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Energy transition has become a matter of national security. Ask India: Maguire

India's public humiliation over its imports from Russia of oil that has been sanctioned is a painful reminder of the fact that energy policy involves national security and increases the attractiveness of local energy sources.

Nearly 90% of the crude oil used to fuel the world's largest economy is imported.

India is more independent in terms of electricity.

Around 90% of India's coal is mined locally, and the rest comes from a surge in clean, domestic power.

The power industry, as a result of this, is better protected from geopolitical and supply shocks than refiners. The power industry is also more easily influenced by policy changes and is a reliable source of long-term tax revenue and employment.

This makes India's energy sector, rather than the oil refining industry, a more attractive base for its future national strategy.

FLATTERING TO DECEIVE?

India's oil dependency is unlikely to be reduced anytime soon with approximately 50 million cars, and almost 300 million motorbikes and scooters.

India's apparent addiction to oil may not be as bad as it appears.

Data from the Energy Institute show that India's oil consumption will grow at an average annual rate of 4.4% per year between 2021 and 2024.

This was the fastest rate of growth in the top 10 oil-consuming countries during this time period, and it was well above the average global annual growth rate of 3.0%.

Due to two factors, India's ability to increase global oil demand may seem greater than it actually is. These are China's slowdown in the economy and Russia's cheap exports of oil.

In recent years, China's debt crisis in the property sector and a slowdown of international trade has reduced oil demand growth. This has upset expectations on energy markets.

China's oil consumption increased by 6% per year between 2000 and 2019. Beijing is now the largest driver of oil demand worldwide.

Since 2021, this rate has dropped to just 3% per year.

India has emerged as the frontrunner to pick up the baton, thanks to its robust demand metrics.

India's rapid growth in consumption has been artificially inflated, it is argued, by its massive increases in imports of Russian oil at discounted prices.

Too Good to Refuse

The actual price that India paid for Russian oil from 2022 is not known, but given the rapid change in India's import mix it seems that Russian oil was sold at a price that could not be refused.

Up until 2021, Russia's share of India's annual imports of oil was only around 3%. The majority of India’s oil requirements were met by suppliers such as Iraq, Saudi Arabia, and the United Arab Emirates.

Since 2023 however, Russian oil accounts for nearly 40% India's imports of oil, making Russia the country's largest oil supplier.

According to Kpler, India's oil imports from Russia increased 16-fold in the period 2021-2024, going from 100,000 barrels per a day to 1.8 millions barrels. It has led to the perception that India's demand for oil is increasing at an incredible rate.

India's total oil imports increased by a modest 14% between 2021-2024. This is likely to be a better indication of India’s real oil consumption potential.

This jump is still impressive, as it represents record imports to India for each of the last two years.

This growth, however, was probably only possible because a large portion of imported oil was bought at prices that were well below the benchmarks for global oil. This discount allowed Indian refiners and their consumers to buy fuel at a lower price, which in turn boosted demand. India would likely have purchased less oil if it had been forced to buy the oil at full price. Fuels and refined products would have been much more expensive.

POWERING UP

It seems unlikely that the Indian government will base its future energy strategy on increased import dependency and aggressive oil consumption, given the international hostility towards India over its dependence on Russian oil.

The Indian government, on the other hand, has supported the rapid electrification and automation of industrial processes, transport fleets, and appliances. They are likely to continue to support the expansion of electricity supply to drive future economic growth.

Gleichzeitig, the country also expands the use of renewables within its energy basket.

India has taken aggressive steps to boost the local manufacturing of energy-related products and is on course to double its manufacturing capacity by 2030. This was revealed in a report published by SolarPower Europe.

Local and federal authorities will likely continue to support the energy transition effort of the country and the businesses that are behind it if these efforts create jobs and boost the national economy.

The Indian refining industry will be weakened by further criticism of Russian oil purchases, and any price increases triggered by switching suppliers.

If energy independence is necessary to ensure national security, geopolitical tensions could be an important catalyst in speeding up energy transition.

These are the opinions of a columnist who writes for.

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(source: Reuters)