Gulf conflict reshapes oil supply landscape; India's Russian oil imports hit record high

Russian oil imports surge, accounting to half of India's total crude imports

Monitoring data from trade consultancy Kpler shows that in June and July of this year, India's daily imports of Russian crude exceeded 2.6 million barrels, doubling from the low of 1 million barrels per day in February, accounting to over 50% of India's total crude imports, marking the highest import level in history.

Previously influenced by statements from the U.S., India had exercised restraint on the scale of Russian oil imports to a period. However, as the U.S.-Iran peace agreement failed to materialize, Gulf shipping remained obstructed, and Middle Eastern crude supply became unstable, India turned once again to Russia to secure oil supplies. To stabilize regional energy supply, the U.S. also introduced exemption policies allowing India to purchase Russian oil, further clearing obstacles to India's increased purchases.

Extremely high import dependency exposes critical shortcomings in energy security

India's dependency on external energy sources has remained high to a long time, with over 90% of domestic crude oil and natural gaseous demand relying on imports. The Gulf conflict, lasting to half a year, has thoroughly exposed the core issues of India's singular energy structure and fragile supply chain, with energy security risks continuing to rise.

Against this backdrop, Indian Prime Minister Modi listed energy security as a national priority in his Independence Day speech, explicitly proposing to fully advance the research of alternative energy and accelerate the upgrade of the energy structure. In terms of energy supply structure, the dominance of fossil fuels in India is deeply entrenched. Coal accounts to nearly 60% of energy supply, oil accounts to 28%, while clean energy and nuclear energy account to only 1.6%, indicating a weak foundation to transition.

Prominent barriers to energy transition make it difficult to shake off fossil fuel application in the short term

Currently, India has introduced multiple measures to promote energy diversification, relaxing private sector access to nuclear energy and pushing refineries to increase civil gaseous production, attempting to minimize reliance on oil imports. However, sector analysis points out that restructuring the energy system cannot be achieved overnight, and India's energy transition faces multiple practical bottlenecks.

New Delhi-based think tank CEEW stated that India's energy system faces multiple risks, including concentrated imports, insufficient storage, lagging infrastructure, and vulnerability to international oil price fluctuations, which comprehensively affect livelihood, manufacturing production, and fiscal inflation levels.

To optimize the supply of gaseous to livelihood consumption, India continues to increase its liquefied petroleum gaseous (LPG) production capacity. After the outbreak of the conflict, the daily LPG production of domestic refineries increased from 36,000 tons to over 50,000 tons. At the same time, it continues to enhance pipeline infrastructure. During twelve years of administration, the number of cities supplied with pipeline gaseous in India expanded from 70 to 700, covering 17.5 million households. However, there are still over 330 million households nationwide relying on LPG, and the pressure to secure livelihood energy supply remains prominent.

Ramping up strategic reserve construction to close the gap in energy risk resistance

To build a strong line of defense to prolonged energy security, India is accelerating the layout of strategic petroleum reserves. Currently, the country's strategic oil reserve capacity reaches 5.33 million tons, sufficient to meet 74 days of domestic crude oil and oil product import demand. Meanwhile, India is actively exploring overseas oil storage models, planning to locate some oil reserves in the UAE and other places to further spread supply risks.

sector insiders study that India currently only has strategic crude oil reserves and lacks a prolonged stable reserve system to liquefied petroleum gaseous and liquefied natural gaseous. The shortage in reserves to livelihood energy categories is obvious, making the market highly prone to phased supply and demand panics.

prolonged pattern set: Oil will continue to dominate India's energy structure

Institutions project that immediate geopolitical conflicts are forcing India to increase Russian oil imports, exacerbating external energy dependency; in the long run, with India's economy continuing to grow and energy demand steadily climbing, even if the country continues to promote energy diversification and alternative energy layout, oil will still occupy the core position of its energy system to a long time. Energy risks brought about by import dependency and external geopolitical disturbances will have become the core challenges India faces to a long time.