"How the latest US sanctions on Russia’s oil trade could impact India’s crude imports."
"How the latest US sanctions on Russia’s oil trade could impact India’s crude imports."
"The latest sanctions package is likely to affect India’s oil imports, as Russia is currently the largest source of crude oil for the country. However, the actual impact will depend on several factors. Here's an explanation."
"On Friday, January 10, the United States announced a sweeping sanctions package targeting Russia’s oil trade. The sanctions include 183 tankers—part of the so-called shadow fleet that has been transporting Russian oil to major consumers like India and China. The outgoing Biden administration has also sanctioned two Russian oil giants, Gazprom Neft and Surgutneftegas, as well as Russian insurance companies and others involved in the oil sector.
These sanctions are the latest in a series of actions by Western powers aimed at reducing Russia’s oil export revenue, which is reportedly funding its war in Ukraine. According to the US Department of the Treasury, the new sanctions significantly increase the risks associated with Russian oil trade. A significant number of the sanctioned vessels have been delivering oil to India and China."
Russia’s oil shipping sector since Moscow’s February 2022 invasion of Ukraine—will likely affect India’s oil imports, as Russia is currently the largest crude oil supplier to India. The ultimate outcome will depend on several factors, including how Russia adjusts its pricing and delivery strategies in response to the sanctions."
In response to the latest US sanctions, the Kremlin reportedly stated that the sanctions could destabilize global markets and emphasized that Moscow would take all necessary measures to minimize their impact.
India-Russia Oil Trade: Impact Likely After Mid-March
According to sources in the Indian government, the country's refiners will refuse oil deliveries from sanctioned vessels, except for cargoes booked before January 10, which can be delivered on these vessels until March 12. This wind-down period has been granted by the US to allow the fulfillment of existing Russian oil contracts.
Although India is not directly part of the sanctions regime against Russia, like most other countries, New Delhi has generally adhered to a policy of avoiding conflict with US sanctions to prevent secondary sanctions. Ship tracking data indicates that a large number of oil tankers previously sanctioned by Washington have not been used since their designation.
"While the India-Russia oil trade is unlikely to face significant disruption during this wind-down period, industry insiders anticipate a potential reduction in Russian oil supplies to India in the near term. However, this is unlikely to cause major disruptions to India’s overall oil imports, as there is sufficient supply available from other oil-exporting countries."
"India is the world’s third-largest consumer of crude oil and relies on imports to meet over 85% of its oil needs. Prior to the war in Ukraine, Russia was a marginal oil supplier to India, but it has now become the country’s largest supplier due to Moscow offering oil at significant discounts after the West began shunning Russian oil. In 2024, Russian oil accounted for nearly 38% of India’s total oil imports, according to tanker data.
Increased Oil Imports from West Asia Likely
Data from commodity freight analytics firm Kpler shows that 102 of the recently sanctioned tankers have transported Russian crude to China and India at least once in 2024. According to Kpler’s lead freight analyst, Matt Wright, the newly sanctioned tankers handled over 530 million barrels of Russian crude exports last year. Of this, around 300 million barrels were shipped to China, with the majority of the remaining exports going to India."
"Russia will likely aim to rapidly increase the number of non-sanctioned tankers at its disposal to deliver oil to India and China, in order to mitigate the impact of the latest round of sanctions. However, industry experts note that such a large-scale effort will take time.
'The swift sanctions are designed to disrupt Russian oil exports, forcing sellers to seek alternative vessels to fill the shipping gap—a challenge that will take time to overcome. Russian producers are expected to focus on securing non-sanctioned tankers to maintain crude flows, minimizing the impact on production,' said Wright."
"With the limited availability of tankers for transporting Russian oil, freight costs are expected to rise, which will reduce the discount on Russian crude and make oil from other major suppliers—particularly those in West Asia—more competitive, at least in the short term.
Without significant discounts on Russian crude, Indian refiners are likely to turn to their traditional suppliers such as Iraq, Saudi Arabia, and the United Arab Emirates. In fact, Indian refiners have recently increased oil imports from West Asia as Russia reduced exports due to seasonally high domestic demand. Sources in the government and India’s refining sector suggest this trend will continue."
"Sources in the refining sector indicate that ample supply is available from other major markets.
Notably, prior to the war in Ukraine, Iraq, Saudi Arabia, and the UAE were India’s top three crude oil suppliers. They are currently ranked second, third, and fourth, respectively, on India’s list of top oil suppliers.
Deeper Discounts on Russian Oil in the Medium Term?
The shadow fleet largely emerged as a result of the West’s price cap on Russian seaborne oil exports, which prohibits the use of Western shipping and insurance services—dominant players in the global market—if Russian oil exports are priced above $60 per barrel. The goal was to limit Russia’s revenue from oil exports."
"To circumvent the price cap, Russia has been using the shadow fleet and its own insurance providers. Technically, if Russian oil cargoes were not using Western shipping or insurance, there was no way to enforce compliance with the price cap. The latest sanctions deal a significant blow to this mechanism.
India is not a signatory to the price cap, and Russian oil is purchased by Indian refiners on a delivered basis, meaning that the responsibility for chartering tankers and associated procedures lies with the oil supplier. Indian buyers pay the all-inclusive landed price for crude and are not involved in the shipping process, which shields them from potential price cap-related issues. However, allowing sanctioned tankers to deliver crude at its ports is not acceptable to India."
While Russia will likely focus on rebuilding the shadow fleet, sources in India’s refining sector believe that the latest sanctions could compel Moscow to price its crude under $60 per barrel in the medium term. This would enable the cargoes to be shipped using Western shipping and insurance services. While this would result in lower revenues for Russia, Moscow may be forced to discount its oil to comply with the price cap, given the limited number of buyers beyond India and China for its crude.
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