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A consistent demand for energy is pushing the oil needs in India. In 2019, the country’s oil demand grew by 2.6% to reach 211.6 million tonne (MT). India is largely dependent on crude oil imports - around 83% - and the figure is likely to rise. The International Energy Agency (IEA) recently informed that India might surpass China in regard to oil imports for domestic consumption in 2020. The increased demand, since last year, is not being fulfilled by the West Asian countries who have been India’s conventional trading partners in oil. Rather, India is depending more on the US for import of oil. Additionally, India has substantially curbed imports of Iranian crude oil since the last fiscal.

US crude oil import rises

India’s crude oil imports from the US have jumped to over 72% in the first half of the current fiscal. Available data from the ‘Directorate General of Commercial Intelligence and Statistics’ informs that the import of US crude oil was around 4.5 MT during April to August 2019 as compared to 2.6 MT in the same period in 2018. This trend is continuing as in the first two quarters of FY 20, India’s US oil import has reached 5.4 MT. According to market insiders, total US crude oil import can reach close to 10 million tonne (MT) in the current fiscal and this might get doubled in FY 21. In that case, the US will be meeting 10% of India’s oil import needs which was earlier met by Iran.

While Iraq continues to be India’s largest crude oil supplier, imports from Iran is showing a stiff decline. After the US imposed economic sanctions against Iran, India too reduced its dependency on oil imports from Tehran. Available data informs that in FY 20, oil imports from Iran decreased to 1.97 MT as compared to 23.9 MT in FY 19.

The Indian Oil Corporation signed an annual deal of $1.5 billion to import 3 MT of crude oil in 2019.  Kalikrishna M., Executive Director (Corporate Communications), Indian Oil Corporation, told BE, “We are buying crude oil on a tender basis where US companies are also participating. They are offering lower rates and thereby getting the tenders. On the

first week of May 2018, Indian companies have started to reduce oil imports from Iran because of the American sanctions against Iran. This is a decision from the Indian government and not from any individual oil company. Oil marketing companies have diversified their sources to pur-chase crude oil and as of now, we are not facing any shortage.”

Iran used to offer cheap freight costs along with a 60 day credit period to Indian importers like Indian Oil Corporation. Now the US might also offer the same or even increase the concessions to ensure a better hold over the Indian market.

Political tension

IEA has recently warned India regarding the need to increase its energy efficiency and to diversify oil sources after political tensions increased in West Asia. The organisation said in a report titled ‘India energy policy review 2020’, “With an oil import bill of about 4% of the Gross Domestic Product (GDP) and 65% of imports coming from the

Middle East through the Strait of Hormuz, the Indian economy is and will become even more exposed to risks of supply disruptions, geopolitical uncertainties and the volatility of oil prices.” Such observations lend some rationale to India’s increasing dependency on US oil exports.

The recent American drone attack that killed Iranian military commander Qasem Soleimani has further added to the political uncertainties in the region. This might further distance New Delhi from Tehran and is likely to reduce India’s oil imports from Iran further.

Dipping imports from the Middle East

Available data indicates that overall Indian oil imports from the West Asian region reached a four year low in 2019. There has been a 5% decrease in oil imports in the 2019 fiscal as compared to the 2018 fiscal. IEA has observed that in 2019, after the sanctions and output reduction by OPEC, the West Asian region’s oil supplies condensed by about 1.9 million barrels per day. However, non-OPEC supply of oil increased by two million barrels per day. Additionally, international regulations are promoting lower sulphur fuels. It has also negatively impacted West Asian oil exports as they mostly offer high sulphur fuel oil (HSFO).