India imports nearly ninety percent of its total consumption of crude oil. Approximately one-half of this oil travels via the Strait of Hormuz, the narrow Gulf shipping chokepoint that Iran has been using as an effective weapon against the US-Israel-led military action in Iran since March 1.
Tankers are presently stranded, while supply ROUTES have been disrupted or closed. Thus, New Delhi is facing an energy crisis that’s hard to resolve rapidly. Washington subsequently issued a surprise concession to India in the form of a temporary waiver to allow Indian companies to purchase Russian crude oil.
What the waiver actually says
On Thursday, US Treasury Secretary Scott Bessent announced this 30-day permit and stated it was more of a necessity than a reversal of US policy. The waiver permits Indian refiners to continue to process transactions involving Russian crude oil that was loaded onto vessels prior to March 5, providing delivery occurs by 4 April. Bessent stated, this waiver is a stop-gap measure to stop Iran from holding the energy markets of the world hostage.
The time frame of this waiver is also very important. Rough estimates suggest that there are currently approximately 145 million barrels of Russian crude on ships in the Indian Ocean or being transported along shipping routes in the surrounding area. Kpler forecasting analysts believe that Indian refiners may be able to increase the inflow of Russian oil from one million barrels to between 1.6 to 2 million barrels of oil per day in the near future.
Why India remains exposed despite the relief
India’s approximately 2.6 million barrels of Middle Eastern crude oil per day supply will not be filled by Russia because Russian supply on its own cannot fill that amount of crude. Competition with Chinese buyers will further limit the amount of Russian crude that India could purchase as provided by the waiver. Thus, the overall crude oil supply from the Middle East to India will remain at roughly the same total supply as today.
The waiver creates a Grey area due to the wording of the Treasury order. The language of the order refers to oil shipped after 5 March and does not include cargoes that have been lost at sea, as stated by Bessent.
Many shipments that were loaded after the March 5 date are scheduled to arrive in India after the 4 April date, which limits the waiver’s effectiveness for a significant portion of crude oil.
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Why the waiver falls short of a real fix
The Indian Government remains confident that current crude oil and fuel reserves will provide adequate supplies to meet the nation’s demands for up to eight weeks “including emergency supplies”.
However, they cannot contain the overall economic impact of the ongoing war in Ukraine. Brent Crude prices have increased by almost 16% since the war started. As a result, each $10 rise in crude oil prices represents about $13 billion – $14 billion of additional cost to India’s annual crude oil imports, resulting in an ever-widening current account deficit and putting pressure on the Indian rupee.
The waiver gives India more time, but whether that will be enough time will depend on the length of time that the Strait of Hormuz remains a war zone.
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