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India set to ramp up oil imports from Russia, Africa, US and Latin America
The escalation in the Israel-Iran conflict and Tehran's threat to close the Strait of Hormuz are likely to push Indian refiners to further ramp up oil purchases from non-West Asian suppliers — mainly Russia, West Africa, the US and Latin America — as shipping routes to Indian ports from these suppliers are detached from the critical choke point in the Persian Gulf, according to industry sources and experts.
In fact, India's oil sourcing strategy is already reflecting a risk-hedged posture pertaining to West Asian oil flows with Russian oil dominating India's oil import mix.
Following US air strikes at Iranian nuclear facilities over the weekend, Iran's parliament Sunday approved a motion calling for the closure of the Strait of Hormuz, a critical oil transit choke point in global energy flows. It is now up to Iran's Supreme National Security Council to decide on whether or not to go ahead to try and choke the Strait of Hormuz. Iran has in the past threatened to close the strait on multiple occasions, but has never actually done it. Even in the current scenario, industry experts also expect the possibility of an actual closure to be really low. Notwithstanding that, a heightened risk of the closure is bound to raise concerns globally, including in India, particularly with regard to oil and gas supply security, and could lead to a jump in energy prices.
The Strait of Hormuz is a critical and narrow waterway between Iran and Oman, and connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The US Energy Information Administration (EIA) calls it the 'world's most important oil transit chokepoint', with around one-fifth of global liquid petroleum fuel consumption and global liquefied natural gas (LNG) trade transiting the strait.
According to tanker data analysed by The Indian Express, over 45 per cent of crude oil imported by Indian refiners in May was likely to have been transported via the Strait of Hormuz. The importance of the chokepoint for India's energy supply and security cannot be understated because the country is the world's third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement.
Risk-hedged posture in India's oil import strategy
Tanker data sourced from commodity market analytics firm Kpler shows that so far in June, India has imported over 2.2 million barrels per day (bpd) of Russian oil, accounting for over 41 per cent of the country's oil imports.
Crude oil imports from the US have also grown sequentially, while imports from West Asia – primarily Iraq, Saudi Arabia, UAE, and Kuwait – have largely remained stable. A bulk of these import cargoes would have been scheduled before the latest conflagration between Israel and Iran, and therefore, would not have fully factored in the recent escalation in tensions.
In April-May, Russian crude accounted for around 39 per cent of India's oil imports, while West Asian oil had a share of around 41 per cent.
Executives in India's refining sector said that they are closely monitoring the evolving situation and while the Strait of Hormuz appears open for the time being, they are looking at buying additional volumes from geographies that are delinked from this West Asian shipping route. As the oil cargoes being purchased now would mostly be delivered at Indian ports in July, any shift in buying behaviour is likely to be established from July's oil import data.
Sumit Ritolia, Lead Research Analyst, Refining & Modeling, at Kpler, said, 'June reinforces a well-established precedent – Russian crude volumes…continue to dominate India's import slate due to attractive pricing, logistics detached from the Gulf, and payment flexibility in non-dollar currencies. Looking ahead, if geopolitical risks worsen or maritime security around Hormuz deteriorates, Indian refiners are expected to ramp up spot purchases from Russia, West Africa, Latin America, and the US. This will likely translate into a decline in July nominations for Middle Eastern cargoes, particularly from Iraq and Saudi Arabia.'
India's oil import strategy has evolved significantly over the past two-three years, with Russia displacing the West Asian majors as India's largest source of crude. And Russian oil is logistically detached from the Strait of Hormuz as it reaches India mostly via the Suez Canal and Red Sea route, and in some cases via the Cape of Good Hope and the Pacific Ocean routes.
While there is a possibility of Iran-backed Houthi militia intensifying attacks on merchant vessels transiting the Red Sea, experts believe that they are expected to allow a safe passage to tankers hauling Russian crude, as they have been doing over the past year-and-a-half.
Price matters
According to Ritolia, even American, West African, and Latin American oil flows to India, although costlier, are viable backup options for any disruption in West Asian supply. Notably, even as crude oil shipping continues via the Strait of Hormuz and there is no physical supply disruption, operational risk perception has increased sharply, prompting real-time reassessment by shipping lines and resulting in a surge in war risk premiums for cargoes transiting the strait. All this is already raising the delivered price of West Asian crude for Asian buyers, including India.
According to refining sector officials, while elevated freight rates due to high risk premium for tankers passing through the strait would lead to higher landed price of oil and gas for them, it would still be significantly better than runaway oil prices due to any major supply disruption, which would be nearly certain if the Strait of Hormuz is shut for oil tankers.
'Indian refiners are closely monitoring the geopolitical landscape and are poised to make rapid adjustments to secure both supply stability and commercial resilience. The emphasis will remain on logistical diversification, margin preservation, and political neutrality in an increasingly polarized oil trade environment… The June 22 escalation has amplified India's energy security concerns. While supply chains remain intact, the cost of maintaining them is rising. Refiners must transition from hedging to active scenario planning, dynamic rerouting, and selective margin protection,' he said.
So far, Iranian oil export infrastructure doesn't appear to have been majorly hit by Israel, which is a relief for the energy markets and countries like India, even though they do not buy oil from Iran. This is because some Chinese refiners buy the bulk of Iranian oil and if Iran's oil exports are majorly impaired, these buyers will be forced to scout for oil from other sources, which could lead to higher oil prices. In the event of any closure of the Strait of Hormuz, oil industry analysts expect international oil prices to enter triple-digit territory, possibly reaching $120-130 per barrel, from the current level of $77-78.
Apart from supply disruption for India, the surge in international energy prices due to any such blockade would hit India due to its heavy reliance on imported oil. This makes India's economy vulnerable to global oil price fluctuations. It also has a bearing on the country's trade deficit, foreign exchange reserves, the rupee's exchange rate, and inflation rate, among others.
Sukalp Sharma is a Senior Assistant Editor with The Indian Express and writes on a host of subjects and sectors, notably energy and aviation. He has over 13 years of experience in journalism with a body of work spanning areas like politics, development, equity markets, corporates, trade, and economic policy. He considers himself an above-average photographer, which goes well with his love for travel. ... Read More
