Recent scrutiny of India's increased purchase of discounted Russian oil, especially following the Ukraine war, has led to a reassessment of the actual financial gains. While some U.S. officials have criticized India for alleged profiteering, a new report by brokerage CLSA reveals that the real benefit is significantly less than initial estimations. The report challenges claims that India gained between $10 billion and $25 billion annually, putting the figure closer to $2.5 billion, which is about 0.6 bps of India's GDP.

Following Russia's invasion of Ukraine, India's oil imports from Russia dramatically increased from less than 1% to nearly 40% of its total crude oil imports, driven by substantial discounts offered by Russia. Despite this surge, India has consistently asserted the legality of its actions, pointing out that international sanctions do not prohibit the purchase of Russian crude oil. The European Union's ban applies only to refined oil products derived from Russian crude.

The CLSA report explains that while the headline discount on Russian crude, capped at $60 per barrel, may seem large, the actual benefit to Indian importers is much smaller due to shipping, insurance, and reinsurance restrictions. These factors increase the landed price of the oil in India, reducing the apparent discount. The report estimates an average discount of $4 per barrel, leading to the $2.5 billion annual advantage for India in FY25. However, with current discounts decreasing, the yearly gains could fall to around $1 billion.

Moreover, the quality of Russian crude necessitates the import of higher-quality, more expensive crude for refining, further diminishing the gains. Import data reveals that the unit price of Indian crude oil imports has shifted from a discount versus Dubai crude before FY22 to a premium in recent years, indicating no clear financial advantage from Russian oil imports.

India defends its decision to buy Russian oil by stating that it aims to ensure stable and affordable energy costs for its consumers. External Affairs Minister S Jaishankar has emphasized that these purchases serve both national and global interests by helping stabilize oil prices. This decision has also helped prevent a potential spike in global crude prices, which could surpass $100 per barrel if India were to cease Russian oil imports.

Despite India's reliance on Russia for 36% of its oil needs (1.8 mbpd out of 5.4 million barrels per day), it also sources oil from Saudi Arabia (14%), Iraq (20%), the UAE (9%), and the USA (4%). While the EU has banned Russian oil imports, a price cap has been introduced for other countries, and India has adhered to this cap.

Recent developments, such as the U.S. imposing tariffs on Indian imports, could potentially negate the financial advantages gained from Russian oil purchases. These tariffs, reaching up to 50%, may significantly impact India's exports, particularly in sectors like textiles and jewelry.

In conclusion, while India has benefited from discounted Russian oil, the actual financial gains are considerably lower than initially speculated. These gains are also subject to various economic and geopolitical factors, including shipping costs, oil quality considerations, and international trade dynamics.