Crude calculations: How cheaper Venezuelan oil flows will help India

Sometime soon, perhaps on Tuesday or Wednesday, Degas, a very large crude carrier laden with Venezuelan oil, is expected to dock at Jamnagar to unload 2 million barrels of dirty, high sulphur crude oil, shipping data shows. With this, the cheapest crude available to India is again within reach, nearly five months after the United States reimposed restrictions on oil exports from the South American nation.

The 42-day journey, made around the horn of Africa, to evade missiles hurled by the Houthi rebels on tankers taking the shorter Suez Canal route, will end at India's west coast on September 11, according to data from Paris-based market intelligence agency Kpler. Reliance, India’s second biggest refiner, operates a 1.36 million barrels per day (bpd) refinery in Jamnagar where it has the capability to process some of the dirtiest crudes.

 

The dark, viscous Merey aboard the Degas is one such. It is also acidic in nature, corrosive and tougher to refine into petrol or diesel. These oils are available at large discounts to the Gulf and Russian oils populating the Indian crude universe, enabling huge savings.
 

Venezuelan grades were, on an average, cheaper by $15-19 a barrel (bbl) this year compared to the Indian crude import basket, according to oil ministry and customs data. That translates into annual savings of $3 billion annually based on peak volumes, according to Business Standard’s calculations.
 

US sanctions on Venezuelan state-run oil company PDVSA extend from 2019, with curbs on exports lifted twice. The first time was in October 2023 for a six-month period, but with conditions. Venezuelan President Nicolas Maduro allegedly violated Washington’s terms, prompting the Biden administration to reimpose in mid-April this year a ban on crude sales, with exceptions made for companies such as Chevron, Repsol, and Maurel and Prom to operate in Venezuela. 
 

As part of the exceptions, Reliance obtained a licence, and the soon-to-arrive ship is coming from PDVSA.

Reliance declined to comment.

 

Cost advantage
 

It’s a timely trade for Reliance, says Vandana Hari, a Singapore-based energy expert. In 2015, when India’s purchases of Venezuelan oil peaked at 441,000 bpd — around 12 per cent of crude imports that year — Reliance’s share was 75 per cent. Rosneft-run Nayara Energy accounted for the rest, Kpler data shows.
 

The savings that feed into its refining margins prompted Reliance to secure Washington’s blessings in July to import Venezuelan oil. Merey averaged $68 a bbl in June — $14 a bbl cheaper than the discounted Russian barrels and $20 a barrel cheaper than the Saudi Arabian and US grades, according to customs data.

Reliance, despite having no production assets in Venezuela and being of non-western origin, secured a licence because of New Delhi’s strong ties with Washington, which has offered India an option to turn away from further Russian purchases, industry officials say. 
 

Venezuela’s crude exports this year averaged 705,000 bpd, the highest since 2019.  India imported around 22 million barrels of Venezuelan oil in 2024, 1.5 per cent of India’s total purchases during the period, of which Reliance’s share was nearly 20 million barrels, including this month’s delivery, Kpler data shows. Indian Oil, which is keen on securing a licence to import the crude, imported one cargo.
 

A senior Indian government official expressed scepticism if other Indian companies would secure exemptions from Washington because Maduro was accused of rigging elections to retain power. State-run explorer ONGC has applied for permission to operate two areas in Venezuela, but US officials have said Washington will continue to “calibrate” its sanctions policy through Venezuela’s presidential inauguration in January, says London-based information provider Energy Intelligence. Former US President Donald Trump has threatened to impose stringent sanctions on Venezuela, if elected, industry sources say.
 

Amid the uncertainty, a question that pops up is how big of an opportunity does a US licence offer India. On paper, it is huge.

 

The opportunity
 

Deciphering the savings accruing from Venezuelan oil, industry officials say Indian refiners may have to seek the more expensive Russian or Gulf crudes if Merey was not available legally. For instance, in March, Reliance imported 4.8 million barrels of Merey, which on a delivered basis cost $66 a bbl, according to Kpler and customs data. Russian crude oil, despite the discounts, cost $15 a bbl more. An alternate grade from Russia, in Venezuela’s absence, would have cost $75 million more that month — if India were to replicate its past peak of 450,000 bpd of Venezuelan oil, it stands to save more than $3 billion at current prices.  
 

“Venezuelan crude oil exports have seen steady growth to China, Europe, and the US over the last seven months, and the trend is likely to continue unless the Caracas-Washington DC relations hit roadblocks,’’ said Narendra Taneja, a Delhi-based energy expert. “India’s top refiners know Venezuela well, thanks to their long history of buying crude oil from there before the American sanctions.”
 

But there are practical considerations.
 

“Considering Merey is a very heavy crude with high acidity levels, Indian refineries are not designed to process the crude neat, in the absence of large-scale blending facilities,” said R Ramachandran, an oil industry consultant and former refining head at Bharat Petroleum. “Certain complex refineries have been experimenting to process this crude, mixing it with other lighter oils to create value in terms of margins, but in order to obtain larger benefits of this discounted crude, significant investments need to be made in plant configurations.’’
 

Hari doubts that India’s appetite for Venezuela will grow much because traditionally only a few refiners have bought crude from the country. “Having to get prior approval is no doubt also a barrier to growing demand. Finally, if Trump comes back into power, there could be a big question mark again on the crude flows,’’ she says.