India will soon feel the impact of US sanctions on Russia. On 10 January 2025, the US introduced new sanctions on the Russian oil trade. This is set to disrupt India’s supply of Russian crude oil from March this year. Indian refiners are now facing the challenge of finding new sources to ensure an uninterrupted supply of oil.
Bharat Petroleum Corporation Limited (BPCL), India’s second-largest public sector refiner, is experiencing difficulties in securing enough cargoes of Russian oil for March delivery. BPCL’s Director (Finance), Vetsa Ramakrishna Gupta, mentioned that the share of Russian crude in the company’s import basket could drop to 20% in March, down from 31% in the December quarter.
Other Indian refiners are also facing similar challenges. Officials indicate that getting Russian oil supplies for delivery beyond February is becoming tough. The recent sanctions have impacted the fleet of tankers that transport Russian crude. However, industry officials believe that there is enough oil supply available globally. The main issue lies in losing the commercial benefits of discounted Russian crude.
The sanctions package announced on 10 January included measures against 183 tankers. These are part of the shadow fleet that has kept Russian oil flowing to major consumers like India and China. The sanctions also targeted Russian oil giants Gazprom Neft and Surgutneftegas and Russian insurance companies involved in the oil sector. The US Department of the Treasury stated that the sanctions significantly increase the risks associated with the Russian oil trade. Many of the sanctioned vessels have been delivering oil to India and China.
As a result, Indian refiners are now turning to their traditional suppliers in the Middle East to increase oil purchases. They aim to offset the shortfall in Russian oil by securing supplies under long-term contracts. Additionally, they are looking for extra cargoes from the spot market from Middle Eastern suppliers. They are also exploring more oil imports from Africa and the US.
Russia became India’s largest supplier of crude by offering significant discounts after the West began to avoid Russian oil following the Russia-Ukraine conflict. In 2024, Russian oil made up nearly 38% of India’s total oil imports. Before the war, Iraq, Saudi Arabia, and the UAE were India’s top three sources of crude oil.
India is the world’s third-largest consumer of crude oil and relies heavily on imports to meet over 85% of its needs. According to government sources, Indian refiners will refuse oil deliveries on sanctioned vessels, except for cargoes booked before 10 January. These cargoes can be delivered using these vessels until 12 March, under a wind-down period provided by the US.
Although India is not part of the sanctions regime against Russia, New Delhi has generally avoided actions that could lead to secondary sanctions. While the India-Russia oil trade might not be heavily impacted during the wind-down period, industry insiders expect a hit to Russian oil supplies to India in the near term.
Gupta mentioned that the discounts on Russian oil have shrunk. The discounts fell to $3-3.2 per barrel, down from $3.5-4 at the start of the fiscal year and $8.5 in fiscal year 2023-24. India has decided to reject deliveries made by tankers sanctioned by the US. Russia had used these tankers to ship oil to India and China after the Group of Seven (G7) imposed a $60 per barrel price cap on Russian exports.
The G7, the European Union, and Australia introduced the price cap in December 2022 to limit Moscow’s revenues and fund its war in Ukraine. This cap meant that Western shipping and insurance services were unavailable for any oil cargo priced above $60 per barrel. Russia circumvented this by using the shadow fleet, insured by its own companies. This fleet is also sanctioned.
There is a wind-down period until 12 March to allow for existing contracts to be fulfilled. During this period, there will be no disruption in oil supplies. Afterward, new arrangements are expected to emerge.
The US sanctions have increased global oil prices to $83-84 per barrel. However, Gupta sees this as temporary and expects oil prices to settle in the $75-80 range soon. In the worst-case scenario, Indian refiners may lose access to discounted Russian crude.
In summary, the US sanctions on Russian oil are compelling Indian refiners to seek alternative suppliers. While the situation presents challenges, industry officials remain optimistic about securing adequate oil supplies from other sources.
