India pivots from Middle East to Russian oil amid prophet Muhammad row

Russia is making huge inroads into the world’s third-largest oil market and is well on its way to becoming one of India’s largest oil suppliers, replacing historical suppliers Saudi Arabia and Iraq.

India’s crude oil imports from Russia soared to 21 per cent in June, making Moscow the second-largest oil supplier to India, according to numbers provided by data and analytics company Kpler to The Independent. To put this in perspective, until 2021, Russia was only the tenth-largest oil supplier to India.

Shunned by many of its traditional European buyers after its invasion of Ukraine, Russia’s sale of cheap crude oil to India increased from zero in January and February to a record 950,000 barrels per day in June as Delhi picked up the slack.

For the first time, India’s purchases have pitted Russia and traditional top supplier Iraq against each other. In June, Iraq sold around 1 million barrels a day to India, marking a marginal decline in imports from Baghdad since May.

Imports from Saudi Arabia went down from 697,000 barrels a day in May to 686,000 in June. With Kuwait, imports had declined earlier this year with a high of 297,000 barrels a day in February to 100,000 by April. They have marginally increased to 233,000 barrels a day in June.

Matt Smith, lead oil analyst of Kpler, says the massive increase in Russian crude imports in the last two months has meant that “flows have dropped from leading suppliers in the Middle East – Iraq and Saudi Arabia – as well as from elsewhere”.

He adds that imports are at a “historical level” as they are the highest since the company’s records began in 2013.

Owing to post-pandemic rebounds, India’s overall demand for crude oil ballooned by nearly 13 per cent this year, in comparison to 2021.

India is a major refining hub, importing crude and exporting clean products such as gasoline and diesel. Hence, exports of clean products are also up – by nearly nine per cent as compared to 2021, making it a lucrative deal for Delhi.

“For India, the opportunity to buy cheap Russian oil remains a political balancing act with the west. Receiving cheap oil from Russia sounds like a lucrative deal for India in the near term,” Thomas Murphy, strategic intelligence manager at Dragonfly, tells The Independent.

But he notes that the deal might bring some political downsides in the long term as he expects India will face “growing criticism and diplomatic pressure from both the US and Europe” for neither imposing sanctions nor holding Russia accountable for human rights violations in Ukraine even as the conflict has raged on for more than four months.

This major shift in India’s oil market is expected to cause discomfort among the south Asian nation’s allies, which have economic and trade links dating back centuries.

Harsh V Pant, professor of international relations at King’s College, London, tells The Independent that the Middle East will have to think carefully about its long-term strategy if its largest buyers India and China gradually stop depending on them.

For many countries in the Middle East, the sale of oil is their biggest income. Nearly 65 per cent of the world’s oil reserves are in the Middle East.

India’s bilateral trade with the Gulf Cooperation Council (GCC) countries – including Saudi Arabia and the United Arab Emirates – topped $150bn (£126bn) in the financial year ending March 2022.

But India is making the most of Russia’s discounted oil, he says, as it has created incentives to reach out to other buyers while the Middle East inflated rates dramatically during the energy crisis.

“I don’t think the Middle East will look at it as a long-term strategic challenge but temporarily it has implications for the Middle East... if you have China and India, which are two largest importers of oil in the Middle East, taking advantage of Russia bonanza, which may be temporary, but it is there, and one does not know till when the war will last.”

The question of whether Russia will be able to lure these Asian countries with heavy discount deals when Europe completely stops buying oil from it by the end of the year will determine long-term strategies, he says. Because, he adds, merely offering steep discounts is not viable in the long term.

“The Middle East has to ascertain whether they have to continue on this trajectory or there needs to be a recalibration at the oil markets,” he says, adding that India is an important market for the Middle East, and for Delhi, reasonable pricing is a priority.

New fissures are also emerging as escalating internal communal tensions have affected India’s ties with Islamic nations.

In June, more than 15 Islamic nations condemned derogatory statements made by the spokesperson of India’s ruling right-wing Hindu nationalist Bharatiya Janata Party (BJP) about the prophet Muhammad.

Several Muslim-majority countries, including Qatar, Kuwait and Iran, summoned their Indian ambassadors to protest over the remarks, while Indian products were taken off shelves in markets after Muslim clerics called for boycotts.

To control the fallout, BJP suspended Nupur Sharma and Naveen Jindal, the functionaries who made those Islamophobic statements but stopped short of apologising, only saying that the party “strongly denounces insults of any religious personalities”.

Meanwhile, the pressure on India to wean itself off Russian oil will continue to loom large as US president Joe Biden meets Saudi crown prince Mohammed bin Salman and leaders from oil-rich allies during his trip to the Middle East next month.

Holding on to India’s neutral stance on the war in Ukraine despite pressure from the US and the west, India’s prime minister Narendra Modi spoke to Russian president Vladimir Putin to discuss bilateral trade and the “state of international energy” on 1 July. This was their fourth telephonic call since the 24 February invasion.

India has ramped up its purchases from Russia at a time when the UK, US and European Union have rolled out heavy sanctions to cut the funding to Kremlin’s war chest. The US banned Russian oil imports in March while the EU said it will phase-out Russian oil purchases by December.

The deliveries to EU-27 countries have been averaging around 1.2 million barrels per day in recent months – a number that India is closing in on. EU’s imports are down about a third compared to pre-war times of more than 2.2 million barrels per day.

Indian foreign minister Subrahmanyam Jaishankar rebuked analysts and world leaders on being asked if India was seeking financial opportunism amid a war.

“If India funding Russia oil is funding the war... Tell me then buying Russian gas is not funding the war? It’s only Indian money and Russian oil coming to India funding the war and not Russia’s gas coming to Europe? Let’s be a little even-handed,” Mr Jaishankar said in June.