India stares at $2.7 bn hit as US sanctions two largest Russian oil suppliers

New Delhi: US sanctions on Rosneft PJSC and Lukoil PJSC, the two biggest suppliers of Russian oil, are likely to force Indian refiners to buy from West Asian and other sources that do not offer discounts, increasing the country’s import bill, analysts said.

"The sanctions by the US on certain Russian crude oil producers are likely to impact the purchases by India as these suppliers accounted for about 60% of the volumes purchased,” said Prashant Vasisht, senior vice president and co-group head, corporate ratings, Icra Ltd. “While India can substitute the purchases from Russia with suppliers from the Middle East and other geographies, the import bill for crude oil would increase.”

Vasisht sees the replacement of Russian oil by market-priced crude increasing the country’s oil import bill by 2%. Given India’s crude imports worth $137 billion in FY25, that would amount to an increase of $2.7 billion.

Russia has been the largest supplier of crude oil to India since FY23, accounting for around 35% of the country's total imported crude. However, the US Treasury Department overnight issued sanctions on Rosneft and Lukoil, setting the deadline of 21 November for companies to stop making transactions with these Russian oil producers. This comes as a major jolt for India as the two companies contribute about 1 million barrels of oil per day (bpd) out of the total 1.8 million bpd coming from Russia.

Russian oil flow to major Indian refiners is expected to fall to near zero after the US sanctions, Bloomberg reported, citing unnamed senior executives at the processors. Blacklisting of Russia’s largest producers would make it all but impossible for that supply to continue, they said.

Separately, PTI reported citing sources that Mukesh Ambani's Reliance Industries Ltd, India's biggest buyer of discounted Russian oil, plans to scale back imports of Russian crude oil following fresh US sanctions on Moscow-linked firms.

Indian refiners will largely offset the decline in supply from Russia through higher purchases from the spot markets, said Harshraj Aggarwal, executive vice president—institutional equity research at Yes Securities. “Assuming about 30% of the crude input coming from Russia and an average discount of $2 per barrel, that translates to $0.6 per barrel of discount, which would not come through."

Currently, discounts on Russian oil stand in the range of $2-4 a barrel.

“Availability isn’t so much an issue as is the cost of oil in the global markets. Oil from West Asia, the Mediterranean, the US and the likes can come in; however, India may not be offered discounts by these suppliers as was the case with Russia,” said Deepak Mahurkar, partner Oil and Gas at PwC India. “This may increase the import bill, but the availability of oil to replace Russian crude would not be a major issue.”

Trump's Russia gambit

Since Donald Trump took over as president of the US for the second time, his administration has been pressuring India to halt Russian oil imports, citing that the money from energy purchases allow Russia to fund the war in Ukraine. India, however, maintained that its energy procurement is based on the interest of its consumers and it would buy oil from wherever it gets at affordable rates.

Trump even slapped an additional 25% tariffs on India for buying Russian energy, taking the total levy on Indian goods to 50%, the highest in the world. The two nations are negotiating a bilateral trade deal.

Trump said on Wednesday (local time) that India will cut Russian oil imports by almost 40% by the end of the year. “India, as you know, told me they would stop...it's a process. You can't just stop (buying oil from Russia).”

Imports from Russia declined last month. Data from global real-time data and analytics provider Kpler showed that India's imports of Russian crude in September stood at 1.6 million bpd, about 5% lower than 1.69 million bpd in August. However, industry players suggest that it was a result of commercial factors as discounts fell to about $2 from $3 in August.

India has already diversified its sourcing to around 40 countries in the past three years.

“Conventional sources may look to compete and replace recent sources to regain their share of large-scale India oil purchases,” said Gaurav Moda, partner and energy sector leader at EY-Parthenon India. “This could open up new opportunities and dynamics with existing and/or past providers for India's benefit in the medium term.”