Even before Trump's ‘penalty' threat, Indian refiners began cutting down on Russian oil imports

Indian Express

3 days ago

Amid increasing pressure on India from the US and other Western powers over the past couple of months, Indian refiners — led by public sector players — began cutting down on Russian oil imports, much before US President Donald Trump's announcement earlier this week of an unspecified tariff 'penalty' on New Delhi for its defence and energy imports from Moscow. Latest vessel tracking data shows that July deliveries of Russian crude — which would have been contracted May or early June — to Indian refiners fell significantly. Industry and trade sources also indicated that Indian public sector refiners have, for the time being, halted future contracting of Russian oil, the mainstay of India's oil imports for the better part of the past three years.
Trump has now said that he 'heard' that India will no longer be buying oil from Russia, calling it a 'good step', but also added that he is not sure if the information is 'right or not'. 'Well, I understand India no longer is going to be buying oil from Russia. That's what I heard. I don't know if that's right or not, but that's a good step. We'll see what happens,' Trump told reporters in the US on Friday.
Meanwhile, India — the world's third-largest consumer of crude oil with an import dependency level of over 85 per cent — continues to maintain that its oil purchases are commercial decisions. 'We take decisions based on the price at which oil is available in the international market and depending on the global situation at that time,' Ministry of External Affairs Spokesperson Randhir Jaiswal said Friday in response to a question on whether Indian refiners have stopped buying Russian oil over the past few days.
Industry insiders, experts, and trade sources indicate that renewed pressure and threats from the US and Europe over the past few weeks have cast a shadow on India's Russian oil imports, and could mark the beginning of Indian refiners pivoting away from Moscow's oil. So far, India had successfully managed to walk 'the fine line between energy security and geopolitical pressure', but its options now appeared limited, one expert said, adding that Indian refiners 'must now plan not just for commercial shifts, but for systemic geopolitical realignment'.
Deliberations are on between the government and other stakeholders — primarily refiners — on managing the situation and assessing the choices on the table for India, sources said. With a pre-emptive reduction in Russian oil imports, some bit of signaling has already taken place. The next steps would most likely be decided on how the India-US dynamic evolves, and more importantly, whether or not Trump decides to further harden the American stance and rhetoric against Russia. Any breakthrough between the White House and Kremlin over the Russia-Ukraine war would most likely ease the pressure on buyers of Russian crude.
This renewed pressure from the West — forcing Russia's top trade partners to cut down on imports from the country — are aimed at forcing the Kremlin's hand into ending the war in Ukraine. For Trump, who wants the three-year-old Russia-Ukraine war to end within days, this is an opportune time to pressurise countries like India and China over their Russian imports, given the sensitive trade negotiations that these countries are holding with the US.
India's Russian oil imports in July were at 1.6 million barrels per day (bpd), down 24 per cent from June levels, and 23.5 per cent from volumes delivered in July of last year, according to latest tanker data from global real-time data and analytics provider Kpler. The share of Russian crude in India's oil import basket in July contracted notably to around 33.8 per cent from July's 44.5 per cent. While the drop in oil imports from Russia is evidently more pronounced among Indian state-owned refiners, likely reflecting heightened compliance sensitivity amid mounting risks, private sector refiners—who account for over half of Russian crude imports, have also reduced exposure to Moscow's oil.
The reduction in import volumes from Russia in July was offset by higher crude deliveries from other suppliers — mainly Iraq, Saudi Arabia, the United Arab Emirates, the US, Nigeria, and Kuwait — all of which expanded their share in India's oil imports vis-à-vis June levels.
With much of the West shunning Russian crude following the country's February 2022 invasion of Ukraine, Russia began offering discounts on its oil to willing buyers. Indian refiners were quick to avail the opportunity, leading to Russia — earlier a peripheral supplier of oil to India — emerging as India's biggest source of crude, displacing the traditional West Asian suppliers. While the discounts have varied over time, Russian oil flows to India largely remained robust despite Western pressure and limited sanctions on Russia's oil trading ecosystem. But the appears to be changing now, and fast.
