While many including Nobel laureate Abhijit Banerjee have said India would do well to rethink cheap oil purchases from Russia, as the hefty US tariffs could hit it harder, sector experts say though Indian refiners could technically adapt to the loss of Russian barrels, it would have significant economic consequences.
The Financial Fallout: Why Ditching Russia is So Costly
Diverting oil supply chains from Russia could entail an additional $3–5 billion in annual import costs, according to Kpler.
Experts believe that even though Russian crude discounts have narrowed compared to 2022–2023, in absence of it, India would need to turn to Middle Eastern grades, which are currently trading at a premium—at least $3–5/bbl higher.
More importantly, if global prices rise further (a scenario in which Russian crude exports are being curtailed, in the absence of sufficient buying interest from India), the financial burden on India could increase significantly.
“This may prompt the government to cap retail fuel prices, which could strain fiscal balances. A spike in the import bill could even lead to a reduction in overall crude purchases. India’s limited storage capacity further constrains its ability to manage such disruptions,” said Sumit Ritolia, Lead Research Analyst, Refining & Modeling at Kpler.
Notably, Urals discounts to NSD (Dubai benchmark) have recently widened—Argus data shows a discount of over $5/bbl now, compared to near parity just two weeks ago, Ritolia noted. “The shift reflects bearish sentiment on Indian demand, amid expectations of policy change,” he said.
A Geopolitical Balancing Act: India’s Strategic Dilemma
If policy moves drive flat prices higher, the cost impact could escalate sharply. In a stressed scenario, Ritolia pointed out, the combination of higher premiums and stronger benchmarks could push the annual incremental burden toward $7–11 billion, particularly if India substitutes with higher-cost Gulf and Atlantic Basin grades.
The Indian government has issued a firm response to the US in retaliation for its additional 25% tariff for importing Russian oil claiming that India will maintain its energy security. Officials noted that discounted Russian crude remains a vital component of this strategy and cannot be easily substituted.
“Frankly, the issue now is less about barrels and more about balance. The decision sits squarely with the Government of India, given that trade with the US is worth far more in dollar terms than the savings from Russian oil,” said Ritolia. “This is as much a geopolitical calculation as it is a margin discussion—especially considering the Russia–India relationship. It’s a difficult position, and the situation is fluid. The upcoming Trump–Putin meeting will be important for India to watch in terms of crude supply dynamics,” he said.
India currently imports approximately 1.7–2.0 mbd of Russian oil, accounting for roughly 38% of its total crude intake. To date, no official directive has been issued by the Indian government instructing state refiners to halt Russian imports.
Kpler noted that India will continue talks with the US over the coming days in an effort to reverse this announcement.
Nonetheless, industry sources indicate there have been rising inquiries for additional volumes from the Middle East suppliers – who are generally reluctant to offer discounts and prefer long-term contracts.
Indian refiners are optimized for medium, sour grades, such as Russian Urals, but also Middle Eastern crude. While there is some leeway for more Middle Eastern crude to flow into India, a switch to a lighter diet (such as WTI) would prove challenging for Indian refiners, according to Kpler.
Moreover, additional costs are expected to also rise as refiners shift from direct Russian shipments to more conventional routes involving Western insurers.
Indian refiners can operate without Russian crude from a technical standpoint, but the shift would involve major economic and strategic trade-offs.
Before 2022, Urals volumes were modest due to cost and freight issues. Post-invasion of Ukraine, deep discounts and strong compatibility with India’s refining systems led to a surge in Russian imports.
Russian crude supports high distillate yields (diesel and jet fuel) and is ideally suited to India’s advanced refining infrastructure. It has enabled both state-owned and private refiners to operate above nameplate capacity while maintaining strong margins.
“A reversal of this will result in a mild yield shift and probably a small reduction in primary throughput rates, as margins will no longer command a sizable premium against regional benchmarks, considering existing discounts on Russian oil,” Ritolia said.
Kpler highlighted that replacing 1.8 mbd of Russian crude would require a multi-regional approach.
“A balanced replacement strategy may involve 60–70% of substitute volumes from the Middle East, with US and African/Latin America crudes serving as tactical fillers,” said Kpler. Nevertheless, none match Russian barrels in cost, quality, or reliability (some of the Russia-to-India barrels have already been contracted under term agreements), it added.
Replacing 1.7–2.0 Mbd of discounted, medium-sour crude would erode refining margins and misalign product yields, Ritolia said, adding lighter substitutes like WTI or West African grades produce more gasoline and naphtha, reducing diesel output and hurting both domestic and export economics.
He pointed out that even Middle Eastern grades, while closer in quality, are priced tightly to official selling prices (OSP), leaving limited arbitrage opportunities. In addition to higher feedstock costs, Indian refiners would face elevated freight and credit charges. “The transition is commercially painful, even if technically feasible,” Kpler said.
