The big question is whether India will need to shift its oil strategies once President-elect Donald Trump assumes office in January 2025?
The issue concerns both import and export of oil: where India imports it from and where it exports refined oil to.
Currently, Russia accounts for roughly 38-40 per cent of India’s cumulative crude oil imports. On the other hand, Indian oil product exports to Europe have gone up after the European Union and UK imposed a ban on Russian diesel in 2023, with exports averaging 2154,000 barrels in October, according to S&P Global Commodity Insights.
Europe imported diesel and jet fuel averaging 154,000 barrels per day from India before Russia’s invasion of Ukraine and that has now nearly doubled.
In other words, India’s growing exports to Europe coincide with Russia becoming the largest supplier of crude to New Delhi. Russian crude imports averaged 1.7 million barrels per day during January-September, 2023.
This is happening because the EU in December 2022 put a price cap and embargo on Russian crude, but excluded refined petroleum products made from Russian oil. This has enabled India to refine Russian crude and legally export the finished products to European markets.
“Capitalising on the refining loophole, India has now become the biggest exporter of oil products to the EU. In the first three quarters of 2024, exports to the EU from the Jamnagar, Vadinar (in Gujarat) and new Mangalore refinery – which are increasingly reliant on Russian crude – saw a 58 per cent year-on-year rise further,” newspapers quoted the Centre for Research on Energy and Clean Air (CREA) as saying in its latest report.
The international community, including India, is now awaiting Trump’s intervention with a bated breath.
India continues to buy Russian oil. Despite the US sanctions on such purchases from Russia after the war with Ukraine began, India managed to avoid sanctions under the Joe Biden administration. If Trump is intent on de-escalating the conflict, the threat of him reviewing the sanctions vis-à-vis the India-Russia oil trade recedes.
In January-September, 2024, the US was the fifth-largest supplier to India, accounting for 215,000 barrels per day, as per S&P Global Commodities at Sea data. In that same period, India’s imports of Russian crude averaged 1.7 million barrels per day, making the non-OPEC producer the country’s biggest supplier. And, thanks to heavy Russian discounts, and the loophole in the EU oil sanctions, Indian purchases from the US have fallen further behind, as Russian crude now accounts for over 40 per cent of India’s imports.
But there is another worry for India. Trump has warned the EU that it must commit to buying “large scale” amounts of US oil and gas or face tariffs.
“I told the European Union that they must make up their tremendous deficit with the United States by the large-scale purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!” Trump wrote on his Truth Social platform.
The EU is already blinking. During the Ukraine conflict, LNG from the US was the EU’s lifeline, even as it quietly started importing refined Russian oil from India. If the EU does not make amends to accommodate more US oil, it is certain that Trump will make good his threat. The EU wants to avoid a trade war with him, and is drawing up strategies to avoid tariffs by increasing purchases of US goods such as liquefied natural gas (LNG) or agricultural products.
The question is if the EU decides to import more oil from the US in 2025, will that mean reducing imports from India? That will affect India’s extant oil policy, certainly and New Delhi has to plan for such an eventuality.
However, there is a catch. The US is already exporting oil and gas at full capacity to the EU. That will make it difficult to increase shipments in the short term. Analysts caution that any further increase in US energy exports would first require the EU to invest heavily in infrastructure, in terms of LNG terminals. But the investment may not align with Europe’s transition to renewable energy. Also, the EU will have to give serious thought to investing in fossil fuel infrastructure when it has decided on reducing that demand in the long-term.
Referring to India’s predicament, Indian newspapers have quoted S&P Global Commodity Insights as saying: “India is unlikely to trim its purchases of Russian crude under a new Donald Trump government, though it might explore more term import contracts and collaboration on storage with the US.”
The reason could be that while India has decided to buy oil from the cheapest available sources – Russian oil falls in this category – it may not be possible for the US to quote a new price lower than Russia to attract India.
At the same time, India has to look for other oil sources given the fact that its annual oil demand may only increase in the coming years. It may have to revive its policy, implemented in the early 2000s, of investing in oil and gas fields overseas. The country is already making efforts to encourage electric vehicles (EV) and blending ethanol with petrol, but the penetration of these vehicles has to increase. However, considering the challenges in speeding up the EV and blending alternatives, energy security is possible only with overseas investments.
A few media reports also suggest that instead of “buying minority stakes in individual oil projects, India can consider acquiring small stakes in listed oil companies such as Saudi Aramco, ExxonMobil, and Chevron from friendly countries which sit on some of the best and the most diverse portfolios of assets globally and offer attractive stock investment opportunities”. Such investments have the additional benefit of India improving ties with the US and Saudi Arabia which are two of India’s closest partners.