Positive Oil Shock: Easing Venezuelan Sanctions Will Help India Diversify Sources

While Reliance Industries, a private refiner, has booked two super-tankers and a large crude carrier to lift cargos from mid-December to early January, officials in the petroleum ministry said two state-run refiners are also in talks to buy the Venezuelan crude.

The move, along with increasing purchases from Russia, is expected to bring down the average price for India and help the country diversify its crude purchases.

“We as a nation have a huge energy deficit and need to import most of our requirements. Hence if we are able to access oil at a discount from anywhere we will tap into it,” said Krishan Insan, an energy expert who was earlier a fellow at ETH Zurich University and a Chevening Fellow at London’s Queen Mary University.

India depends on imports to meet over 85 per cent of its crude oil needs and around 50 per cent of its natural gas requirements.

With the Organisation of the Petroleum Exporting Countries (OPEC), the cartel of oil producing countries located mostly in the Middle East, cutting production to boost prices and the conflicts in Ukraine and Gaza increasing shipping and insurance costs, India’s purchases in the normal course would have become extremely costly.

However, by managing to leverage huge discounts on purchase of Russian and Venezuelan crude it is estimated India will be able to keep its oil basket (total purchase sourced from various nations) at a reasonable rate.

In the financial year gone by, India had sourced about 55 per cent of its crude import requirement from the Middle East (down from a peak of 72 per cent in 2021-22), and about 26 per cent from Russia. The US shipped 7.4 per cent of India’s crude imports and African countries about 7.6 per cent.

However, with prices firming up in the OPEC region, India has increasingly moved towards Russia for its energy needs. Consequently, Russian crude exports have soared and now accounts for 40 per cent of India’s total imports.

“If we manage to get favourable political conditions as part of the deal along with lower prices, that obviously makes the deal sweeter… A deal where the payment is in rupees is of course considered the best for us as it helps us conserve foreign exchange,” explained Insan.

Buying oil from Russia and Venezuela helps push down the average cost of crude purchase, which is why India has been diversifying its import sources and buying not only from West Asia and Southeast Asia, but also the US, Brazil and Africa.

For instance, India imported 69.06 million metric tons of Russian oil, between January and September, some of it through transshipments from East Asia and Southern Europe, helping it save US$ 2.7 billion on normal spot prices.

Venezuela was India’s fifth-largest crude supplier in 2019. Analysts say India was buying an average of 10 million barrels a month from the South American nation before trade was disrupted by US sanctions.

The Indian move to buy crude afresh from Caracas comes after the Biden Administration eased oil, gas and gold sanctions against Venezuela in October after the government President Nicolás Maduro agreed to terms set by the opposition for a competitive presidential election next year.

The US Treasury Department subsequently issued a general licence authorising US companies to enter energy transactions with Venezuelan state-run oil companies.

Officials working with Indian state-run refiner BPCL as well as analysts confirmed that PSU refineries were in talks with Venezuela to procure on top of purchase already contracted by Reliance.

Reliance had been buying 5 super-tanker loads from Venezuela a month in 2018-19 till US sanctions put an end to that trade.

Analysts said India has been traditionally the big buyer of Venezuelancrude and PSU refiners have already started negotiations for future shipments, though they cautioned that shipments may be affected as Venezuela and its neighbour Guyana are engaged in a tussle over oil-rich Essequibo, which Caracas claims is part of its territory and was unfairly delegated to Guyana more than a century ago.

India’s return to the Venezuelan market is however bad news for China as prices of the Latin American crude is going up with the increase in demand for it and Chinese refiners who were availing huge discounts will no longer have that advantage.