India's oil import strategy may not witness dramatic shift in Trump era

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, analysts and trade sources told S&P Global Commodity Insights.

The South Asian country, which imports as much as 85% of its needs, has pledged to continue buying oil from the cheapest available sources to meet its growing demand, and Russian oil falls in that category due to attractive discounts, they added.

"India has been taking a stand to buy cheaper crude wherever available, and I don't foresee the US offering their typical crude priced lower than Russian oil. Hence a drastic shift is less likely," said Abhishek Ranjan, South Asia oil research lead at S&P Global Commodity Insights.

The average discount of Russian Urals to Dated Brent was $12.129/b in August, $12.30/b in September and $12.189/b in October, fluctuating within a narrow range, according to Platts, part of S&P Global Commodity Insights.

"Keeping the oil import bill low is a big priority for the Indian government, and buying Russian oil at discounted rates helps in achieving that objective. I don't think India will change that stance, unless of course, the market scenario changes," said Priyanka Kishore, director and principal economist at Asia Decoded, a Singapore-based research consultancy.

Declining US share

In the January-September period, India's imports of Russian crude averaged 1.7 million b/d, making the non-OPEC producer the country's biggest supplier. The US was the fifth-largest supplier, accounting for 215,000 b/d in the same nine-month period, according to data from S&P Global Commodities at Sea.

"Judging by recent statements from government officials, including the petroleum and foreign ministers of India, it appears that India will not shy away from continuing purchasing Russian-grade crude in the foreseeable future," said Rajat Kapoor, managing director for oil and gas at Synergy Consulting.

The US crude share in India rose to as high as 15% in the first quarter of 2021. The majority of US crude exports to India consisted of light grades, predominantly WTI, with nearly 50% previously discharged for Reliance Industries until 2021.

However, since the start of the Russia-Ukraine conflict, purchases from the US have fallen behind, as Russian crude now accounts for over 40% of India's imports, according to data from CAS.

Commodity Insights expects the US share of India's total crude imports to maintain a range of 5%-6% in the near term, as US crude has solidified its presence in Europe.

"The recent availability of cheap Russian crude has shifted the dynamics away from the US grades. Notably, the Reliance refinery, along with many other Indian refineries, possesses a high complexity index, allowing a relatively easy transition between these crude grades. As a result, the shift from US grades to Russian grades was relatively easy," Ranjan added.

"However, India may revert back to increasing its imports from the US, should sanctions on Russian crude tighten or the price dynamics favor US crudes, although this appears less likely in our base case," he added.

Search for new markets

Some Indian refining sources said US crude production will likely continue to grow under a Trump administration.

"Right now, US crude is finding homes easily in Europe. With the Indian oil demand growth outlook showing a lot of promise, the US will surely step up efforts to grab a bigger market share. But a lot would depend on prices," said one refining source.

India has mainly been buying US oil on a spot basis, but as US production rises, both sides could increasingly explore the possibility of term contracts, multiple refining sources said.

Industry sources said the global oil flow map could change if Trump acts on his election promise to step up efforts to stop the Russia-Ukraine conflict, and Russian oil again starts flowing to Europe.

"India has consistently adopted a neutral stance from the perspective of global and commodity trade in the ongoing Russia-Ukraine conflict," said Tushar Tarun Bansal, senior director at consulting firm Alvarez and Marsal.

"Trump is widely expected to push for an agreement to limit or end the conflict. This potentially could lead to greater Russian oil flows into global markets, although the exact contours, pathways and eventual outcome are far from clear at this stage. This could potentially be bearish for oil going forward in Q1 and Q2 next year," Bansal added.

Commodity Insights expects Platts Dated Brent to average $81/b in 2024 but the market remains volatile at present. Despite ongoing tensions in the Middle East and other uncertainties, Commodity Insights sees an easing of Platts Dated Brent to the lower $70s/b in 2025, owing to expected production increases from both OPEC+ and non-OPEC+, coupled with a subdued global oil demand growth.

Exploring ties on storage

Sources said collaboration with the US in the storage segment was also a possibility.

A few years ago, India held discussions with the US to cooperate on emergency crude oil reserves, which included the possibility of buying and storing US oil in US strategic petroleum reserves, and shipping it to India when necessary, but that plan has not moved forward.

"India could potentially explore some renewed cooperation on the storage front, and that could include the US storing oil in Indian caverns also," said an Indian oil industry source.

The UAE's ADNOC is currently the only overseas company that stores oil in India's caverns, which are owned by Indian Strategic Petroleum Reserves Ltd.