Before the closure of the Strait of Hormuz, oil and gas supplies were already facing challenges. Recently, Saudi Arabia has made a significant move that could create difficulties for India. The country's largest oil company, Aramco, has announced a tenfold increase in the surcharge for crude oil prices for May. Asian nations like India will have to pay an eightfold premium, while European countries will face a tenfold increase to secure oil supplies.
This situation raises questions about the implications of these price hikes. The cost of crude oil is determined by two components: a reference rate, such as Brent crude or the average price of Dubai-Oman, and a premium. According to reports, Aramco has set a new premium rate for future contracts.
In April, Asian countries were charged an additional fee of $2.5 per barrel for Saudi light crude. This has now surged to $19.5 per barrel for May, marking an eightfold increase.
In contrast, European nations saw their rates rise from $2.65 per barrel to $27.65 per barrel, necessitating a tenfold premium to purchase oil.
Why is Saudi Arabia taking this approach? The closure of the Strait of Hormuz due to the Iran conflict has limited oil sales from countries like Iraq, Kuwait, Bahrain, and Qatar. However, Saudi Arabia has an East-West pipeline that allows it to sell oil via the Red Sea instead of the Gulf. With supply constraints and rising demand, Saudi Arabia appears to be capitalizing on the situation.
How much oil does India import from Saudi Arabia? Saudi Arabia is India's second-largest oil supplier, providing approximately 15% to 18% of the country's total oil needs. India imports around 1 to 1.1 million barrels of crude oil daily from Saudi Arabia.