18th January 2025 (10 Topics)

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Impact of US Sanctions on Russia’s Oil Trade and India’s Oil Imports

Context

The US has imposed new sanctions on Russia's oil trade, targeting 183 tankers (ships), which are part of Russia's "shadow fleet." This fleet has been used to bypass Western sanctions and continue selling Russian oil to countries like India and China.

Why are these sanctions significant for India?

Oil remains a crucial part of the global economy, influencing geopolitical dynamics and national revenues.
India, as the third-largest consumer of crude oil in the world, is heavily reliant on oil imports.
Before the war in Ukraine, Russia wasn’t a major oil supplier to India, but since 2022, Russia became one of India’s biggest suppliers due to discounted prices, as Western countries reduced their purchase of Russian oil.
In 2024, nearly 38% of India’s total oil imports came from Russia. However, these sanctions on Russian tankers could affect the smooth flow of this oil to India.

Impact on India’s Oil Trade

The Indian economy is “significantly vulnerable” to fluctuations in oil prices. Domestic retail prices of gasoline and diesel surge “like rockets” in response to rising crude oil prices.
- Analysis from the Reserve Bank of India in 2019 found that every $10 per barrel rise in oil prices could lead to a 0.4% increase in headline inflation.
Not only will China and India have to pay more for the oil they consume, they will need to pay more to have it delivered to their shores because oil tanker rates have also risen.
Combined with a stronger U.S. dollar and weaker rupee, the impact on the India economy will be magnified.
Alternative Suppliers: If Russian oil becomes more expensive due to higher shipping costs, Indian refiners might turn to traditional suppliers such as Iraq, Saudi Arabia, and the UAE, which are already India’s top oil sources.

Fact Box:

India’s Stand

India is the world’s third-largest oil consumer, utilising around 5.05 million barrels per day and accounting for 5% of the global share, according to the EIA.
The country is projected to increase oil demand by nearly 1.2 million barrels per day (bpd) by the end of this decade, accounting for over a third of the global demand growth of 3.2 million barrels per day, as per the International Energy Agency’s (IEA) projections.
Driving factors: urbanisation, industrialisation, the emergence of a wealthier middle class keen for mobility and tourism, plus efforts to achieve greater access to clean cooking, which will underpin the expansion in oil demand.

India’s Strategic Crude Oil Reserves

The Indian Strategic Petroleum Reserves Limited is an Indian company responsible for maintaining the country’s strategic petroleum reserves.
The ISPRL is a wholly owned subsidiary of the Oil Industry Development Board (OIDB), which functions under the administrative control of the Ministry of Petroleum and Natural Gas.
The ISPRL has developed strategic crude oil reserves in underground rock caverns at three locations in India: Visakhapatnam, Mangalore, and Padur (near Udupi in Karnataka).

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GS Analyst: Daily Current Affairs

18th January 2025 (10 Topics)

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Impact of US Sanctions on Russia’s Oil Trade and India’s Oil Imports

Why are these sanctions significant for India?

Impact on India’s Oil Trade

Fact Box:

Still Have Questions?

GS Analyst: Daily Current Affairs

Impact of US Sanctions on Russia’s Oil Trade and India’s Oil Imports

Why are these sanctions significant for India?

Impact on India’s Oil Trade

Fact Box:

Still Have Questions?

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