India Expresses Concern Over Russian Crude Production Cuts

India Expresses Concern Over Russian Crude Production Cuts
India Expresses Concern Over Russian Crude Production Cuts
India Expresses Concern Over Russian Crude Production Cuts
India Expresses Concern Over Russian Crude Production Cuts

India Expresses Concern Over Russian Crude Production Cuts

India Expresses Concern Over Russian Crude Production Cuts. Image/The Assosiated Press

Rising Worries in India

India has expressed growing concerns over Russia’s ongoing crude production cuts in compliance with the OPEC+ agreement. These cuts are affecting even assets in which Indian state-run firms have a stake, according to sources close to the matter. While India is not part of the OPEC+ alliance, it finds itself impacted by the production reductions, causing a decrease in the availability of oil in the global market. This situation is exacerbated by the absence of Iranian and Venezuelan oil due to sanctions. Indian officials have raised this issue at various levels, seeking a resolution to this predicament.

Investment in Russian Assets

State-run companies, including ONGC Videsh Ltd (OVL), Bharat Petroresources Ltd, Indian Oil Corp. Ltd (IOCL), and Oil India Ltd (OIL), have collectively invested a substantial $16 billion in Russia. OVL, the overseas unit of Oil and Natural Gas Corp. (ONGC) Ltd, owns a 20% stake in the Sakhalin-1 hydrocarbon block, while a consortium comprising OVL, OIL, IOCL, and Bharat Petroresources holds a 49.9% stake in Rosneft’s subsidiary, CSJC Vankorneft. Additionally, another consortium involving OIL, IOCL, and Bharat Petroresources owns 29.9% of LLC Taas-Yuryakh.

India’s Response to the Situation

One government official acknowledged India’s concerns but indicated that the country is not “unduly” worried about the developments. It’s a common strategy for oil-producing nations to cut production to boost prices, but they also need to sell their oil. India has consistently engaged with Russian authorities to address this issue.

Impact on India’s Economy

India, as the world’s third-largest oil importer, is particularly sensitive to rising oil prices, given that it imports more than 80% of its oil requirements. The production cuts have contributed to a surge in oil prices, which can affect India’s import bill, stoke inflation, and widen the trade deficit. In 2022-23, India’s imports of crude oil and petroleum products increased by 29.5% to reach $209.57 billion.

Exploring Alternatives

Amidst the volatility in the energy market and the voluntary production cuts by major oil producers, India is considering reducing its dependence on crude oil. The launch of the Global Biofuels Alliance with India is seen as a step in that direction, with the aim of reducing the world’s dependence on traditional fuels like petrol and diesel.

Ongoing Oil Price Trends

Oil prices have remained elevated for nearly two months, with Brent crude trading at $92.62 a barrel and West Texas Intermediate at $89.43 a barrel. The cost of the Indian basket of crude, comprising Oman, Dubai, and Brent crude, was $92.65 per barrel on September 12, according to Petroleum Planning & Analysis Cell data. Furthermore, the discount on Russian crude oil supplies to Indian refiners has been diminishing.

Russia’s Growing Role

Russia emerged as a significant supplier to Indian refiners in 2022-23, especially after offering oil at discounted rates amid the Ukraine war. Data from the Union Ministry of Commerce and Industry indicates that crude oil imports from Russia continued to rise in the first quarter of 2023-24, nearly tripling from the previous year, with imports valued at $12.36 billion in the three months to June.

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