New Delhi: The war in West Asia is reshaping India's energy supply routes. To avert risks, Indian refiners and importers are increasingly relying on the United Arab Emirates' (UAE) Fujairah and Khor Fakkan ports along the Gulf of Oman, outside the traditional Strait of Hormuz shipping route that, to source energy supplies from the region, three people familiar with the matter said. While the alternatives bring some respite, the war continues to throw up new worries, including Tehran's reported threat on Wednesday to target the alternative routes.
These alternative ports of the UAE, on the east of Strait of Hormuz, have emerged as a lifeline for India as the war escalates amid growing attacks on commercial ships. Indian refiners are also using the UAE's 406km Habshan-Fujairah strategic oil pipeline as a bypass to Strait of Hormuz, said the people in the know.
About 60% of India’s crude oil imports, 54% of liquefied natural gas (LNG) imports and 90% of cooking gas or liquefied petroleum gas (LPG) imports were sourced from West Asia and routed through the Strait of Hormuz before the war. The route is now risky as it has become a hotbed of the US-Iran war.
Apart from imports from the UAE, the Emirati ports are also playing a key role in routing energy supplies from other countries in the region, including liquefied natural gas (LNG) from Qatar, said one of the three people cited above, requesting anonymity.
The Sohar port in Oman has also emerged as a source for energy commodities for India amid the war.
Shipments from Saudi Arabia have also shifted to its Yanbu port through the Red Sea, which receives oil through the Saudi Aramco’s East-West pipeline for crude supplies to bypass the Strait of Hormuz. However, the Red Sea route turns logistically expensive due to the longer route.
The development assumes significance for India, world’s third-largest energy buyer, which imports about 90% of its crude oil requirement.
“Imports from West Asia, largely energy, are now mostly reliant on the UAE ports outside the Strait of Hormuz. It is being looked at to source energy supplies from other countries also through these ports,” said a second person cited above, who also did not want to be named.
“After the opening up of the Strait of Hormuz, it was thought the dependence on these ports would reduce. But now the importers, including refiners, have fallen back to these supply chains,” added an Indian government official, one of the three people cited above, pointing to the easing war tensions after the two warring sides had signed an interim peace pact in mid-June that was scrapped in less than two weeks.
India and the UAE become key trade partners after they signed the Comprehensive Economic Partnership Agreement (CEPA) in 2023, with bilateral trade crossing $100 billion. Apart from being the third-largest oil supplier to India, UAE is also the sole foreign investor and partner in India's strategic petroleum reserves.
So far in July, the UAE, the third largest oil supplier after Russia and Saudi Arabia, has supplied 475,000 barrels of crude per day to India.
Analysts say the UAE is considering expanding the terminals at Fujairah to ease freight movement.
Manas Majumdar, leader, oil and gas at PwC India said, “Typically most of the energy exports from UAE used to take place from the Jebel Ali port, which is towards the west of Strait of Hormuz. There are instances of cargo being transferred to the ports to the east or outside of the strait. The UAE is also considering expanding the terminals at Fujairah.” He said these alternatives will play a key role in India’s energy security.
Financial Times recently reported that Dubai-based ports and logistics major DP World plans to expand operations of the Fujairah port to include most of UAE’s exports to bypass the Strait of Hormuz.
“UAE has been a key supplier of energy to India traditionally, and due to the strategic partnership between the two countries it has enhanced the trade opportunities,” added Sankalp Gurjar, associate professor at Pune's Gokhale Institute of Politics and Economics.
Queries emailed to the petroleum ministry, refiners Indian Oil Corp., Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd, the New Delhi embassies of the UAE, Saudi Arabia and Oman, and shipping lines CMA CGM, Maersk and DP World remained unanswered until press time.
In the global markets, crude oil prices have risen nearly 1%, with Brent at $85.52 a barrel and West Texas Intermediate crude at $80.
New worries surface
For India's refiners, there could be more worries coming up even as they look towards safer trade routes.
On Wednesday, Tehran warned that in response to the US naval blockade of Iranian oil and gas exports, "other export routes for oil and gas which serve the interests of America and its allies" will also be closed, including the UAE's Fujairah pipeline and Saudi East-West pipeline, the Tasnim news agency of Iran reported.
Moreover, India’s oil supplies from Russia have also come under threat as US senators have proposed a new bill to impose 100% tariff on eight Russian oil importing countries, including India. This move is expected further destabilize and squeeze the energy supply chain.
The volatility in the oil supply chain and surge in prices is set to hurt India’s economy—the external sector, inflation and growth prospects. For context, an increase of $1 per barrel for a year leads to a ₹18,000 crore in the country’s import bill, with oil imports comprising 17-25% of its total.