Russia, Europe eye India’s trade route

The Russo-Ukraine war and tighter sanctions on Russia by the West have provided more opportunities for India’s businesses than ever before.

Defense production and maintenance, shipbuilding and oil refining are three sectors where Indian companies are already beneficiaries or at least have received inquiries from potential importers.

India’s petroleum products exports, which rose 161% to $67.5 billion in FY12, partly driven by price increases, with several European countries in the current year to source refined products from Russia’s Ural crude Will take recourse to India, which is out of bounds for them.

Currently, discounted Russian crude allows private Indian refiners Reliance and Naira to realize over $15-$18 per barrel from exports of refined products to Europe and the US. This compares with $7-$9 a barrel in March-April when most of the discount was taken by traders.

Given the prospect of a prolonged standoff between Moscow and the West and a steady supply of Russian crude to India at relatively low rates, India’s private oil refiners may go for capacity expansion in the short term to increase supplies to Europe . Eventually, the changed structure of crude sourcing could enable India to realize its goal of becoming a refinery hub.

Anish Dey, Partner, KPMG India, said: “There is a strong potential for India to emerge as a refinery and petrochemical hub for Europe as they look for an alternative to China. India has an advantage in terms of scale, space, skill and technology, over the role that China played for Europe in the past. Day believes that with the shift to electric vehicles in the coming decade, that will change as well.

However, analysts say gains from oil exports to Europe may be largely confined to private refiners as state-run oil marketing companies have an obligation to meet domestic demand first.

Among the top importers of oil products products from India in the last fiscal year, only the Netherlands came from Europe, while the bulk of shipments were to Singapore, the US, Australia, South Korea and Indonesia.

According to sources, due to supply constraints, Russian defense companies have approached Indian companies seeking various components for naval shipbuilding and defense equipment. These firms are also looking to recruit Indians as there has been a shortage of manpower due to the exit of skilled shipbuilding professionals after the war.

Some European companies, which had bought defense and shipbuilding materials from Russia, now want India to collect and supply these products.

In addition, companies in Africa and Southeast Asia, which have traditionally relied on Russian defense platforms, now want India to provide maintenance repair and operation (MRO) services for such equipment. “We have been approached by original equipment manufacturers from Russia and Europe for joint venture partnerships. An industry source said the firms have agreed to provide necessary technology support for setting up manufacturing and assembly facilities in India.

Russian-made naval ships can be repaired in India with that country’s consent to share technology.

According to people in the know, Russian allies are eager to join hands with India for the Atmanirbhar Bharat plan. Sources said they are keen to participate in the civil commercial maritime sector for Inland Waterways Authority projects – National Waterway-1 from Varanasi to Paradip and construction of platforms and ships for other infrastructure construction activities.

In the decade between 2011 and 2021, India imported weapons worth $22.8 billion from Russia, its largest supplier. Purchases during this period were 42.5% higher than in the previous decade.

Of course, as far as supplies to Europe are concerned, refineries in India will face stiff competition from refiners in West Asia. “The option available to Indian firms would be to sell on the high seas as long as the discount on Russian crude continues. India will also have to increase its refining capacity going forward as the current capacity is sufficient till 2030.

The government had announced plans to make India a regional refinery hub a decade ago. Since then there has been an increase in refining capacity on both the east and west coasts, but growth in exportable surplus has been moderate due to a sharp increase in domestic consumption.

Indian Crude Oil Refiners – IOCL, HPCL, BPCL, RIL and Naira – the Russians are currently sourcing more than 0.8 million barrels per day of Ural crude, at a steep discount of $35 a barrel.

India’s refinery throughput is about 89% of the installed capacity of 249.88 million metric tonnes per annum (mtpa). This leaves significant potential to serve new export markets, mostly in the private sector.

Analysts say that India’s current refinery capacity will be around 1.5 to 2 times in the next 20-25 years.

Consumption of petroleum products in India stood at 202.7 MTPA in FY 2012, up from 194.3 MTPA in FY 2011, but lower than the pre-pandemic level of 214.1 MTPA (FY 2010). The country exported 61.8 million tonnes of petroleum products worth $42.3 billion in fiscal 2012, while imports touched 40.2 million tonnes ($24.2 billion).