Indian state-owned oil refiners are increasingly turning to Middle Eastern crude to compensate for dwindling supplies from Russia. This shift comes as refiners report significant shortfalls in Russian crude availability, with estimates indicating a need for 8-10 million barrels for January loading that they cannot meet through the spot market due to reduced Russian exports and rising domestic demand in Russia itself.

Supply Shortages From Russia: Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum have struggled to secure adequate volumes of Russian Urals crude, with at least six million barrels unfulfilled for January. This situation is exacerbated by long-term contracts that private refiners like Reliance Industries have secured with Russian suppliers, limiting the availability of spot cargoes for state-owned companies.

As a result of the supply issues, Indian refiners are considering sourcing more crude from Middle Eastern suppliers. The share of Middle Eastern oil in India's imports reached a nine-month high in November, accounting for nearly 48% of total crude imports. This shift is expected to support prices for high-sulphur oil but may also impact profit margins due to higher costs compared to Russian grades.

The dynamics of the crude oil market are shifting, with Russian suppliers favouring long-term contracts over spot sales. This change has prompted Indian refiners to explore alternative sources more aggressively, particularly as OPEC commitments and rising local demand in Russia may further restrict available volumes.

Economic Implications

The transition to Middle Eastern crude could lead to higher operational costs for Indian refiners, who have benefited from cheaper Russian oil since the onset of the Ukraine conflict. The potential increase in crude prices may affect overall energy costs in India, which heavily relies on imported oil for its energy needs. Moreover, as India continues to navigate these supply challenges without sanctions on Russian oil, it remains a key market for both Russian and Middle Eastern crude suppliers.