Saudi-India Refinery Talks Hit Crude Supply Roadblock: 5 Key Risks That Could Reshape Global Energy Markets

Saudi Arabia and India’s high-profile energy partnership is at a standstill over disagreements on crude supply terms for two major Indian refineries. Saudi Arabia seeks to secure long-term demand by supplying 50% of the refineries’ crude at official prices, but India counters with demands for discounted rates and a supply limited to its 20% equity stake. India’s increasing reliance on discounted Russian oil, combined with its drive for energy autonomy, puts it in a stronger negotiating position.

Meanwhile, Saudi Arabia’s waning influence in India, exacerbated by competition from Russia and Iraq, heightens the stakes for both sides. The impasse highlights the complex dynamics of energy diplomacy, with both countries aiming to balance economic interests and strategic priorities. Saudi Arabia’s failure to secure this deal could set a precedent for other nations, challenging its refinery investment model. The upcoming talks in 2024 will be crucial in determining the future of this partnership, with global energy markets watching closely.

Saudi-India Refinery Talks Hit Crude Supply Roadblock: 5 Key Risks That Could Reshape Global Energy Markets

A high-profile energy partnership between Saudi Arabia and India has hit an unexpected snag, exposing the complex interplay of geopolitics, economics, and energy security. Recent negotiations to advance Saudi investments in two Indian refineries—a cornerstone of Crown Prince Mohammed bin Salman’s 2023 visit to New Delhi—are stalled over disagreements about crude oil supply terms. Here’s why this impasse matters and what it reveals about both nations’ strategic priorities.  

The Core Dispute: Supply vs. Stake 

Saudi Arabia, the world’s top oil exporter, seeks to lock in long-term demand for its crude by investing in India’s rapidly growing refining sector. However, talks for its proposed 20% stake in two projects—Bharat Petroleum’s (BPCL) east coast refinery and Oil and Natural Gas Corporation’s (ONGC) west coast facility—have stumbled over a critical condition: crude supply quotas.  

• Saudi’s Ask: Supply 50% of the refineries’ crude needs at official selling prices (OSPs), which are often higher than market rates.  

• India’s Counter: Limit Saudi supply to match its 20% equity stake and secure discounted rates to ensure cost efficiency. 

For India, the world’s third-largest oil consumer, the calculus is clear. With Russian crude now accounting for over 40% of its imports (up from 2% pre-2022), New Delhi has little incentive to overcommit to pricier Saudi oil. “India holds the cards here,” says an industry analyst. “Why tie up with Saudi terms when alternatives like Russia are cheaper?”  

The Hidden Tensions: Market Share and Missed Opportunities 

Saudi Arabia’s urgency stems from its dwindling influence in India. Once India’s top supplier, it now trails Russia, Iraq, and the UAE. Discounted Russian barrels have reshaped trade flows, and Riyadh’s OPEC+ production cuts have further alienated price-sensitive buyers like India.  

This refinery deal isn’t just about economics—it’s a diplomatic litmus test. In 2019, Saudi Arabia pledged $100 billion in Indian investments, but only $10 billion has materialized. Earlier setbacks, like the collapse of a $60 billion refinery project in Maharashtra and Aramco’s failed bid for a stake in Reliance Industries, have heightened pressure to deliver.  

India’s Strategic Playbook 

India isn’t merely negotiating for better prices; it’s safeguarding its energy autonomy. By resisting Saudi supply demands, New Delhi aims to:  

• Diversify Sources: Avoid overreliance on any single supplier.  

• Leverage Competition: Use Russia’s discounts and Iraq’s flexible terms as bargaining chips.  

• Protect Margins: Refineries need affordable crude to stay profitable, especially as India pivots to petrochemicals and exports. 

“Saudi Arabia needs India more than India needs Saudi Arabia,” notes a Mumbai-based energy consultant. “India’s refining capacity is set to surge to 450 million tons by 2030. Riyadh can’t afford to lose this growth market.”  

Broader Implications 

• Saudi’s Global Refinery Strategy: Aramco’s overseas investments (like China’s Zhejiang refinery) typically hinge on securing crude offtake deals. If India rejects this model, it could set a precedent for other nations.  

• Energy Diplomacy: The stalemate underscores the limits of Saudi-India ties despite shared ambitions. While collaboration on renewables and hydrogen continues, fossil fuel partnerships remain fraught.  

• Investor Confidence: Further delays could deter foreign investors eyeing India’s energy sector, already grappling with bureaucratic hurdles and land acquisition disputes. 

What’s Next? 

Both sides have incentives to compromise. Saudi Arabia may offer marginal OSP discounts or reduce its supply quota demands. India, meanwhile, could sweeten the deal with tax incentives or faster regulatory approvals. A potential wildcard: Saudi’s interest in Indian Oil Corporation’s Panipat refinery, which might offer a smaller-scale testing ground for collaboration.  

The outcome will signal whether Riyadh and New Delhi can align their visions for a post-oil era—or remain constrained by the legacy dynamics of buyer and seller. For now, the ball is in Saudi Arabia’s court.