The long route for oil

Surge in India's petrochemicals export may not be sustainable

Over the course of 2022-23, India’s exports appeared to show a reasonable increase of around 6 per cent even at a time of concern about growth momentum globally. The real driver of the growth numbers was, in fact, petroleum exports. When oil was taken out of the equation, non-oil exports in fact went down slightly as compared to the previous year. According to the Union government, petroleum exports were closing in on $100 billion in value, with almost $95 billion exported during 2022-23, a 40 per cent growth rate over the previous year. As a comparison, finished steel exports saw a decline of over 50 per cent in 2022-23.

The drivers of this outstanding performance cannot, however, be assumed to be structural shifts. If anything, this might be an artefact of the special circumstances caused by the Russian invasion of Ukraine in early 2022. Over the course of the months that followed, the price of fossil fuels increased, and some Russian exports had to be diverted from refineries in Western or allied countries. This allowed Indian refiners to pick up the slack. In April 2023, Indian refiners were importing 59 million barrels of crude oil as distinct from just 12 million barrels a year earlier. Russia is now India’s largest supplier of crude oil, with over 40 per cent being sourced from that country.

This Russian oil is being refined and turned around efficiently. Indian refineries have in fact managed to enter multiple new markets, including Brazil and South Africa, because of their input cost advantage. In fact, petrochemicals are now the largest component of Indian exports even to countries such as the United Kingdom and China. The largest destination for imports, however, was the ports of Rotterdam, Amsterdam, and others in the Netherlands — all of which, of course, are the primary entrepots for the economies of the western European Union. Prior to the Russian invasion, India would send approximately 150,000 barrels of aviation turbine fuel (ATF) and diesel to Europe; after the invasion, these shipments rose to 200,000 barrels a day. Half of India’s ATF exports go to Europe, and also 30 per cent of its diesel and petrol exports. ATF exports to the EU alone saw about a 75 per cent surge.

This can hardly be considered sustainable, for various reasons. First, the shipments of Russian oil and the current discount at which they are available may not last, especially if China can reduce the cost of imports through the construction of infrastructure, including along the Northern Sea Route through the Arctic Ocean. Second, the political class in Europe is currently looking away from this circuitous route for Russian oil, given that it eases inflationary tensions in the EU, and this may not last forever. Certainly, policymakers in the United States, which does not benefit as much as the EU from the role played by Indian exports, may prioritise mechanisms to shut down this trade. It has been reported that the government has been pushing new export arenas for Indian petrochemicals, especially from the public sector. It may not be wise to build long-term strategies around the performance of this sector under the exceptional circumstances of the past year.