It’s not clear whether the Trump administration’s decision to impose sanctions on two Russian oil companies was taken after back-channel deliberations with India, but the move will compel private Indian refiners to either halt or substantially reduce their imports of crude oil from Russia.
In fact, India’s public sector refiners too have to ensure no direct purchases are made from Rosneft and Lukoil though they could continue to buy Russian oil from traders, mostly European and outside the sanctions net. In all, India buys about 1.5 million barrels per day of oil from Russia, which is around 35% of the country’s total imports.
President Trump has been demanding for some time now that India—and other nations like China—halt purchases of Russian crude altogether. The sanctions have made it easier for the Indian government to start doing so. So far, the government’s stance has been that India would buy crude oil from whichever market it wants to. But now there is a valid reason for paring imports from Russia; it can claim there is no other way out.
Financial Times quoted India’s ministry of external affairs as saying that the country needed to ensure stable energy prices and it would diversify energy sources “as appropriate”. With Trump also saying that the discontinuation of oil imports “is a process”, experts believe the US might now be more inclined to finalise a bilateral trade deal with India. The trade agreement has been in the making for many months now, and is important since most of India’s exports have been attracting a tariff at 50% in that country since August 27.
To be sure, there are other issues to be sorted out—the US wants to sell India corn, for instance—but Russian oil purchases have been a sticking point. Diversifying oil purchases will no doubt push up India’s oil import bill since Russian crude has been available at a discount and has benefitted refiners like Reliance Industries.
By one estimate, substituting Russian oil with imports from other nations could cost $2.7 billion, taking the import bill up by 2% over FY25’s $137 billion, if prices hold at these levels. Brent prices spiked to near $66 per barrel on Thursday, following widespread concern over the sanctions, but the gains reversed somewhat on Friday.
Russia currently exports 5 million barrels a day of crude oil but experts say supplies are adequate for the moment. Of course, any further escalation in geopolitical tensions could disrupt the market taking prices up. The good news is that one Organization of Petroleum Exporting Countries official has indicated that the cartel would be ready to increase supplies, if needed, by the time of a scheduled ministerial meeting in late November, though it has cautioned that there has been “no official agreement or discussion” on the issue.
For India, a trade pact with the US would outweigh losses from a bigger oil import bill, especially if US tariffs are finalised at 15-16% as is being talked about. Already, the country’s exports to the US have fallen 12% in September, and labour-intensive sectors are understood to have been badly impacted. India’s total exports of gems and jewellery, for instance, slowed to 0.4% year-on-year (y-o-y) in September versus 15.6% y-o-y in August. A recovery in exports to the US would ease the pressure on the trade deficit and the currency cushioning the impact of a bigger oil bill.