
Collateral damage: Indian refiners feel the heat of fresh US sanctions on Russian oil

Summary
- As Russian discounts on crude fall to below $5 per barrel, the gross refining margins of India's public sector oil marketing companies have declined by about 80% so far in FY25 from the highs recorded in FY24.
New Delhi: Gross refining margins of Indian oil refiners are likely to shrink going ahead post fresh sanctions on two Russian oil producers and nearly 200 crude-carrying vessels, according to sector experts.
Buyers of cheap Russian oil may now have to look at other sources of oil which are unlikely to be offered at discounts, they said.
"Due to the sanctions, oil companies may have to look at other sources of oil, which may not come with discounts. This would increase the cost and eventually shrink refining margins of the refineries. Although the overall import bill of the country is unlikely to see a major hit, the GRMs (gross refining margins) may somewhat decline" said Prashant Vasisht, senior vice president and co-group head, corporate ratings, Icra.
Decline in public sector GRMs
As Russian discounts fall to below $5 per barrel, GRMs of Indian public sector oil marketing companies (OMCs) have already declined by about 80% in FY25 from the highs recorded in FY24. Discounts on Russian oil are currently around $2.5-4 per barrel, compared with around $6 per barrel a year ago.
According to data from the Petroleum Planning & Analysis Cell (PPAC), in the first half of FY25 the refining margins of Mangalore Refinery and Petrochemicals Ltd, a public sector enterprise under the Union petroleum ministry and a subsidiary of Oil and Natural Gas Corp. Ltd (ONGC) declined as much as 80.17% to $2.56 per barrel from $12.91 in the same period last fiscal.
Read more: Trump’s tariffs: How India can escape a dumping flood from China
State-run IOCL’s GRM in April-September stood at $4.08 per barrel, compared with $13.12 a barrel during the corresponding period of the last fiscal, registering a decline of 68.90%. The other public sector oil majors Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) reported a GRM of $6.12 and $4.03, lower by 60.31% and 61.58%, respectively.
Russia emerged as the top supplier of oil to India in the past three years as it offered crude at steep discounts to get around Western sanctions imposed over its invasion of Ukraine in 2022. So far in FY25 (April-October), India has imported crude oil worth $31.86 billion from Russia, about 38.5% of India's total oil imports during the period.
China and India have been among the biggest beneficiaries of Russian crude discounts in the past few years.
Bhanu Patni, associate director, corporates, India Ratings, said: “There could be a two-way impact on the GRMs. In case of an increase in the cost of crude procurement, the refining margins of Indian players, currently benefitting from discounts on Russian crude procurement, may somewhat decline. However, if there is an overall rise in crude prices globally due to the supply side constraints, the margins globally may see an uptick."
Impact of sanctions
The US Treasury on 10 January imposed sanctions on Russian oil producers Gazprom Neft and Surgutneftegas, along with 183 vessels that have shipped Russian oil, in a bid to hit the country’s revenue from oil sales.
On 13 January, Mint reported that the fresh sanctions are unlikely to have an immediate impact on supplies to India for about the next two months as the crude required for this period has already been loaded on vessels and is in transit.
Post this period, refiners will realign their supply arrangements as per their requirement, an official said on the condition of anonymity, adding that an impact, if any, may be in the form of narrowing of discounts, leading India to procure oil at market prices.
Earlier this month, India Ratings forecast that GRMs will remain subdued during FY26 like in the first half of FY25, on account of slow global consumer and industrial demand, especially China, and additional supplies flowing from refinery capacity additions seen globally. However, demand of petroleum products in India is expected to remain strong during FY26, with bulk demand coming from diesel, petrol and LPG, it said.
Read more: Petrol demand seen growing 6.6% in FY26, diesel consumption may rise 2.8%
India's petroleum product demand continues to remain robust with consumption seen at a record 252.9 million tonnes for the next financial year (FY26). According to data from the Petroleum Planning and Analysis Cell, demand for petrol is projected to grow 6.64% in FY26 to 42.6 million tonnes from 39.98 million tonnes projected for this fiscal. Diesel consumption is projected at 94.12 million tonnes, higher by 2.77% than the 91.57 million tonnes estimated for FY25.
Despite the domestic demand for petroleum products being robust, the global trend has been subdued due to weak demand by China, the second largest importer of crude oil, leading to a fall in crack spreads globally. Crack spreads are the price difference between a barrel of crude oil and the petroleum products refined from it.