India's crude oil import bill soars as Russian discount halves since Feb

India's crude oil import reliance hit a record 87.8 per cent in FY24 and is expected to rise in FY25 due to growing demand and stagnant domestic production

India’s crude oil import bill increased by 19 per cent in April 2024, reaching $13 billion compared to the same month last year, according to a Financial Express (FE) report. This rise is primarily due to reduced discounts on Russian oil, despite the continued high volumes of imports.

Russia, which became India’s top crude oil supplier following the Russia-Ukraine conflict, has significantly cut its discounts. The previous discounts of $8-10 per barrel have now shrunk to $3-4 per barrel.

The FE report, citing ICRA, said that Russian oil discounts narrowed sharply from around 23 per cent in the first five months of FY24 to 8 per cent between September and February.

As a result, India's savings from discounted Russian crude decreased from $5.8 billion in April-August 2023 to $2 billion in September 2023-February 2024 period. In FY23, India saved approximately $5.1 billion due to these discounts, and $7.9 billion in the first eleven months of FY24.

Meanwhile, India’s reliance on crude oil imports hit a record high of 87.8 per cent in FY24 and is expected to increase further in FY25 due to growing demand for petroleum products and stagnant domestic production. In April, India imported 21.4 million tonnes of crude oil, a 7 per cent increase from 20 million tonnes in April 2023, pushing import dependency to 88.4 per cent.

The report added that India’s net crude oil import bill could reach $101-104 billion in FY25, up from $96.1 billion in FY24, if the discounts on Russian crude remain at the current lower levels and import dependency continues to rise. The reduced discounts have also impacted the refining margins of state-owned oil marketing companies (OMCs).

India’s rising oil imports dependency 

The Indian government aims to reduce dependence on oil imports and boost domestic production while transitioning to green energy. However, targets remain unmet. The 2015 goal to reduce oil import reliance to 67 per cent by 2022 from 77 per cent in 2013-14 has not been achieved, with dependency increasing instead.

To enhance oil and gas exploration, the government launched the Hydrocarbon Exploration and Licensing Policy (HELP) in 2016. The Open Acreage Licensing Programme (OALP) under HELP has awarded 134 exploration blocks covering 207,691 sq. km since 2017, FE said.

Stagnant domestic oil production

Despite these initiatives, domestic oil production remains stagnant. In April 2024, India's upstream companies produced 2.4 million tonnes of crude oil, unchanged from the previous year, while demand for petroleum products rose by 6 per cent. Consumption of petroleum products increased to 19.9 million tonnes in April 2024 from 18.7 million tonnes in April 2023. Petroleum product imports also rose to 4.3 million tonnes from 3.2 million tonnes year-on-year.

In FY24, domestic oil production was marginally up at 29.4 million tonnes from 29.2 million tonnes in FY23, reported FE.

Although deepwater exploration, particularly in the Krishna-Godavari basin, is expected to boost Oil and Natural Gas Corporation's production by 11 per cent and 15 per cent for oil and gas respectively, the goal of reducing oil imports remains challenging due to the growing demand for oil.