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India’s oil imports: Trends in diversification – Observer Research Foundation

India needs to carefully devise strategies to diversify its oil import sources.
This article is part of the series Comprehensive Energy Monitor: India and the World
In the pandemic year 2020-21, over 84 percent of India’s petroleum product demand (crude oil and petroleum products) was met with imports. Gross petroleum imports of about 239 million tonnes (MT) of value US$77 billion accounted for over 19 percent of India’s total imports in 2020-21. In 2019-20, over 85 percent of petroleum product demand was met with imports. Gross petroleum imports of over 270 MT of value US$119 billion accounted for 25 percent of India’s total imports. This is a substantial increase compared to 2006-07, when oil imports of about 145 MT accounted for about 77 percent of consumption.
In the early 2000s, the growing volume of crude oil imports was seen to be associated with two key external risks for India’s energy security.  The first was the volume risk, which originated from the fact that most of the global conventional oil reserves and most of India’s oil imports were concentrated in the Persian Gulf.  It was assumed that the political and social volatility in the Persian Gulf region increased the possibility of deliberate oil supply disruptions by state or non-state actors. The second was the price risk, which was the probability of a dramatic increase in the price of oil in the international market on account of, amongst other things (a) instability in oil producing regions (b) reduction in supply on account of policies adopted in producing countries (c) international sanctions against oil procurement from specific countries. Volume risk in oil supply was prioritised over the price risk and addressed with strategies such as diversification of oil import basket and acquisition of equity oil assets around the world.

Source: Ministry of Commerce & Industry

In 2006-07, India sourced crude oil from 27 countries and in 2020-21 India sourced crude oil from 42 countries. However, this cannot be interpreted as an increase in diversification of oil import sources. The top 20 sources of India’s oil imports consistently accounted for over 95% of India’s oil imports and the top 10 countries accounted for over 80% in the last 15 years. The share of Persian Gulf countries in India’s crude imports has remained at around 60% over the last 15 years. The share of imports from Africa has decreased from about 17% in 2009-10 to about 13% in 2019-20, and the share of South American countries has increased from about 6% to about 12% in 2019-20. Countries from the Persian Gulf, Africa, and the South America have accounted for over 80% of India’s top 10 oil importers. The dominance of relatively cheaper suppliers from these regions indicates that crude sourcing decisions are optimised at the refinery level rather than at the country level. Essentially, refinery economics rather than geopolitics influenced decisions on sourcing crude.

Source: Ministry of Commerce & Industry; * 2021-22 (April 2021 to January 2022)

The top oil exporter to India in 2020-21 was Iraq followed by Saudi Arabia.  Iraq’s share in India’s imports increased from about 9% in 2009-10 to over 22% in 2020-21. Though Saudi Arabia lost its long-held position as the largest source of India’s oil imports to Iraq in 2017-18, Saudi Arabia’s share has remained steady between 17-18% of India’s imports over a decade.  Interestingly, the USA that was not among the top 20 oil exporters to India a decade ago, it was the 18th largest exporter in 2017-18, nineth largest in 2018-19, seventh largest in 2019-20, and fourth largest in 2020-21. Apart from the fact that crude oil exports from the USA were illegal until 2015, USA was also a large net importer of crude oil. With the growth in production of shale oil, the USA is now not only a net exporter of crude oil but also the world’s largest producer. The entry of the USA as India’s 4th largest source of oil imports breaks the trend of Saudi Arabia, Iraq, Iran, Kuwait, the UAE, Nigeria, and Venezuela dominating India’s top five oil import sources for over two decades.
Oil imports from Iran and Venezuela, two countries that are subject to Western sanctions have managed to remain in the list of India’s top 10 oil importers over the last decade, but their share has varied. The share of Iran, that was the second largest exporter of crude to India in 2009-10, fell to about 6% in the early 2010s. The share improved to about 10% in the late 2010s but in 2019-20, Iran’s share was less than 1%. Since 2020, Iran was no longer among the top 20 oil importers.  Venezuela’s share improved from about 4% in the early 2010s to over 12% in the mid-2010s. Since then, Venezuela’s share has fallen and in 2020-21 it was just over 2%.   Both Iran and Venezuela were not among the top 20 oil importers for India in 2021-22.
Russia, the country to come under Western sanctions in 2022, is not a large source of India’s oil imports but it has remained in India’s long portfolio of oil importers for over a decade. Russia’s share in India’s crude imports was less than 1% until 2017-18 when Russia started featuring among India’s top 20 oil import sources with a share of about 1.4%.  In 2021-22 (April to January), Russia’s share in India’s oil importers was 2.3%, which put Russia among India’s top 10 sources of oil imports.
The context that called for diversification of oil import sources was one of supply insecurity. Supply disruptions in the Persian Gulf was a high-impact event to which high-probability was attached and diversification of supply sources was seen as the rational response, given that countries in the region account for over 60% of India’s oil imports. Though oil supply disruptions in the Persian Gulf is a high-impact event even today, the probability of occurrence is not as high as it was assumed to be in the era of the war against terrorism. More importantly ‘demand insecurity’ and the consequent competition amongst oil exporters to gain market share in India, one of the few large growth markets for oil around the world, is influencing diversification more than supply-insecurity. The competition for oil markets has been introduced for the first time in several decades, oil exporters from the western hemisphere notably the USA and Russia, amongst the top 10 oil exporters to India.  Geopolitical sanctions may introduce minor short-term aberrations in India’s oil import basket, but this cannot alter longer-term economic trends.

Source: Ministry of Commerce & Industry; * 2021-22 (April 2021 to January 2022)

The views expressed above belong to the author(s).
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Akhilesh is a Programme Manager for the ORF Energy Initiative. He provides and interprets data on energy, and is involved in organisational work for the intiaitive.
Ms Powell has been with the ORF Centre for Resources Management for over eight years working on policy issues in Energy and Climate Change. Her most recent paper ’Climate and the Clash between the Diversely Developed’ was published in the December 2010 volume of the >>

Vinod Kumar has an MSc (Statistics) from Ramjas College, Delhi University, and a BSc (Physics, Mathematics and Statistics) from M. M. College Modinagar, CCS University, Meerut. He also has an NSS Certificate from M. M. College Modinagar & National Hindi Gyan Pratiyogita Certificate >>
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