, jet fuel and heating oils. The price of crude impacts the cost of essential goods like food and clothing.

Russia is the world’s largest exporter of oil products to global markets and the second-largest exporter of crude oil behind Saudi Arabia. About 60% of Russia’s oil exports go to Europe and another 20% to China.

As the Russia-Ukraine crisis intensifies, Europe’s Russian crude purchases fell by 5.5 Lakh barrels a day, Asia’s consumption rose by 5 lakh barrels. Hence, Russia has not suffered a significant loss in terms of crude oil sales.

About India’s increasing crude oil import from Russia

According to the Wall Street Journal, India has increased imports of Russian crude more than 25-fold since the start of the invasion in February. As of June 1, 2022, India is importing an average of a million barrels a day.

There are many benefits associated with importing Russian oil. Such as,

-India is refining crude oil or turning it into products like jet fuel and diesel and selling it to Europe and other nations.

-Helps India to curb inflation that has been made worse by rising fuel prices.

-The government can bring down prices and halt the decline in the value of the Indian rupee.

What are the challenges associated with importing Russian oil?

Firstly, the European Union has announced a ban against insuring ships carrying Russian oil. Countries like India, China and Turkey that are increasing their oil purchases from Russia have six months to find a work-around to the insurance ban by using non-European insurance companies.

Secondly, European companies own most of the ships carrying Russian oil to India. These insurance sanctions will impact the companies that own these ships as well.

Thirdly, buying cheap Russian crude may only be a temporary solution to our long-term fuel needs.

What should be done?

Electric vehicles and electric batteries substitute non-renewable resources like petroleum and diesel. There is a concentration of battery factories /suppliers in China and South Korea.

Hence, India should take steps to prevent shortages by putting in place factories which will build electric batteries. The invasion of Ukraine has taught India to be more self-reliant and have in-house energy sources.

Source: The post is based on the article “India has emerged as a major buyer of Russian crude. But some caution is in order” published in the “Indian Express” on 25^th June 2022.