Indian refiners are contemplating a reduction in their purchases of Russian crude oil, particularly for November deliveries, following the recent enactment of a sweeping US sanctions bill. This legislation has heightened the risk of punitive tariffs, prompting India's top processors to actively seek alternative oil cargoes. India, the world's third-largest crude buyer, has in recent months sourced more than half of its oil imports from Russia in an effort to manage high prices and ongoing supply disruptions from the Middle East.
Simultaneously, global oil prices have fallen to a two-week low, with Brent crude futures dropping below $100 a barrel to $97.69. This decline is attributed to improving supply prospects from the Middle East. Iran has signaled a potential reopening of the Strait of Hormuz within seven days, while Saudi Arabia has restarted its East-West Pipeline and is set to resume exports from the Red Sea port of Yanbu. Before recent conflicts, the Strait of Hormuz accounted for approximately one-fifth of global oil and liquefied natural gas supplies.
The East-West Pipeline, which serves as a crucial workaround for the Strait of Hormuz, had been shut down on September 13 after drone attacks damaged its pumping infrastructure. This closure had forced Saudi Aramco to cancel some cargoes to European customers and pivot exports back to the Persian Gulf, with an average of 2.9 million barrels per day moving through the Strait of Hormuz between September 12 and 18. The pipeline's restart is expected to bring relief to a market that has been grappling with supply shortages, with some analysts noting that Saudi Arabia is also engaging in ship-to-ship transfers off the coast of Oman to facilitate crude movement.
While the restart of Saudi Arabia's pipeline and potential reopening of the Strait of Hormuz are easing supply concerns, broader traffic through Hormuz remains significantly constrained compared to pre-conflict levels. Policymakers are closely watching oil prices, as a sustained retreat below $100 would alleviate energy-driven inflation. Retail diesel prices in the US have reached record highs, with US retail diesel at $6.50 a gallon and the national average gasoline price at $4.47 per gallon, up 50% since the Iran conflict began. Analysts suggest that while central bank actions are a response to the energy crisis, the key question is whether the energy shock will primarily remain inflationary or lead to an economic slowdown.
