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The ongoing conflict in the Middle East, particularly the closure of the Strait of Hormuz, is reshaping global energy dynamics, with Russia emerging as a key beneficiary. As India and China scramble to find alternative oil sources amid escalating prices, analysts suggest that Moscow stands to profit significantly from the turmoil, with both nations increasing their reliance on Russian crude.
The Strait of Hormuz: A Crucial Energy Corridor
The Strait of Hormuz is a vital artery for global oil trade, facilitating the passage of approximately 20% of the world’s oil and liquefied gas supplies. However, with Iranian forces threatening maritime security, the strait has effectively been rendered unusable for many operators. This disruption is already causing oil prices to surge, with projections suggesting that they could reach $100 per barrel if the situation persists.
Ajay Parmar, director of energy and refining at ICIS, notes that a prolonged conflict would intensify competition for limited oil supplies. “If we see a prolonged war, with the Strait out of use for an extended period, it would mean all countries globally competing for every incremental barrel of oil possible,” he stated.
Russia’s Strategic Advantage
As countries like India and China navigate the fallout from the Gulf crisis, Russia is positioned to fill the void left by Gulf oil supplies. Traditionally a major supplier to both nations, Moscow is now likely to see an uptick in demand as they seek alternatives. Experts predict that this shift could result in heightened sales of Russian crude to both countries, with China and India potentially increasing their purchases significantly.
Lauri Myllyvirta, co-founder and lead analyst at CREA, emphasised that the primary outcome of this geopolitical shift is clear: “Russia will make more money, and China and India will pay more for their oil, like all importers.”
India, which relies on imports for over 88% of its oil needs, has been particularly affected. While the Indian government claims to hold sufficient reserves, reports suggest that these may be far lower than officially stated. Furthermore, the recent history of Indian refiners reducing Russian oil purchases under US pressure complicates the situation. As the Strait remains closed, experts like Ricardo Evangelista from ActivTrades predict a reversal in this trend: “Both countries are likely to consider increasing purchases of Russian oil in the event of prolonged disruption.”
China’s Oil Strategy Amidst Conflict
China’s approach differs slightly from India’s, as it has not been under the same pressure to reduce its Russian oil intake. Recent data indicates a notable increase in Russian crude deliveries to China, with an additional 370,000 barrels per day recorded in February compared to January. This uptick coincides with Beijing’s ongoing challenges in securing oil from its other major suppliers, compounded by US sanctions on both Iranian and Venezuelan crude.
Despite prior restraint on purchases by state-owned companies, experts assert that this policy is unlikely to endure if the conflict escalates. “While independent refiners still purchase reasonable volumes of Russian oil, China has stopped its national oil companies from purchasing Russian oil in recent months. This policy may change if the war continues for an extended period,” Parmar commented.
Implications for Global Oil Markets
The shift in oil supply dynamics is not limited to Russia alone; other countries such as Brazil, Argentina, Australia, and Malaysia could also benefit from rising oil prices. However, none are as strategically positioned to serve the burgeoning needs of India and China, which collectively consume around 22-23 million barrels per day—approximately a fifth of global demand.
Despite the potential for long-term gains, Russia faces its own challenges in capitalising on this opportunity. Ongoing drone attacks in Ukraine have disrupted key oil terminals, and severe weather conditions have hindered loading capacities at Baltic ports. Nevertheless, exports from the Kozmino port in the far east are nearing record highs.
As the geopolitical landscape evolves, the political implications for India must also be considered. The Indian government’s potential pivot back to Russian oil may carry political ramifications, yet experts suggest that the current climate could mitigate these concerns. Vibhuti Garg, director for South Asia at IEEFA, noted, “In the current circumstances, I feel the US will not say anything,” reflecting a perception that Washington’s leverage over New Delhi may be diminishing.
Why it Matters
The ramifications of the conflict in the Middle East extend far beyond immediate energy concerns; they highlight the fragility of global oil markets and the shifting balances of power. As nations like India and China increasingly turn to Russia for their oil needs, the geopolitical landscape is likely to undergo significant changes. Russia’s emerging role as a key supplier amidst escalating tensions underscores a new era in energy security, with potential long-term impacts on international relations and economic strategies across the Asia-Pacific region and beyond.
