According to Kotak Securities, India is better equipped to handle the end of discounted Russian oil than a sustained spike in global oil prices, which could have far-reaching economic consequences.
India is better placed to cope with the loss of discounted Russian crude than with a prolonged surge in world oil prices, according to Anindya Banerjee, head of commodity and currency research at Kotak Securities, as reported by ANI. The issue has gained urgency as Washington steps up pressure on buyers of Russian energy, raising questions over whether India may need to scale back imports from Moscow.
Banerjee said the larger danger for India would be a sustained rise in benchmark crude, particularly if prices move to $100 a barrel or stay there. Kotak Securities has noted that the discount on Russian oil has narrowed sharply from about $15 to $20 a barrel earlier in the war to roughly $2 to $3, which reduces the value of continuing those purchases. A separate Kotak note said Indian Oil Corporation is seeking to keep Russian supplies flowing through non-sanctioned intermediaries despite fresh US action against Rosneft and Lukoil.
The savings from discounted Russian crude are now relatively modest in the context of India’s overall import bill. ANI, citing Banerjee, said India spends nearly $150 billion a year on crude imports, while the benefit from Russian discounts is only about $2 billion to $3 billion annually. CLSA has reached a similar conclusion, estimating annual savings at roughly $2.5 billion, far below some larger figures circulating in the market. India has also widened its sourcing base to more than 40 countries across the Middle East, Africa, the US and elsewhere.
By contrast, a broader oil-price shock would have a much heavier economic impact. ANI reported Banerjee’s estimate that every $10 increase in India’s average crude import price can add about $15 billion to the annual oil bill. Higher prices would also pressure the trade balance, weaken the rupee and feed domestic inflation, while raising transport and input costs across the economy. Fitch Ratings has said recent US sanctions on Russian producers are unlikely to materially damage the margins or credit strength of Indian refiners unless enforcement is prolonged and severe, but analysts at Kotak and ICICI Securities have warned that sharply higher crude would still create substantial strain for oil companies and consumers alike.
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