India, the world’s third-largest importer of crude oil, stands to gain significantly as oil prices have plummeted to an eight-month low of $75.8 a barrel in the international market. This marks a decline of more than $4 a barrel since Friday, driven by fears of reduced demand due to economic slowdowns in the US and China.
US job data indicates an increase in the unemployment rate, and China has seen a sharp fall in fuel consumption amid a slowing economy. These factors have led market analysts to believe that concerns over declining demand are outweighing supply-side fears prompted by geopolitical tensions.
On Monday, benchmark Brent crude fell by more than $1.04 to $75.8 a barrel after experiencing an over three per cent decline. Meanwhile, US West Texas Intermediate crude has dropped to $72.43 a barrel.
The decline in oil prices is advantageous for the Indian economy, which imports approximately 85% of its crude oil requirements. Lower oil prices reduce India’s import bill, subsequently decreasing the current account deficit (CAD) and strengthening the Rupee.
In addition to bolstering the external balance, falling oil prices lead to lower domestic prices for petrol, diesel, and LPG, thereby easing inflation within the country.
The Indian government has contributed to reducing the oil import bill by allowing oil companies to purchase Russian crude at discounted prices, despite Western pressures due to the Ukraine conflict. The Narendra Modi government has maintained strong ties with Russia, despite US and European sanctions against Moscow.
Russia has become the largest supplier of crude oil to India, surpassing Iraq and Saudi Arabia. India has emerged as the largest purchaser of Russia’s seaborne oil, which accounted for nearly 38% of India’s total oil imports.
An ICRA report indicates that the price of oil imports from Russia was 16.4% and 15.6% lower than imports from Gulf countries in FY2023 and the first 11 months of FY2024, respectively.
India’s strategy of purchasing inexpensive oil from Russia has resulted in savings of around $7.9 billion on the oil import bill during the first 11 months of FY2023, also helping to lower the CAD.
These substantial purchases of Russian oil have contributed to keeping global oil prices at more reasonable levels, benefiting other countries as well.
Data from the Ministry of Commerce and Industry shows that, in terms of volume, the share of crude petroleum imported from Russia jumped to 36 % in the first 11 months of FY2024, up from two per cent in FY2022. Conversely, the share from West Asian countries (Saudi Arabia, the UAE, and Kuwait) fell to 23 % from 34%. The discounts on Russian oil have generated significant savings on India’s oil import bill.
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