Recently, the United States announced a ban on imports of Russian oil, liquefied natural gas, and coal. This move aims to debilitate Russia economically, restricting its resource availability needed to continue the war in Ukraine. Following this announcement, international oil prices surged to a 14-year high with Brent crude futures reaching USD139.13 intraday.
Why Target Russia’s Energy Exports?
Russia holds a significant position in global energy production and export. It ranks as the world’s third-largest oil producer, behind Saudi Arabia and the United States. In January 2022, its total oil production reached 11.3 million barrels per day (mb/d), including 10 mb/d as crude oil, reported by the Paris-based International Energy Agency (IEA).
Moreover, Russia stands as the world’s largest exporter of crude and oil products, having exported 7.8 mb/d in December 2021. It comes second only to Saudi Arabia in supplying crude to the world. Beyond oil, Russia is a major player in natural gas exports, supplying about 32% of the gas consumed in Europe and the U.K. in 2021. The sales of oil and gas in 2021 accounted for 36% of Russia’s total revenue of 25.29 trillion rubles.
The Impact of the U.S Ban on Russia and Global Crude Prices
The U.S ban is likely to impact about one-tenth of Russia’s oil exports, considering that Russia exported more than 7 million barrels per day of crude and oil products in 2021. However, not all U.S allies and partners are currently capable of joining the import ban. For instance, the U.K. plans to phase out the import of Russian oil and oil products by the end of 2022. Without the participation of the rest of Europe and China in the import ban on Russian oil and gas, Russia’s economy may not feel severe impacts.
An already tight oil market experienced further strain due to the loss of Russian supply of Urals crude and about 1 mb/d of refined products. Urals is a major export grade of crude oil from Russia and serves as a crucial benchmark for the medium sour crude market in Europe.
Implications for India
India, being the world’s third-largest oil consumer, is significantly affected by international changes in oil prices. India consumes 5.5 million barrels a day, with demand growing at a rate of 3-4% per year. By this estimate, India could be consuming about 7 million barrels a day in a decade. The bulk of India’s oil imports come from the Middle East and the U.S, with only 2% being sourced from Russia. However, it’s the overall rise in oil prices, not just Russian oil, that has India concerned.
Way Forward for India
As the world waits for the decisions of the U.S. Federal Reserve and observes the demand in China amidst Covid-19 lockdowns, oil prices remain in a state of flux. If the U.S. Federal Reserve raises interest rates, oil imports could become costlier for net-energy-importing nations such as India due to a strengthened dollar.
India hopes for a resumption of crude oil supplies from Venezuela and Iran and increased production from OPEC nations to stabilize international oil prices. Additionally, it also plans to evaluate the Russian offer to sell crude oil at discounted prices after considering aspects like insurance and freight required to move fuel from non-traditional suppliers.
