Replacing 1 mn bpd of Russian oil could cost India up to $3.7 bn a year

India could face an additional $1.8-3.7 billion a year in crude oil costs if it replaces 1 million barrels per day (bpd) of Russian oil with supplies that are $5-10 a barrel more expensive, Financial Express reported on Friday.

Replacing around 2 million bpd could broadly double the impact, although the estimate is a sensitivity calculation rather than a forecast of the current price differential, Natalia Katona, a UAE-based freelance commodity analyst, told FE.

The bigger challenge for India, however, could be the availability of alternative crude rather than its price.

Russia supplied India around 1.9 million bpd in August, accounting for about 42 per cent of its crude imports, according to the data cited in the analysis. Indian authorities have prioritised energy security and national interests, suggesting that any change in sourcing would more likely involve diversification than a sharp retreat from Russian crude.

India is also heading into its peak fuel-demand season, which runs from October through March-April. Crude requirements are expected to increase during this period, while refinery runs move towards maximum levels, leaving limited scope to reduce overall imports.

Russian crude still cheaper than alternatives

Russian crude is no longer cheap in absolute terms. Urals was trading at an $8-a-barrel premium to ICE Brent, Katona said, although it remains cheaper than competing grades. Russian suppliers also adjust their offers against rival barrels to keep their crude commercially attractive to buyers.

Prashant Vasisht, senior vice-president and co-group head, corporate sector ratings, Icra, said Russia accounted for around 52 per cent of India's crude imports in July, after accounting for about 48-49 per cent in earlier months.

“Replacing such large volumes would be extremely difficult,” Vasisht told FE, adding that India was unlikely to risk fuel shortages because of a tariff threat.

India could seek additional supplies from Guyana, Nigeria, the US and Brazil, but the scale required would make a complete replacement difficult, Vasisht said. Negotiations with suppliers would therefore be important.

West Asia could be eventual fallback

The natural longer-term alternative could be crude from West Asia, given the region's proximity to India, lower freight costs, shorter transit times and the suitability of its grades for Indian refineries, Nikhil Dubey, lead analyst for refining at Kpler, added.

For now, however, Gulf supplies remain constrained. The East-West pipeline has reportedly resumed operations, but loadings at Yanbu are yet to restart, keeping physical availability tight.

The scale of the challenge is also significantly larger than India's earlier reduction in Iranian crude purchases. India was buying around 313,000 bpd from Iran in early 2019, or roughly 6 per cent of its total imports, compared with around 1.9 million bpd from Russia in August.