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India's recent surge in oil imports from both Russia and the United States, occurring against the backdrop of escalating tensions between Iran and Israel, represents a calculated strategic maneuver rather than a knee-jerk reaction to geopolitical instability. This multifaceted approach underscores India's commitment to energy security and its proactive efforts to mitigate potential disruptions in global oil supply chains. The decision to increase Russian crude oil purchases to a two-year high, surpassing even the combined imports from traditional Middle Eastern suppliers like Saudi Arabia and Iraq, is primarily driven by the economic advantages offered by discounted Russian crude. Following Russia's invasion of Ukraine in February 2022, Western sanctions and European boycotts prompted Russia to offer significant discounts on its oil, making it an attractive alternative for price-sensitive importers like India. This shift has transformed India's oil import landscape, with Russian oil now accounting for a substantial 40-44 percent of the country's total crude purchases, a dramatic increase from less than 1 percent prior to the conflict. Simultaneously, India's increasing procurement of American oil, reaching 439,000 barrels per day in June, signifies a deliberate strategy of diversifying its energy sources. This diversification reduces India's dependence on any single region, particularly the volatile Middle East, and enhances its resilience against potential supply shocks. The combined approach of leveraging discounted Russian oil and diversifying with US crude reflects a pragmatic assessment of the global oil market and India's strategic interests in securing affordable and reliable energy supplies.
The potential disruption of oil flows through the Strait of Hormuz, a critical chokepoint for global energy trade, looms large in India's strategic calculations. The Strait, situated between Iran and Oman, serves as the primary conduit for petroleum exports from Saudi Arabia, Iran, Iraq, Kuwait, and the UAE, accounting for approximately one-fifth of global oil movement. With escalating tensions between Iran and Israel, the possibility of Iran closing the Strait has become a significant concern. While Kpler analysis assigns a low probability to a full blockade, citing strong disincentives for Iran, the mere threat of disruption necessitates contingency planning. India's dependence on the Strait of Hormuz is substantial, with 40 percent of its oil imports and half of its gas requirements passing through this narrow passage. In anticipation of potential disruptions, India is actively exploring alternative supply routes and bolstering its strategic oil reserves. The increase in Russian oil imports provides a buffer against potential shortages stemming from Middle Eastern instability. Russian oil varieties, such as Urals, ESPO, and Sokol, utilize alternative routes via the Suez Canal, Cape of Good Hope, or Pacific Ocean, bypassing the Strait of Hormuz altogether. Additionally, India is increasing its reliance on alternative sources from the US, West Africa, and Latin America, despite higher transportation costs. These alternative sources, combined with India's strategic reserves, which can cover approximately 9-10 days of imports, provide a multi-layered defense against potential supply disruptions.
The strategic importance of the Strait of Hormuz to both Iran and its regional rivals creates a complex web of incentives and disincentives that mitigate the likelihood of a complete blockade. While hardline elements within Iran have threatened closure, such an action would have severe repercussions for Iran itself. China, Iran's primary oil customer, imports a significant 47 percent of seaborne crude from the Middle East Gulf. A closure of the Strait would severely disrupt China's oil supply, undermining Iran's crucial economic relationship with its most important trading partner. Furthermore, Iran's heavy dependence on the Strait for its own oil exports through Kharg Island, which manages 96 percent of its exports, makes a self-imposed blockade counterproductive. Beyond the economic consequences, a blockade would also trigger a strong international military response. US and allied forces possess the capability to detect and neutralize any Iranian naval preparations, potentially leading to pre-emptive action. Even limited sabotage attempts would likely be short-lived, with US forces capable of restoring oil flows within 24-48 hours. Such actions would not only result in military consequences but also strain Iran's diplomatic relations with Oman, compromising its existing communication channels with the US. The combination of economic disincentives, the threat of military retaliation, and the potential for diplomatic isolation makes a full blockade of the Strait of Hormuz a highly improbable scenario.
India's enhanced refining capabilities and adaptable payment systems further bolster its resilience in the face of potential supply disruptions. Indian refineries have developed the expertise to process a diverse range of crude oil varieties, allowing them to switch between different sources as needed. This flexibility reduces India's vulnerability to disruptions in specific oil grades or regions. Furthermore, India has established alternative payment systems to facilitate trade with Russia, circumventing Western sanctions and ensuring a continued flow of discounted crude. These adaptable systems demonstrate India's proactive efforts to maintain access to essential energy supplies despite geopolitical challenges. The government's willingness to implement price support measures to control inflation, particularly for essential fuels like diesel and LPG, further reinforces its commitment to ensuring affordable energy for its citizens. By managing domestic fuel prices, the government can mitigate the impact of global oil market volatility on the Indian economy. This proactive approach, combined with strategic diversification and enhanced refining capabilities, positions India to navigate the complexities of the global energy landscape with confidence and resilience. In essence, India's current oil import strategy is not merely a response to immediate circumstances but a long-term strategic approach designed to ensure energy security and promote economic stability in an increasingly volatile world.