India saved $8 bn in oil import — thanks to discounted Russian crude

India's strategy to look to cheaper oil resources despite the West's push for an embargo on Russian oil after the Russia-Ukraine war seems to have paid off as the country was able to save a huge sum on its oil import bill. The country, as per the latest ICRA note, saved around $7.9 billion in its oil import bill in 11 months of the fiscal year 2023-24 and $5.1 billion in FY2023. Apart from Russia, India's other key sources for crude oil import are Iraq, Saudi Arabia and Commonwealth of Independent States (CIS) nations like Azerbaijan, and Kazakhstan.

The value of India’s imports of petroleum crude and products, however, declined by 15.2% YoY during April-February FY2024, even as volumes rose slightly in this period, shows the data.

"This was supported by the fall in average global crude oil prices as well as savings from stepped-up purchases of discounted Russian crude," says ICRA.

The Ministry of Commerce and Industry data shows in volume terms, the share of crude petroleum imported from Russia jumped to 36% in 11 months of FY2024 from just 2% in FY2022, just when the war broke out.

India's crude imports from West Asian countries (Saudi Arabia, the UAE and Kuwait) fell to 23% from 34%, respectively, in the same period.

According to ICRA: "Discounts on the former (Russia) generated savings in the oil import bill." Its analysis shows the imputed unit value of imports from Russia was 16.4% and 15.6% lower than the corresponding levels from West Asia in FY2023 and 11M FY2024, respectively.

"This led to savings in India’s oil import bill amounting to $5.1 billion in FY2023 and $7.9 billion in 11M FY2024,

thereby compressing India’s current account deficit (CAD)/GDP ratio by 15–22 bps in FY2023-24."

Despite the sizeable savings in 11M FY2024, the extent of monthly discounts relative to price narrowed sharply over the fiscal, to 8% on an average in September-February FY2024 from 23% in April-August FY2024, says the ratings agency.

Consequently, the savings related to the purchase of Russian crude are likely to have dipped to $2 billion in September-February FY2024 from $5.8 billion in April-August FY2024, ICRA says.

India’s oil import dependency is expected to remain high. Concerns are if the discounts on purchases of Russian crude persist at the prevailing low levels, India’s net oil import bill could widen to $101-104 billion in FY2025 from $96.1 billion in FY2024, assuming an average crude oil price of $85/bbl in the fiscal.

A $10/bbl uptick in the average crude oil price for the fiscal pushes up the net oil imports by $12-13 billion during the year, thereby enlarging the CAD by 0.3% of GDP. ICRA says if the average crude oil price rises to $95/bbl in FY2025, the CAD is likely to widen to 1.5% of GDP from its current estimate of 1.2% of GDP for the fiscal (over 0.8% projected for FY2024).