Context:
The Biden administration expanded sanctions on Russia’s energy sector, targeting major Russian energy players Surgutneftegas and Gazprom Neft. Specific oil tankers and Russian maritime insurance providers are also sanctioned, increasing risks and costs for oil shipments.
Impact on India
- Russia’s Status:
- Russia is currently India’s largest supplier of crude oil, accounting for over 35% of India’s imports
- Volatility in Crude Oil Supply:
- Indian refiners are likely to face disruptions owing to reduced supplies of Russian crude.
- High Costs:
- The Indian refiner has to negotiate higher-priced contracts for oil which worsens the long-term cost and reliability of Russian crude.
- Policy Changes:
- India needs to address risks in the shadow fleet and sanctions-enabled carry trade.
Impact of Russia-Ukraine War on India
Russia’s percentage of India’s crude oil imports has risen dramatically since the Russian invasion of Ukraine in February 2022.
- Before the war:
- Russia accounted for less than 1% of the total oil imported by India.
- After the war:
- Russia accounts for nearly 40% of India’s oil imports.
Impact on India
- Energy Supply and Price Fluctuations:
- The ban on Russian oil and gas may raise the price of crude oil and natural gas. India is one of the significant importers of energy.
- Diversification of Energy Sources:
- India might seek alternative sources from the Middle East, USA, Africa, and Southeast Asia to meet energy requirements.
- Diplomatic Relation
- It may affect trade and diplomacy with Russia, as well as with USA if India seeks to Strengthen the diplomatic relation with Russia.
- Global Price Hike
- The impact in international oil and gas prices may push up transportation and production cost, hence inflation.
Global and Political Consequences
- Pressure on Trump Administration:
- Sanctions mark an early challenge for the Trump administration.
- Energy-Dependent Economies:
- European and Indian policymakers face the challenge of navigating energy dependencies as the sanctions are tightening.
- Global oil market volatility
- Global oil market volatility could be expected to result in higher energy prices and geopolitical tensions.
