Red Sea Crisis: India turns to West Asia to replace US oil supply

“Indian buyers had a mixed January when robust domestic demand and an almost complete lack of refinery turnarounds were sapped by panic buying as the Red Sea disruptions complicated the country’s import options. With freight from the Atlantic Basin being prohibitively expensive again, Indian refiners needed to turn towards options closer to home,” said Viktor Katona, Lead Crude Analyst at Kpler.

Unlike US crude cargoes, oil cargoes from West Asia to India usually do not cross the Red Sea’s Bab el-Mandeb strait — where most of the attacks on commercial vessels have been concentrated — and pass through the Strait of Hormuz instead.

 India’s oil imports from Iraq — New Delhi’s second-largest source of crude — in January stood at 1.19 million bpd, up by a fourth from December volumes, and the highest since April 2022. 

The disruption in supplies of US crude led to a boost in India’s oil imports from another West Asian nation, the United Arab Emirates (UAE). Oil imports from the UAE in January jumped nearly 81 per cent over December levels to around 326,500 bpd. Abu Dhabi is India’s fourth-largest supplier of crude oil.

Crude imports from Saudi Arabia — India’s third-largest supplier — stood at 690,172 bpd in January, a tad lower than December’s 706,759 bpd. In all, Indian refiners imported a total of 4.81 million bpd of crude in January, 9.3 per cent higher than December, the Kpler data shows.

Oil imports from Russia — currently India’s largest supplier of oil — in January stood at 1.53 million bpd, 5.6 per cent higher from the previous month. 

In December, US crude supply to India was nearly 158,000 bpd. But with the Red Sea troubles and consequent surge in freight rates for oil flows between the West and Asia, US crude likely became unviable for Indian refiners, forcing them to turn to their traditional suppliers in the Persian Gulf. Also, with payment woes hitting deliveries of Russia’s Sokol crude, particularly to the Indian Oil Corporation (IOC), there appears to have been little room for a ramp-up in import volumes from Moscow.

A number of cargo ships have come under attack from Yemen’s Houthi rebels around the Bab el-Mandeb strait, which leads to the Red Sea and Suez Canal, forming the shortest, albeit narrow, route to the Mediterranean Sea and beyond from the Arab Peninsula, North-East Africa, and the Arabian Sea.

The route is seen as an important artery of global goods and energy supplies. The Houthis have so far claimed that they are targetting vessels with links to Israel and its allies in view of the ongoing military offensive in Gaza.

The security situation in the Red Sea region has forced a number of major shipping lines and Western oil companies to shun the route and instead take the much longer route around Africa via the Cape of Good Hope. Higher risk premiums and longer voyages have hit the movement of goods between Asia & Europe, and Asia & North America in terms of significantly higher freight rates.

As reported earlier by The Indian Express, Russian oil cargoes have largely been immune to the security situation in the Red Sea, and supplies to India remain largely stable. Russian oil cargoes — mainly carrying Urals crude — departing from the North Sea and Black Sea ports take the Suez Canal-Red Sea route to reach India. Oil and shipping analysts do not foresee tankers carrying Russian oil coming under attack in the region owing to closer relations between Moscow and Tehran. The Houthi rebels have long enjoyed the support of Iran.

Urals is Russia’s flagship crude oil grade and is the mainstay of India’s Russian oil imports. According to Katona, Urals supply volumes to India continued to remain robust and stable at around 1.2 million bpd in January, and February is expected to see similar levels, and possibly more. Sokol crude supplies from Russia, however, have been hit due to payment-related issues. There were no Sokol deliveries to India in December and January, against an average of 140,000 bpd in January-November. The lack of Sokol volumes also seems to have boosted alternative supplies from Iraq and the UAE.

“For IOC, the lack of incoming Sokol (crude) has become a logistical difficulty because it needs to purchase alternative grades on short notice. For Iraq, specifically, IOC’s purchases moved up from 380,000 bpd in December to 540,000 bpd in January,” Katona said, adding that February could see a similar trend of higher volumes from West Asia, but this time from Saudi Arabia as there are indications that IOC has nominated more than its usual volumes from Riyadh. IOC has been the predominant buyer of Sokol crude in India.

Prior to the war in Ukraine, Russia was a marginal player in India’s oil imports. However, as the West began shunning Russian oil following Moscow’s February 2022 invasion of Ukraine, Russia started offering deep discounts on its oil to willing buyers. Indian refiners started lapping up the discounted barrels, catapulting Russia to the top spot on the list of India’s oil suppliers, thus displacing traditional heavyweights like Iraq and Saudi Arabia. India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement.