After a gap of three years, India has again started buying crude oil from Venezuela. This follows the US decision to lift sanctions on the country.

Union Minister for Petroleum and Natural Gas, Hardeep Singh Puri, has said Indian refiners have booked cargoes of Venezuelan oil post the lifting of sanctions as they are capable of refining the heavy crude from the country.

This development comes at a time when the oil market is facing extensive production cuts from major producing countries, including Saudi Arabia and Russia.

The decision

India, one of the largest buyers of crude oil in the world, has said it would buy oil from any country that is not under sanctions, including Venezuela. India last imported Venezuelan oil in 2020.

Puri said that Indian oil companies, including Reliance Industries Limited (RIL), Indian Oil Corporation (IOCL), and HPCL-Mittal Energy, have secured cargoes from Venezuela, and oil from the country is expected to hit the Indian market in the coming months.

The oil minister added that both India’s oil demand and refining capacity are increasing, and therefore the country is looking forward to buying oil from Venezuela. Refiners in India are capable of refining heavy Venezuelan oil, he added.

However, the minister did not disclose the amount of oil expected to be coming into the country from Venezuela.

Past relations with Venezuela

India was a major importer of Venezuelan oil before the Latin American country came under sanctions from the US.

Venezuela, a member of the Organisation of the Petroleum Exporting Countries (OPEC), faced sanctions from the US in 2019 after President Nicolas Maduro claimed victory in a 2018 election — considered fraudulent by the US.

Before the US sanctions, Indian companies, such as Reliance Industries, used to import large quantities of oil from Venezuela. India used to buy around 10 million barrels of crude oil every month from Venezuela before the sanctions.

Current Venezuelan situation

Even though Venezuela has the largest proven oil reserves in the world, the immediate impact of the country’s oil supply on the international market remains hazy. This is because the infrastructure in the country has become outdated due to the sanctions, and fresh investments are required for Venezuela to produce oil at pre-sanctions levels.

Another risk lies in the political situation of the country, as the US has lifted sanctions only for six months currently and will take further decisions based on the 2024 presidential elections in Venezuela.

Changing trends

India’s oil import basket has gone through significant changes in the last two years. Venezuela, which was one of the biggest suppliers of crude oil to India, completely vanished from the scene after 2020.

On the other hand, Russia, which used to provide only 0.2 percent of India’s total crude oil imports before the Russia-Ukraine war, has currently become the largest supplier, surpassing traditional Middle Eastern countries. In November, India’s imports of crude oil from Russia constituted 33 percent of the country’s total oil imports.

After Western sanctions on Russian oil, Moscow began diverting its oil supplies to Asian countries at discounted prices.

Impact on India

Additional oil supply from Venezuela is a positive for India, as the country imports over 85 percent of its oil requirements from other countries.

In the current market dynamics, where OPEC has curtailed supplies and Indian refiners are facing payment-related issues for Russian oil, supply from Venezuela could prove to be a big relief for India.

Ever since the beginning of the Russia-Ukraine war, India has benefitted from discounted oil from Moscow amid soaring crude prices in the international market. However, that route seems to be coming to an end as India imported oil at $84.2 per barrel from Russia in October, way above the $60 per barrel price cap, according to a Reuters report. Additionally, Saudi Arabia — one of India’s largest oil suppliers — has also decided to continue its voluntary production cuts for early 2024. India’s crude oil imports from Russia fell for the second consecutive month in November, declining 4 percent from last month, according to energy cargo tracker Vortexa.

With India’s oil demand continuing to rise, more oil in the market will provide flexibility for companies to expand the sources from which they buy oil.
Source: Money Control