India's Oil Shake-Up: Can Venezuela Realistically Replace Russia?

India - Ekhbary News Agency

India's Oil Shake-Up: Can Venezuela Realistically Replace Russia?

In a strategic shift that could reshape global energy dynamics, India, the world's third-largest oil consumer, is facing escalating pressure to curtail its reliance on Russian crude. This pressure follows pronouncements by former US President Donald Trump, who claimed India had agreed to substitute Russian oil supplies with those from the United States, and potentially even Venezuela. This development comes after months of US scrutiny over New Delhi's purchases of discounted Russian and sanctioned Iranian crude. It appears India, which had been capitalizing on significant discounts for Russian oil, is beginning to heed these demands, opening the door to new and complex energy scenarios.

Trump announced via his Truth Social platform that Indian Prime Minister Narendra Modi intends to "stop buying Russian oil," asserting that this move would aid in ending the war in Ukraine. This statement coincided with reports indicating a one-fifth drop in Russian energy revenues last year, thereby increasing pressure on Russian President Vladimir Putin to pursue a peace deal. However, Modi confirmed tariff reductions on the social platform X but made no specific mention of an oil deal. Reuters cited an unnamed Indian government official who stated that US petroleum supplies were included in the agreement. Meanwhile, Indian Trade Minister Piyush Goyal announced that the country would diversify its energy sources, without naming specific countries.

Earlier, Trump had framed these moves as part of a broader trade agreement. This potential deal includes a reduction in US tariffs on Indian goods from 50% to 18%, with India reciprocally cutting tariffs on US products to zero. While New Delhi has yet to confirm this, the White House has announced the scrapping of additional tariffs imposed on Indian goods last August. These tariffs were a punitive measure by the Trump administration in response to India's oil purchases from Russia following Moscow's full-scale invasion of Ukraine in 2022.

New Delhi has already initiated steps to lessen its dependence on Russian crude, influenced by US sanctions targeting major Russian oil firms like Rosneft and Lukoil. Last week, India's Oil Minister Hardeep Singh Puri informed Bloomberg News that Russian oil shipments had decreased by nearly a third, to 1.3 million barrels per day (bpd) in recent weeks. He indicated that Indian oil companies are eager to increase imports from Canada and the United States as part of a strategy to diversify supplies across more than 40 countries.

However, experts caution against an immediate transition. Harsh Pant, a foreign policy expert at the Observer Research Foundation in New Delhi, was cited by the Financial Times stating that an abrupt shift away from Russian oil is "unlikely to happen." Russian supplies constitute approximately a quarter of India's total oil imports, which hover around 5 million bpd. Energy tracking firm Kpler estimates that a complete pivot could inflate India's annual oil import bill by $9 to $11 billion, given that Russian oil is heavily discounted, whereas US crude is more expensive.

Despite these challenges, tariff threats and sanctions have already prompted India to increase its purchases of US oil. The Times of India reported last month that US crude imports surged by 92% between April and November of the previous year. However, transporting large volumes of US crude to India is not straightforward. The sea voyage exceeds six weeks, utilizes tankers on one of the world's longest oil routes, and relies on a US Gulf Coast export system already operating near capacity. Furthermore, India might find itself competing with the European Union for US supplies, especially since the EU has agreed to procure significant quantities of US oil and liquefied natural gas (LNG).

A significant technical consideration is the type of crude. Indian refineries are optimized for processing heavy, sour Russian Urals crude, which is efficiently converted into diesel and jet fuel for domestic consumption. Transitioning to lighter, sweeter US crudes would necessitate operational adjustments that could take months.

Regarding Venezuela's potential role, this could offer India an opportunity to help revive the Latin American nation's beleaguered oil sector. India was a major buyer of Venezuelan crude until March last year, when the US imposed a 25% tariff on nations trading oil with Caracas. Venezuelan crude is typically heavy and sulfur-rich – a type well-suited for India's refineries. However, deliveries could be hampered by existing sanctions, as well as logistical challenges and increased costs associated with long-distance transportation. With Venezuela's oil output hovering around 900,000 bpd – a fraction of its early 2000s production – revitalizing supplies to meet India's demand would require years, political stability, and substantial investment. Pricing also remains a concern, as Venezuela previously sold its oil to Asian refineries at a steep discount due to US sanctions.

In conclusion, any rerouting of India's oil imports towards the US and potentially Venezuela is likely to be a gradual process. Consequently, the impact on global oil supplies is expected to be limited and incremental. India must also honor existing contracts for Russian crude cargoes already booked and in transit, often requiring up to 90-day lead times, necessitating a phased wind-down over several months to avoid disruptions and penalties. Meanwhile, China, the largest purchaser of Russian oil, is predicted to increase its acquisitions, along with Turkey and certain African nations. Global oil flows remain relatively balanced to modestly oversupplied, with OPEC+ members increasing their output over the past year. US shale and emerging sources like Brazil, Guyana, and Argentina are contributing to a global oil surplus, providing a buffer against supply disruptions. However, this redundancy could be quickly eroded if India were to abruptly halt Russian supplies.

Ekhbary News Agency