Mint Explainer | India’s Russian oil dilemma: discounts, sanctions and decisions

Speaking to reporters at the White House, Trump said, “So I was not happy that India was buying oil, and he (Prime Minister Narendra Modi) assured me today that they will not be buying oil from Russia. That’s a big step. Now we’re going to get China to do the same thing."

Russia remains India’s largest oil supplier. Despite pressure from the US and European Union to curb imports, India has consistently maintained that energy procurement decisions are guided by domestic demand and affordability.

“India is a significant importer of oil and gas. It has been our consistent priority to safeguard the interests of the Indian consumer in a volatile energy scenario. Our import policies are guided entirely by this objective. Ensuring stable energy prices and secured supplies have been the twin goals of our energy policy. This includes broad-basing our energy sourcing and diversifying as appropriate to meet market conditions," said Randhir Jaiswal, spokesperson, ministry of external affairs.

"Where the US is concerned, we have for many years sought to expand our energy procurement. This has steadily progressed in the last decade. The current administration has shown interest in deepening energy cooperation with India. Discussions are ongoing," Jaiswal said in a tweet.

With Trump claiming that Modi has committed to halting Russian oil imports, which account for around 35% of India’s total imports, Mint explains the tough energy choices India faces.

What if India stops buying Russian oil?

Russia supplies roughly a third of India’s oil, representing about 7% of daily global consumption.

According to an earlier report by Nomura, the immediate impact of a shift away from Russia would be the loss of discounts, now about $2 per barrel, costing roughly $1.5 billion annually. The bigger risk is a surge in global crude prices as India redirects its demand—every $1 increase could add about $1.8 billion to the import bill.

Russia exports roughly 4.5 million barrels daily, but sanctions and price caps limit where that oil can go. Analysts caution that if India stops buying, the sudden gap in sanctioned trade could tighten supply elsewhere and push global crude prices higher, echoing the spikes of 2022.

Oil was already up nearly 1% in early Thursday trade, with Brent crude futures rising 0.87% to $62.45 a barrel and US West Texas Intermediate (WTI) futures climbing 0.98% to $58.84.

Analysts also note that Russian suppliers might deepen discounts amid continued pressure. After the US imposed a 25% tariff on Indian exports due to Russian oil purchases, discounts rose from around $1.7 to $3 per barrel.

How much Russian oil has India been buying?

India’s state-owned refiners reduced purchases of Russian oil by more than 45% between June and September this year, according to data from Kpler. The data show that refiners imported around 600,000 barrels per day (bpd) of oil from Russia in September, a significant decline from about 1.1 million bpd in June.

Citing trade sources and shipping data, Reuters on Tuesday reported that Russian oil imports by India fell 8.4% year-on-year. In August, Russia’s deputy trade representative to India, Evgeniy Griva, said India receives a discount of around 5% and that supplies flow through a “special mechanism."

Historically, Russia was a minor supplier of crude to India. After Russia’s invasion of Ukraine in February 2022, India ramped up imports from a negligible 0.2% of total crude to 35-40%, saving an estimated $17 billion through discounted purchases.

With the West curtailing energy imports from Russia, Moscow offered steep discounts, attracting India and China as major buyers. Discounts peaked at $30 per barrel in FY23 before tapering to single digits in subsequent years. Since FY23, Russia has overtaken Saudi Arabia to become India’s largest oil supplier.

Sanctions on Russian oil

The G7, including the US and the European Union (EU), halted direct Russian oil imports and imposed a $60-per-barrel price cap in December 2022. The EU recently lowered its cap to $47.6 per barrel, effective 3 September.

Sanctions have targeted Russian shipping fleets and energy producers. The EU also sanctioned Vadinar refinery of Nayara Energy, partly owned by Russia’s state-backed Rosneft. The US has imposed tariffs totalling 50% on Indian exports, citing purchases of Russian oil and accusing India of indirectly funding Russia’s war in Ukraine.

On Wednesday, the UK joined the US and EU in implementing measures to cut Russia’s oil revenue, targeting two Russian oil companies—Lukoil and Rosneft—and 44 “shadow fleet" tankers.

Rosneft, which owns 49.13% of Nayara Energy (formerly Essar Oil), is a Russian government-backed oil and gas company. Nayara Energy, majority-owned by Indian entities, operates a 20 million-tonne refinery in Vadinar, Gujarat.

How has India responded to sanctions and pressure?

India maintains that energy purchases are dictated by national interest. In August, after Trump threatened tariffs, the Ministry of External Affairs (MEA) said India would take measures to protect national interests and economic security.

MEA highlighted that India began importing Russian oil as traditional supplies were diverted to Europe after the conflict began. At the time, the US encouraged such imports to stabilize global energy markets.

What is India doing to ensure energy security?

India imports nearly 90% of its oil requirements. In recent years, it has diversified sources to over 40 countries, including Guyana, Nigeria, Brazil, Argentina, and Russia. Talks with the US aim to expand energy trade, provided prices are competitive.

Union commerce secretary Rajesh Agarwal, who left for Washington on Wednesday to join the negotiations for the bilateral trade agreement (BTA) with the US, said that India is open to increasing its crude and gas imports from the US if prices remain viable for domestic refiners.

India, on average, imports $12-13 billion worth of crude oil and gas from the US every year. There is headroom for an additional $12–13 billion in purchases without requiring any changes to refinery configurations, Agarwal said, adding that India will consider buying more energy products, keeping in view the cost dynamics.