India’s trade policy proves that diversification doesn’t mean safety
Ultimately, every arrangement India counts as protection deserves one question: What would have to go wrong for this arrangement to fail, and does it fail for the same reasons as the one it replaced?
The lesson is that a diversified crude basket is largely a property of the commodity rather than a verdict on policy. (File photo) The working vocabulary at the recent ASEAN Foreign Ministers’ Meeting, as in every capital that trades for a living, was de-risking and diversification. It is sensible vocabulary, but it is doing less work than it appears to. India is the natural place to examine this vocabulary, because it has already diversified. It imports more than 85 per cent of the crude it consumes, and since the Gulf crisis began in late February the share arriving from West Asia has fallen from roughly half to about a third, with Russian barrels absorbing most of the difference. Few large importers have rearranged their supplier mix that fast, which makes India a fair case for asking whether rearranging is the same as being safer.
Three tests of its position suggest the difference is not academic. The first test is physical routing. After the Strait of Hormuz became unusable earlier this year, the Gulf producers engineered their way around it, redirecting volumes to Yanbu on the Red Sea coast and leaning on pipeline capacity to Fujairah, which is how Gulf barrels began returning to Indian refiners over the summer. Those redirected cargoes, however, leave through Bab el-Mandeb, a corridor that has deteriorated sharply this month, leaving Middle Eastern seaborne crude with progressively fewer exits. The Russian barrels that now make up roughly half of India’s crude intake are no better insulated.
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