'On one side, the EU's (European Union's) sanctions — effective from January 2026 — ban imports of refined products derived from Russian-origin crude, forcing Indian refiners to segment crude intake and product flows. On the other hand, the US tariff threat raises the possibility of secondary sanctions that would directly hit the shipping, insurance, and financing lifelines underpinning India's Russian oil trade. Together, these measures sharply curtail India's crude procurement flexibility, raise compliance risk, and introduce significant cost uncertainty…(it) represents a double whammy for Indian refiners,' said Sumit Ritloia, Lead Research Analyst, Refining & Modeling at Kpler.
Before this week's tariff announcement by Trump mentioning a 'penalty' on India, India's significant Russian oil imports were being subjected to a more aggressive stance by Western powers for a few weeks. Trump himself had had threatened 'biting' secondary tariffs of 100 per cent on buyers of Russian exports, and the European Union last month announced a sanctions package, widely seen as the most comprehensive effort yet by the EU to restrict Russia's revenue stream, placing a ban on import of fuels into Europe if made from Russian oil in third countries like India, and also sanctioning Indian refiner Nayara Energy, in which Russian oil giant Rosneft holds 49.13 per cent stake.
According to Petroleum Minister Hardeep Singh Puri, the massive market share of Russian crude in India's oil imports doesn't mean that India is dependent on Russia for oil, and other suppliers can quickly come in to replace Russian volumes if there is any major disruption. 'I don't feel any pressure in my mind. India has diversified the sources of supply… I'm not worried at all. If something happens, we'll deal with it…there is sufficient supply available,' Puri had said at an event earlier in July. He added that India in recent years has expanded its crude sourcing slate from 27 countries to around 40 countries, and enough oil was available globally for India to buy and ensure energy security.
If India indeed decides to shift away from Russian crude, industry insiders and experts expect New Delhi to negotiate a potential wind-down period for reducing supplies, as replacing the massive volumes of Russian oil supply overnight is impossible, according to industry insiders. It would take at least three-four months to substantially cut down on imports and shift to other suppliers — mainly in West Asia, but also in Africa, and even the US and Latin America.
Loss of discounted Russian barrels would certainly push up the relative cost of imports by a few dollars a barrel, which in turn would inflate India's oil import bill by billions of dollars on an annualised basis. Additionally, if global oil prices rise in the eventuality of most of Russian oil going off the market, the hit for India would be amplified further.
'Replacing Russian crude isn't plug-and-play…it is no easy feat—logistically daunting, economically painful, and geopolitically fraught. Supply substitution may be feasible on paper, but it remains fraught in practice. Gulf barrels come with pricing rigidity, African grades add freight volatility, and Latin American flows face availability constraints,' said Ritolia.
India's traditional crude suppliers in West Asia — chiefly Iraq, Saudi Arabia, and the UAE — would be the logical fall-back, but Indian refiners will have to grapple with significant constraints as they reduce Russian oil imports. A lot of the crude from West Asia comes through term contracts, unlike spot purchases of Russian crude, which may force Indian refiners to commit to higher annual offtake of West Asian oil, which is more rigidly priced compared to discounted Russian crude. Also, a number of Indian refineries that had gotten attuned to processing Russian crude in large volumes may see an impact on their product yield and refinery configurations due to crude quality mismatch.
India is also expected to sustain its ongoing efforts to diversify its sources of crude oil. Geopolitical shifts, freight economics, and refinery economics are expected to continue shaping India's crude sourcing decisions and diversification strategy.
Sukalp Sharma is a Senior Assistant Editor with The Indian Express and writes on a host of subjects and sectors, notably energy and aviation. He has over 13 years of experience in journalism with a body of work spanning areas like politics, development, equity markets, corporates, trade, and economic policy. He considers himself an above-average photographer, which goes well with his love for travel. ... Read More