India's Oil Supplies at Risk as Conflict Spreads to Red Sea

The ongoing conflict in West Asia has expanded to the Red Sea, affecting global trade and energy supplies. The Bab al-Mandab Strait, a critical chokepoint for oil imports, is now under threat from Houthi attacks.

According to S&P Global data, vessel crossings through the Bab al-Mandab have decreased significantly, with an average of 31 vessels per day over the past three days compared to 43 in the first half of July. Energy volumes transiting the Strait of Hormuz are also low.

Saudi Arabia had been using an alternative route to export oil to Asia, including India. However, a Houthi blockade on Saudi-linked shipping would delay oil shipments, adding up to four weeks to the journey and increasing costs due to higher freight and insurance charges.

India's dependence on imports for over 88% of its oil requirements makes it vulnerable to supply disruptions. However, the country has an obvious choice: increase Russian oil imports, which are currently at record highs of around 2.6 million barrels per day (bpd) and account for over 50% of India's overall oil imports.

Industry insiders believe that while the current risks are a matter of concern, they appear manageable. Indian refiners may increase purchases of Russian spot barrels and draw on commercial crude inventories to bridge temporary supply gaps.