Why has India promised to buy more U.S. oil?

Sub : Eco

Sec: External sector

Context:

India has committed to increasing its oil and natural gas purchases from the U.S. following discussions between Prime Minister Narendra Modi and U.S. President Donald Trump in February.
The two leaders agreed to boost energy trade, with India’s energy purchases from the U.S. expected to rise from $15 billion last year to $25 billion in the near future.

Details:

The U.S. is being positioned as a leading supplier of crude oil, petroleum products, and liquefied natural gas (LNG) to India.
The agreement to ramp up trade in hydrocarbons, including ethane and petroleum products, is part of India’s strategy to diversify its sources of supply.
The two countries have also agreed to enhance investments in oil and gas infrastructure and strengthen cooperation between energy companies.

Need for secure Hydrocarbon supplies:

India, being the world’s third-largest oil importer and consumer, relies on imports for over 85% of its crude oil requirements.
Securing stable and diversified sources of oil and natural gas is crucial for India’s energy security.
The commitment to purchase more oil and gas from the U.S. will bolster energy ties between the two countries and help achieve the goal of doubling bilateral trade to $500 billion over the next five years.

Trade Deficit with the U.S.

India’s trade with the U.S. is currently in India’s favour, with a trade deficit of $45.7 billion in 2024, which marks a 5.4% increase from 2023.
By increasing energy imports, India aims to balance the trade relationship and support its broader trade objectives.

India’s Oil and gas imports:

In 2023-24, India imported 234.26 million tonnes of crude oil, with an import dependence of 87.8%.
Domestic production met less than 13% of the country’s crude oil requirements.
The total oil import bill in 2023-24 was $133.37 billion, a decrease from $157.53 billion in 2022-23, primarily due to lower international oil prices.
India imported 80 billion cubic meters (bcm) of LNG in 2023-24, amounting to $13.405 billion. This was an increase from 26.30 bcm in the previous year.
The country is keen to increase the share of clean fuels, like LNG, in its energy basket.
The government aims to raise natural gas consumption to 15% from the current 6% as part of its strategy to meet future energy demands.

India’s Energy ties with Russia:

India has significantly increased its oil imports from Russia, particularly after the 2022 invasion of Ukraine. Russia now accounts for around 40% of India’s total crude oil imports, up from less than 1% before the war.
Despite strengthening energy ties with the U.S., India continues to engage with Russia, which has offered discounted crude oil amid global sanctions.

Global Energy Supply Dynamics:

The global energy market is experiencing shifts with new oil sources emerging from the Western Hemisphere, including the U.S., Brazil, Argentina, Suriname, and Canada.
These developments are beneficial for major oil-consuming countries like India.
Multiple sources of supply help mitigate risks related to price volatility and geopolitical disturbances.