India, the third-largest importer of crude oil globally, stands to benefit from the recent drop in oil prices to an eight-month low of $75.8 per barrel on the international market. Since Friday, the price of a barrel has dropped by more than $4, with concerns about demand being stifled by the slowdown in the US and China’s economies.
Based on US job data indicating a rise in the unemployment rate and a dramatic decline in fuel consumption in China due to a slowing economy, market analysts conclude that supply-side issues stemming from geopolitical tensions are outweighed by concerns about a decline in demand.
Monday saw a decrease of almost three percent in the benchmark Brent crude, which dropped by more than $1.04 to $75.8 a barrel; US West Texas Intermediate crude dropped to $72.43 a barrel.
Since that imports account for over 85% of India’s crude needs, the country’s import bill is reduced when oil prices decline, which bodes well for the country’s economy. Consequently, the current account deficit (CAD) declines and the rupee appreciates.
A decrease in oil prices not only improves the country’s external balance but also lowers the price of gasoline, diesel, and LPG on the domestic market, hence reducing inflation.
In the wake of the conflict with Ukraine, the government has also contributed to lowering the nation’s oil import bill by permitting the oil corporations to purchase Russian petroleum at a discount, in defiance of Western pressure. Despite the sanctions that the US and Europe have placed on Moscow, the Narendra Modi administration has been steadfast in upholding its relations with Russia.
Russia has overtaken Saudi Arabia and Iraq as India’s biggest suppliers of crude oil, having previously held the top spot. In actuality, India has emerged as Russia’s top buyer of maritime oil, making up about 38% of the country’s total oil imports.
In FY2023 and the first 11 months of FY2024, the price of oil imports from Russia was 16.4% and 15.6% less than the comparable levels from the Gulf countries, respectively, according to an ICRA report.
India’s plan of keeping up its inexpensive oil purchases from Russia has helped the nation reduce its CAD and save over $7.9 billion in oil import costs in the first 11 months of the 2022–2023 fiscal year.
These significant purchases of Russian oil have also aided in maintaining more fair prices on the global market, which has benefited other nations as well.
The Ministry of Commerce and Industry collected data showing that while the share of crude petroleum imported from Russia increased to 36% in the first 11 months of the fiscal year from 2% in FY2022, the share from West Asian countries (Kuwait, Saudi Arabia, and the United Arab Emirates) fell to 23% from 34% in FY2024.
The Russian oil discounts resulted in a significant reduction of the oil import expense.
