Oil diplomacy in spotlight at India Energy Week amid rising tide of sanctions

The evolving focus of oil producers on India, its strengthening ties with non-OPEC producers, the future of refining, and the upstream strategies the country intends to implement will be key topics of discussion among the thousands of delegates attending India Energy Week.

Simultaneously, the market cannot overlook the increasing sanctions and potential disruptions to Russian and Iranian oil flows, which could significantly alter the global oil flow landscape.

Delegates attending the event -- set to take place in New Delhi from Feb. 11-14 -- will seek answers on how Indian energy companies and policymakers aim to strike a balance between the need for traditional fuels and clean energy.

In other words, the key questions are: To what extent can newer forms of energy replace fossil fuels? Or, will India's energy growth story be robust enough to allow for growth across all fuel types?

India will be one of the leading drivers of future oil demand growth, analysts at S&P Global Commodity Insights estimate. In 2025, the country is forecast to deliver a 3.2% growth in oil demand compared with China's 1.7%.

Despite sluggish Chinese growth, its market size -- over three times larger than India's -- will continue to contribute to oil demand in volume terms. Nevertheless, oil market stakeholders are increasingly shifting their attention to the South Asian nation, as expectations suggest its peak demand scenario will occur much later than China's.

The rising middle class, transportation requirements, and industrial expansion are expected to be the key drivers, with strong consumption in the freight and aviation sectors.

A growth story like no other

Petroleum and Natural Gas Minister Hardeep Singh Puri told Commodity Insights that India's appetite for transport fuels, including gasoline and gasoil, would remain strong for at least two decades, making it imperative to tap new crude oil suppliers, pursue refinery expansions, and increase domestic upstream production.

Delegates attending IEW will also be looking for insights on how the country's refining expansion plans will take shape over the coming years, as the push toward cleaner fuels intensifies.

India's refining capacity will rise to about 300 million mt by 2028 from 256 million mt currently, with 58% of the increase coming from brownfield expansions and the remaining from greenfield projects, Commodity Insights estimates.

As part of the expansion plans, major state-owned refiners are developing new refineries and petrochemical complexes to meet market demands. This strategic move addresses domestic demand and significantly enhances the nation's export potential for oil products in the coming years.

For instance, Europe is turning out to be a bright spot for Indian oil product exporters. They are capitalizing on the shortages of diesel and other fuels amid geopolitical tensions and shipping plentiful cargoes—a trend that is set to spill over into next year.

The case for oil diplomacy

As India's refining capacity is poised to grow, refiners and policymakers are ramping up efforts to diversify the crude import basket, aiming to reduce overreliance on a limited number of supplying countries or regions.

For instance, Indian Prime Minister Narendra Modi's maiden visit to Guyana last year has bolstered expectations that the country's refiners are nearing long-term crude oil import agreements with the relatively new South American supplier.

With the growing oil diplomacy, non-OPEC suppliers—such as the U.S., Canada, Guyana, and Russia—are expected to play a larger role in India's crude oil basket in the foreseeable future.

Russian imports accounted for about 35% of India's total crude requirements in 2024, which was nearly 4.9 million b/d until the end of December, data from S&P Global Commodities at Sea Insights showed.

While India continued to buy relatively smaller volumes from regions like Latin America and Africa, the Middle East and Russia together accounted for nearly 80% of India's crude imports, according to Commodity Insights.

In recent years, India has implemented a series of upstream reforms—from granting producers greater marketing freedom to allowing companies to designate areas for oil and gas exploration under the Open Acreage Licensing Policy, which enables year-round expressions of interest and subsequent auctions for earmarked areas.

In December, the upper house of Parliament passed a bill seeking to amend the Oil Fields (Regulation and Development) Act of 1948, broadening its scope to include shale oil, shale gas, and coal bed methane while also proposing changes like allowing international arbitration for disputes and offering a longer lease period.

Delegates at IEW will seek insights on when the bill is expected to be approved in the lower house of Parliament and subsequently implemented.

Global price outlook

The average oil price rose to $79/b by the end of January, from $74/b in December 2024, due to concerns over potential disruptions in Iranian exports amid tightened sanctions and geopolitical uncertainties.

The decision by OPEC+ in December 2024 is a sign that the group is unlikely to increase production if prices remain low. However, the bloc may raise output if Iranian oil production and exports are constrained.

Fundamentally, there is an adequate supply of oil, given that the current spare oil-producing capacity amounts to some 6 million b/d. Based on Commodity Insights data, Platts Dated Brent prices are expected to ease to $74/b in 2025 from an average of $81/b in 2024, with supplies outpacing demand. The long supply of oil is expected to continue into 2026, and our base-case forecast of Platts Dated Brent will be $69/b on average next year.

Our base case predicts an easing oil market in 2025, accompanied by increasing downward pressure on prices. However, if there is a significant decline in Iran's oil production and exports, and other OPEC+ member countries fail to compensate for this loss, the market could tighten, potentially driving oil prices upward.

A version of this article was first published in ETEnergyworld.com.