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Russian Oil Saves the Day as India Cuts Fuel Prices

© AP Photo / Rajesh Kumar SinghIndian Prime Minister Narendra Modi, arrives to lead the opening of a temple dedicated to Hinduism's Lord Ram in Ayodhya, India, Jan. 22, 2024.
Indian Prime Minister Narendra Modi, arrives to lead the opening of a temple dedicated to Hinduism's Lord Ram in Ayodhya, India, Jan. 22, 2024. - Sputnik India, 1920, 19.03.2024
India's petroleum ministry last week announced a reduction in prices of petrol and diesel, days before the schedule for the Lok Sabha (parliamentary) election was announced.
Sourcing crude oil from Russia has been a major factor behind India's decision to slash the prices of petrol and diesel for the retail customers despite a volatility in global markets, an energy specialist told Sputnik India.

"The windfall gains incurred by the Indian government due to imports of Russian oil is definitely a factor allowing it to implement a price cut at this stage," Arpit Chandna, an energy specialist at Refinitiv, an LSEG (London Stock Exchange Group) business, told Sputnik India.

"Definitely, the cheaper Russian oil imported by India since 2022 has helped the domestic economy in terms of obtaining cheaper raw material. It seems that with the latest price cut, the Oil Marketing Companies (OMCs) are willing to pass on the benefits of Russian oil to the consumers as well," Chandna stated.
He further explained that the pricing "cushion" afforded by Russian oil imports has broadened the scope of reducing price margin for India's retail customers.
Chandna highlighted that the global markets have been reacting in a volatile manner to the Organisation of Petroleum Exporting Countries (OPEC)-linked production cuts and attacks on vessels traversing the Red Sea, which has led to higher freight rates.

"These factors could also lead to an increase in the premium on Russian crude going forward. But, looking at the trend of crude oil imports from Russia over the past financial quarters, I believe that the Russian oil imports to India are likely to continue even if the premium on it follows an upward trajectory," the specialist predicted.

Comparing the global volatility to New Delhi's decision, Chandna reckoned that the "price cut seems to have been driven by the upcoming election".
He noted that countries like India, which relies on imported crude to meet around 85 percent of its requirements, would also like to keep their options open in terms of availability.

"We could also see new avenues coming up, but I believe Russian crude would continue to remain one of the best and most viable options for India in the coming months," Chandna asserted.

© AP Photo / PANKAJ NANGIACrude oil
Crude oil  - Sputnik India, 1920, 19.03.2024
Crude oil

What Makes Price Cut Significant?

A statement by the Petroleum and Natural Gas Ministry last week estimated that reduced fuel prices, which kicked in on 16 March, would reduce the operating cost for around 5.8 million heavy goods vehicles running on diesel, as well as 60 million cars and 270 million two-wheelers operating on petrol.

The statement explained that the decision would allow Indians to have a greater disposable income and boost consumer spending, which would trickle down to other sectors of the economy such as tourism and industries.

Significantly, the ministry underlined that the slashed prices would help efforts by the Reserve Bank of India (RBI) to combat retail inflation, which has averaged around 5.1 percent in January and February, according to government data.
As highlighted by Petroleum Minister Hardeep Singh Puri on multiple occasions, petrol prices in India have been lower than other developing countries and even rich nations such as the US. Amid western pressure and the G7 price cap, New Delhi has stated that importing crude from Russia is part of its "inflation management strategy".

Russian oil imports accounted for around a third of India's overall imports in 2023. In January, Russian oil imports to India rose by 41 percent year-on-year to $4.47 billion, according to data reported by the Indian Commerce Ministry.

Since April 2022, when the fuel prices were revised, petrol and diesel prices in India have remained the same for almost two years.
Chandna said that the price cut was expected to further reduce retail inflation by around 0.1 percent. Significantly, he estimated that it would help the farmers, given the fact that the agriculture sector is the biggest employer.

"The government's decision to effect a price cut will definitely fuel government expenditure. At the same time, it will also lead to ease in expenditure and a rise in demand on the consumer side," Chandna remarked.

Russian President Vladimir Putin, right, and Indian Prime Minister Narendra Modi pose for a photo prior to their talks on a sideline of the Shanghai Cooperation Organization summit in Bishkek, Kyrgyzstan, June 13, 2019 - Sputnik India, 1920, 18.03.2024
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