US sanctions on Russia's shadow fleet could affect India's oil imports, as Russia has become India's largest crude oil supplier since the Ukraine war. This could lead to higher freight costs and diminish Russian oil's price advantage. India's oil supply is expected to remain stable.
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US sanctions on Russia's shadow fleet may raise freight costs, pushing India towards West Asian oil suppliers.
The United States recently imposed significant sanctions on Russia's oil trade, targeting 183 tankers, which make up the bulk of Russia's "shadow fleet." These sanctions are aimed at Russian oil companies such as Gazprom Neft and Surgutneftegas, as well as entities involved in Russia’s oil sector.
Given that Russia is now India's largest supplier of crude oil, the sanctions are likely to have an impact on India's oil imports. However, the exact consequences will depend on several factors, including how Russia responds to these sanctions in terms of pricing and supply, as well as future US policy under the incoming administration.
Sanctioned vessels that were booked prior to the January 10 announcement of sanctions are still able to deliver oil cargoes to Indian refiners. These shipments can be delivered up until March 12, 2024, giving India time to finish up current agreements.
However, once the period ends, the sanctions will likely affect the trade. While this could impact Russian oil shipments, the disruption may not be severe enough to cause a shortage, as India can source oil from other countries.
Russia has become India's largest oil supplier since the war in Ukraine, accounting for around 38% of India's total oil imports in 2024.
Before the war, Russia was a minor supplier. This shift occurred due to Russia offering significant discounts on its oil to compensate for the West’s refusal to purchase Russian crude.
The recent sanctions could slow down Russia's oil exports to India in the near term, but India still has a variety of other sources, particularly from West Asia, which may fill any gaps.
The sanctions are expected to disrupt the transportation of Russian oil, especially due to the targeting of tankers in Russia’s "shadow fleet." These are older, less secure tankers that have been used to bypass Western restrictions.
With fewer tankers available, freight costs are likely to rise, which may diminish the price advantage of Russian oil. As a result, India might turn to traditional suppliers such as Iraq, Saudi Arabia, and the UAE, who are already increasing their share of India's oil imports.
In response to the sanctions, Russia may be forced to lower its oil prices to below $60 per barrel. This is because the US price cap restricts Russia from using Western shipping and insurance services unless its oil is priced under $60.
India, which buys Russian oil on a delivered basis and is not part of the price cap, benefits from this arrangement. However, if the price cap forces Russia to offer deeper discounts, it could result in reduced revenues for Russia, but it would likely still want to maintain oil flows to countries like India and China.
Donald Trump has expressed a desire to find a peace agreement between Russia and Ukraine. His approach to the war may lead to some changes in US policy, but it is unclear how his stance will affect sanctions.
His administration may use the sanctions to gain leverage in negotiations with Russia, however, it is unclear whether these measures will be resolved or strengthened.
This uncertainty complicates matters for countries like India, which depend heavily on Russian oil.
While the sanctions will disrupt Russia’s oil exports in the short term, India is unlikely to face a major oil crisis.
The country imports over 85% of its crude oil, and although Russia is a key supplier, India has diversified its sources with Iraq, Saudi Arabia, and the UAE have already increasing their oil exports to India.
India's overall oil supply is expected to stay stable because of its diverse sources, however, there are the possibility of some short-term disruptions.
India should continue to monitor the situation closely and remain adaptable. While Russia has been a key oil supplier, the diversification of oil sources and the ability to switch to alternative suppliers like Iraq, Saudi Arabia, and the UAE will be crucial.
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PRACTICE QUESTION Q. How do the US sanctions on Russia influence India’s energy security, particularly its reliance on Russian oil and natural gas? 150 words |
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