India saved $7.9 billion by buying more Russian crude in FY24
India saved $7.9 billion by buying more Russian crude in FY24
NEW DELHI: India saved an estimated $7.9 billion in oil import bill in the 11 months of 2023-24 financial year ended March 31, compared to $5.1 billion over the whole of 2022-23, by purchasing higher volumes of Russian crude at deep discounts, ICRA Research said on Tuesday.
The increased savings leads to a “compression” of 15-22 basis points in India’s current account deficit-to-GDP ratio in 2023-24, the agency said in a note on India’s oil imports. But, the note added, if the low levels of discounts prevail, India’s net oil import bill could widen to $101-104 billion in 2024-25 from $96 billion in 2023-24, assuming an average crude oil price of $85 per barrel.
Based on latest available commerce ministry data, the note pegs the share of Russian crude in India’s oil import basket rising to about 36% during the April 2023-February 2023 period, marking a jump of 1700% from about 2% in 2021-22. This growth came at the cost of West Asian oil as shipments from Saudi Arabia, the UAE and Kuwait shrank to about 23% from 34% in the previous corresponding period.
ICRA arrived at the savings by pegging the imputed unit value of imports from Russia at 16.4% and 15.6% lower than the corresponding levels of imports from West Asia in 2022-23 and 11 months of 2023-24, respectively.
It said the value of India’s imports of crude and petroleum products declined by 15.2% YoY during the period under review, even as volumes rose slightly in this period. This was supported by the fall in average global oil prices as well as savings from stepped up purchases of discounted Russian crude.
The oil import bill has a major bearing on India’s economy as the country depends on shipments for meeting 83% of its need. Low oil import bill keeps the government’s fiscal math on track and inflation under check. For sure the government doesn’t buy oil, but refiners purchase dollar to pay for shipments. Lower dollar outgo on oil reduces drag on forex reserves and CAD, leaving headroom for social spending.
Indian refiners became hooked to Russian crude because of hefty discounts after Western buyer shunned those barrels following Russia’s invasion of Ukraine and Western sanctions, including a $60 price cap, further shrinking the market.
To be fair, the discounts are not constant, swinging widely — from double digits in the initial days of the conflict to $1-4 in between — in tune with benchmark crude prices as well as other market conditions.
The extent of monthly discounts relative to price narrowed to about 8% on an average in the September 2023-February 2024 period from roughly 23% in the April-August period of the just-ended fiscal, the note said. Consequently, the savings related to purchase of Russian crude are likely to have dipped to $2 billion in the later half from $5.8 billion in the first half of 2023-24.
The note saw the oil import bill swelling by $12-13 billion on every $10/barrel increase in the average crude price, thereby enlarging CAD by 0.3% of GDP. “Accordingly, if the average oil price rises to $95/barrel in 2024-2025, then the CAD is likely to widen to 1.5% of GDP from our current estimate of 1.2% of GDP for the fiscal (over 0.8% projected for FY2024),” it said.
The value of India’s imports of petroleum crude and products declined by 15.2% YoY during April-February FY2024, even as volumes rose slightly in this period. This was supported by the fall in average global crude oil prices as well as savings from stepped up purchases of discounted Russian crude.
With India’s oil import dependency expected to remain high, if the discounts on purchases of Russian crude persist at the prevailing low levels, ICRA expects India’s net oil import bill to 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.
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