New Delhi has to stick to discounted crude oil prices to meet BOP challenge
By T N Ashok
NEW YORK: Crude oil prices since 2020 have been a lesson in volatility: a pandemic plunge, a war-fuelled spike, and then a long, low-grade dance between OPEC+ policy and new supply from the Americas.
For India — an import-dependent, fast-growing fuel consumer — those global gyrations translate directly into rupee pain or relief. Over the last five years the dominant themes have been (a) geopolitical risk (Ukraine, Gaza and the Red Sea shocks), (b) OPEC+ voluntary restraint and partial rollbacks, and (c) the rise of non-OPEC supply — especially U.S. shale and new Atlantic Basin barrels — that have capped the extremes.
The bottom line for India: the world has generally had enough oil, but where the barrels come from and at what discount matters a lot for the import bill.
India imported roughly 244 million tonnes of crude oil in 2024–25, equivalent to about 1.8 billion barrels for the year. That’s a useful baseline because every dollar move in crude translates into a large swing in India’s import bill: as one Indian analysis notes, each $1 rise in oil price roughly increases India’s annual import bill by about $1.8 billion. Put another way, a $10 rise in Brent adds nearly $18 billion to India’s import bill — a macro-relevant shock for growth, subsidies and the fiscal deficit.
The government and refiners therefore follow two domestic indicators closely: the Indian Basket (a weighted average of Brent and Middle Eastern sour grades such as Dubai/Oman) and the flows of discounted Russian crude. The Petroleum Planning & Analysis Cell (PPAC) publishes the Indian Basket monthly; it averaged roughly $70–71/bbl through July 2025 after having been far higher in 2022–24. That index is the proxy Delhi uses to measure external price pain.
One of the biggest structural shifts since 2022 has been where Russian barrels ended up. Western buyers largely shunned certain Russian grades after the Ukraine war, leaving discounted cargoes available to non-Western refiners.
India moved fast: state and private refiners lifted large volumes of Urals and other Russian grades that arrived at a discount to Brent. Recent estimates put Russia’s share of India’s crude imports as high as the mid-30s percent in peak months, and commentators estimate Indian refiners saved many billions of dollars buying discounted Russian crude over the last 2–3 years.
That substitution has materially lowered India’s import bill compared with what it would have been if India relied only on the conventional Middle Eastern sources at full Brent premium.
That choice, however, carries policy costs: secondary sanctions risks, political friction with the U.S., and the operational complexity of different crude quality mixes at refineries. Delhi has balanced those concerns against the immediate fiscal gain of cheaper crude amid high domestic energy needs.
Globally, supply additions outside OPEC+ — driven by the U.S., Brazil, Guyana and Canada — have been the marginal barrel that prevented sustained multi-year spikes after 2022. The IEA’s 2025 outlook shows non-OPEC+ producers leading growth, easing the market even as OPEC+ used voluntary cuts as a price-management tool.
For India, that’s a double benefit: a broader set of sellers keeps options open (and bargaining power for discounts), and U.S. and Latin American exports provide alternative sources when Middle Eastern or Black Sea flows are politically dented.
At the same time, episodic disruptions — Red Sea shipping risk, drone strikes on infrastructure, and Black Sea export windows — add short-term whipsaws that affect freight costs and spot premiums. Those episodic risk premia raise headline Brent and regional differentials, which is what the market quotes and what India ultimately pays.
Where global demand goes is crucial for prices. China’s demand trajectory has slowed from the snap-back years, yet India is now the largest contributor to global demand growth in many forecasts through the late 2020s. India’s rising vehicle fleet, expanding freight and aviation sectors, and still-large reliance on liquid fuels for industry and cooking mean incremental barrels are more likely to be absorbed by India than by richer economies switching earlier to gas and power.
That structural growth in consumption keeps India highly sensitive to changes in global prices — demand growth alone could tighten markets and lift prices if supply additions stumble.
India’s annual oil import bill swings with price and volumes. Using the 244 mtpa baseline, policymakers use three levers to manage impact: Buying discounted Russian barrels, increasing U.S./Brazil imports when competitively priced, or temporarily drawing down strategic and commercial stocks. The recent surge in Russian cargoes has demonstrably reduced gross import costs. Automating domestic fuel pricing or adjusting excise/taxes to shield consumers — though this shifts the burden to public finances. A weaker rupee magnifies import bill pain. Refiners sometimes hedge exposures in derivatives markets, but that’s partial and costly.
A few scenarios could materially worsen India’s bill. Renewed deep OPEC+ cuts timed with a recovery in Chinese runs would tighten prompt balances and lift Brent quickly. Major disruption to Russian exports (e.g., tighter enforcement of the price cap or sanctions) could push more demand onto Middle Eastern crude at higher prices. Recent reporting suggests enforcement is getting harder and that Russia has adapted through alternative logistics — but this is a policy risk that markets price when headlines spike. Rupee weakness even stable Brent becomes costlier in INR terms and forces fiscal and consumer tradeoffs.
Data points to refresh monthly: (1) PPAC’s Indian Basket, (2) monthly crude import tonnage and country-of-origin data, (3) Brent spot and front-month futures, and (4) freight and refining margins. A five-year Brent chart (annual averages + 12-month moving median) to show the 2020 trough, 2022 peak and 2023–25 range. An import-bill sensitivity projection that shows the $/bbl delta → annual USD change (using the $1 ≈ $1.8bn rule of thumb). A country-share pie for India’s 2024–25 crude imports (Saudi/Iraq/Russia/US/others) to show the Russia slice visually.
India sits between a geology it cannot change and geopolitics it cannot fully control. The last five years show that while global supply has been adequate overall, the origin and price of marginal barrels — and India’s ability to buy discounted grades — determine whether the rupee-denominated pain is a headline problem or a manageable fiscal item.
For policymakers, the key is disciplined, near-real-time tracking of sources, the Indian Basket, and seasonal refinery demand — because those are the levers that turn a global price move into domestic economic stress or breathing room. (IPA Service)
