September oil surge: How India kept crude flowing despite the energy crisis

Higher volumes from the region brought more Middle Eastern crude back into India’s import mix, with Iraq becoming the country’s second-largest supplier after Russia for the first time since the US-Iran conflict erupted in February.

The upswing was seen across the Gulf: Saudi Arabia, Iraq, the UAE, Kuwait, Oman and Qatar together made up 39% of India’s total crude imports in September, according to Kpler. That follows steep declines from some of these suppliers after the Iran war began on February 28, making the renewed Gulf inflows a notable change in India’s import basket.

Iraq shipped 525,000 barrels per day to India in September, ranking second only to Russia. Saudi Arabia was close behind at 517,000 bpd, while the UAE supplied 438,000 bpd. Kuwait also recorded a strong rebound, sending 335,000 bpd—its highest level in a year—according to ET.

How India kept its crude flowing

The return of Iraqi and Kuwaiti barrels signals a major realignment in India’s crude flows. Supplies from both had all but vanished from India’s import slate for months after the Middle East conflict started on February 28. Their comeback, together with increased shipments from other Gulf producers, helped lift India’s overall crude imports to the highest level in a year.

Part of the rise in Gulf deliveries has been enabled by a workaround used by producers and traders to move crude through the Strait of Hormuz.

Dozens of large crude tankers are reportedly transiting the waterway with their Automatic Identification System (AIS) transponders turned off. Cargoes are then moved via ship-to-ship (STS) transfers in UAE and Omani waters.

Other vessels later deliver the crude to end buyers, while the original tankers return to Gulf terminals for the next load. Gulf national oil companies, along with some global traders, are arranging these shipments and taking on the risk of crossing the Strait of Hormuz even as attacks on vessels continue to be reported.

The jump in crude traffic through the strait has also fueled questions over whether Iran’s grip on the chokepoint is weakening.

Why Middle Eastern crude matters to Indian refiners

The rebound in Gulf supplies has offered relief to Indian refiners, many of which are optimised to run Middle Eastern grades.

"Greater availability of Middle East barrels not only helps recover some lost supply, it also opens access to crude grades with relatively strong middle-distillate yields, matching India’s domestic demand profile," said Nikhil Dubey, lead analyst, refining at commodity analytics firm Kpler.

The increase in Middle Eastern crude availability follows the recent passage of the Graham Bill, which authorises the US president to impose tariffs of up to 100% on India and other buyers of Russian oil.

As a result, additional Gulf volumes give Indian refiners another option should they need to cut exposure to Russian crude.

"Ample Middle East barrels availability provides Indian refiners with additional sourcing optionality should they need to reduce their exposure to Russian barrels," Dubey was cited by ET as saying.

More operations resume

Crude flows have also been supported by the restart of Saudi Arabia’s critical East-West pipeline. The pipeline, which was attacked by the Houthis in September, has resumed operations and has begun loading crude at the Red Sea port of Yanbu.

With Gulf producers and traders continuing to organise shipments, Middle Eastern crude accounted for a larger share of India’s September import basket. The mix of stronger Gulf availability, tankers transiting the Strait of Hormuz and ship-to-ship transfers in UAE and Omani waters has kept supplies moving to Indian refiners despite the broader disruption.

Energy traffic through the Strait of Hormuz has also increased, even amid ongoing security concerns tied to the Middle East crisis. LNG cargoes exiting the waterway rose to 19 in September from 15 in June, according to S&P Global Energy, while Kpler counted 21 cargoes.

More QatarEnergy-linked vessels have also been spotted again west of the strait, including one now offloading at India’s Hazira port. However, how long these flows can be maintained through winter remains unclear, with ships continuing to make “dark transits” by switching off their AIS transponders.