India and China Lead Russian Crude Oil Purchases, Shifting Global Dynamics
In a significant development that underscores the shifting dynamics of the global oil market, India and China, the world’s top oil consumers, have emerged as major buyers of heavily discounted Russian crude oil. According to the International Energy Agency (IEA), these two Asian giants accounted for 80 percent of Russia’s crude oil exports in May. This trend highlights the growing reliance of India and China on Russian oil and the changing patterns of global energy trade.
The Paris-based energy agency’s latest Oil Market Report reveals that India has significantly ramped up its purchases, from virtually nothing to nearly 2 million barrels daily. Meanwhile, China has increased its liftings by an additional 500,000 barrels per day, reaching 2.2 million barrels per day. Together, these two nations have become the primary destination for Russian crude oil exports, reflecting the favorable economics of heavily discounted Russian oil.
Amid geopolitical developments and trade restrictions, Russia has pivoted toward the East, redirecting over 90 percent of its seaborne crude exports to Asia. This dramatic shift marks a substantial increase from the pre-war levels of 34 percent. Europe, once the main market for Russian crude, has witnessed import bans, while the Group of Seven (G7) nations have imposed shipping restrictions. As a result, the focus has turned to India and China’s dynamic and rapidly growing markets.
The surge in India’s imports of Russian oil is particularly noteworthy, with volumes rising by 14 percent compared to April, reaching a record high. The attraction of cheap Russian crude remains strong due to substantial discounts. The Urals crude grade, Russia’s primary export, maintained an average discount of $26 per barrel to Dated Brent in the first three weeks of May. This starkly contrasts the $3.70 per barrel discount observed in January 2022.
The IEA’s projections for the Indian economy further reinforce the importance of these developments. The agency predicts Indian GDP to grow by 4.8 percent in 2023, with the growth rate accelerating to 6.3 percent in 2024 and a robust 7 percent from 2025 to 2028. Favorable demographics and an expanding middle class will bolster this growth. India is poised to surpass China’s global year-on-year oil demand growth by 2027.
As the world’s fastest-growing economy, India surpassed China to become the most populous country in 2023. Despite a slowing expansion rate, India’s population is expected to grow until 2065, propelled by urbanization, industrialization, and a rising middle class seeking mobility and tourism. The IEA predicts that Indian oil demand will increase by over 1 million barrels per day between 2022 and 2028, with diesel comprising a growing share of the product mix, climbing from 32 percent to 35 percent during the forecast period.
The shifting trade patterns in the oil market have not been limited to Russia alone. Since early 2023, increased exports from India, the Middle East, and China have been redirected westward to European and G7 buyers in the Atlantic Basin, helping to offset the Russian cargoes now being diverted to buyers east of the Suez Canal.
The emergence of India and China as major buyers of Russian crude oil underscores the evolving dynamics in global energy markets. The reliance on heavily discounted Russian oil reflects the economic advantage of these countries as they seek to meet their growing energy demands. As geopolitical and trade dynamics evolve, observing how these trends shape the global oil market in the coming years will be interesting.
In conclusion, the rise of India and China as dominant buyers of Russian crude oil is reshaping the global energy landscape. With significant purchases and heavily discounted prices, these two Asian giants are capitalizing on the changing dynamics of the oil market. As India’s GDP continues to grow and its population expands, the nation’s oil demand is set to outpace even that of China. This trend presents challenges and opportunities for the global energy sector as Russia’s oil export focus shifts to the East. The world eagerly watches these developments as they unfold, anticipating the future implications for the global oil trade.
