India’s crude oil import bill surged by 19% in April 2024, hitting $13 billion compared to the same month last year, as reported by Financial Express (FE). This spike is largely attributed to the significant reduction in discounts on Russian oil, despite the sustained high volume of imports.
Russia emerged as India’s leading crude oil supplier following the Russia-Ukraine conflict. However, the discounts previously offered by Russia, which ranged from $8-10 per barrel, have now dwindled to $3-4 per barrel. The FE report, referencing ICRA, highlighted that Russian oil discounts dramatically decreased from approximately 23% in the initial five months of FY24 to 8% between September and February.
Consequently, India’s savings from discounted Russian crude dropped from $5.8 billion in the April-August 2023 period to $2 billion from September 2023 to February 2024. In FY23, India saved an estimated $5.1 billion due to these discounts and $7.9 billion over the first eleven months of FY24.
India’s dependency on crude oil imports reached an unprecedented high of 87.8% in FY24 and is expected to climb further in FY25, driven by increasing demand for petroleum products coupled with stagnant domestic production. In April 2024, India imported 21.4 million tonnes of crude oil, marking a 7% increase from the 20 million tonnes imported in April 2023. This pushed the import dependency to 88.4%.
The report also projected that India’s net crude oil import bill could escalate to $101-104 billion in FY25, up from $96.1 billion in FY24, should the discounts on Russian crude persist at the current lower levels and import dependency continues to rise. The reduced discounts have adversely affected the refining margins of state-owned oil marketing companies (OMCs).
Rising Oil Import Dependency
India’s increasing reliance on oil imports poses significant economic challenges. Despite governmental efforts to boost domestic production and transition to green energy, targets remain unmet. The government’s 2015 goal to cut oil import reliance to 67% by 2022 from 77% in 2013-14 has not been realized; instead, dependency has increased.
To enhance oil and gas exploration, the government introduced the Hydrocarbon Exploration and Licensing Policy (HELP) in 2016. Under the HELP initiative, the Open Acreage Licensing Programme (OALP) has allocated 134 exploration blocks covering 207,691 sq. km since 2017, according to FE.
Stagnant Domestic Oil Production
Despite these initiatives, domestic oil production remains static. In April 2024, India’s upstream companies produced 2.4 million tonnes of crude oil, unchanged from the previous year, while demand for petroleum products rose by 6%. The consumption of petroleum products increased to 19.9 million tonnes in April 2024 from 18.7 million tonnes in April 2023. Petroleum product imports also grew, rising to 4.3 million tonnes from 3.2 million tonnes year-on-year.
For FY24, domestic oil production saw a slight increase to 29.4 million tonnes from 29.2 million tonnes in FY23, reported FE. Although deepwater exploration, especially in the Krishna-Godavari basin, is projected to enhance Oil and Natural Gas Corporation’s production by 11% for oil and 15% for gas, the goal of reducing oil imports remains formidable due to the escalating demand for oil.
Conclusion
India’s crude oil import scenario underscores a critical economic issue, driven by reduced discounts on Russian oil and escalating domestic demand. Despite strategic initiatives to boost domestic production and explore new reserves, the challenge of reducing import dependency persists. As India continues to grapple with these dynamics, balancing economic growth with energy sustainability remains a paramount concern.
