Why in News?
India has been buying Russian oil at or above the price cap imposed by G-7.
While commercially India is doing the right thing, the current situation may not be sustainable from an energy security point of view.
Price cap on Russian crude oil:
A price cap on Russian crude oil is a limit set on the maximum price at which Russia can sell its crude oil to global markets.
The price cap policy incentivizes the continued sale of oil and petroleum products on to the market at a steep discount from Russia’s wartime premium. In December 2022, the Coalition set the price cap on Russian crude oil at $60 per barrel.
The Western countries comprising the Group of Seven Nations(G7), the European Union, and Australia implemented this price cap to punish Russia for its invasion of Ukraine and limit the profits Russia makes from its oil exports.
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Challenges:
Payment Challenges: Currently, Russian crude accounts for about 35% of Indian imports. However, the maximum potential of Russian crude imports in India is 40-45%, as set by refining constraints.
Indian refiners are facing issues concerning the mercaptans (R-SH) in the jet/kerosene cut while processing the Urals in neat form.
Kero-Merox units are facing issues in handling kerosene cuts of neatly processed Urals, and that stream needs to be bypassed to hydrotreaters.
These challenges make it difficult for Indian refiners to process Russian crude oil cost-effectively and efficiently.
To address this, refineries will need to process Urals in blended form with other crude grades, eventually constraining the upside of Russian crude inflows into India.
China reopening:
Separately, Hari said China’s sudden reopening is unlikely to move the needle on oil prices in the near term.
Hari highlighted she does not believe oil prices will hit $100 per barrel anytime soon as a result of China’s reopening, but it could happen more gradually.
There’s still a high degree of uncertainty around China’s oil demand, she added.
“The initial boost in Chinese demand is obvious. We are seeing a lot of travel happening domestically, internationally… that’s positive for jet fuel. But when does the Chinese economy actually pick up momentum again? I think that’s a big question.”
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Conclusion
India has a wide range of options for crude purchase, but the ultimate decision will come down to refinery economics.
Diversifying crude oil sources can help mitigate the risks associated with an overreliance on any one region.
Policymakers must also balance the economic benefits of reducing costs with the country’s climate objectives.
A careful consideration of these factors will help India chart a course toward energy security and sustainability.
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The limits to sourcing Russian Oil ,The limits to sourcing Russian Oil
