India-US deal: Cost, crude quality may delay gains from US energy upside

Despite a thaw in trade talks, higher costs, logistics challenges and refinery constraints may limit any near-term boost in India's crude oil, gas and LPG imports from the US

India and the United States (US) have reached an interim trade agreement, but experts caution that it is too early to expect any immediate or significant upside on the energy front.

 

They cite a host of challenges, such as high freight costs, pricier crude and technical limitations posed by refinery configurations, and geopolitical complexities of shifting from Russian Urals to US oil grades that could limit India’s ability to quickly boost energy imports from the US.

 

India imports crude oil, liquefied natural gas (LNG), liquefied petroleum gas (LPG), and coking coal worth over $12 billion annually from the US. 

“The expected additional cost per barrel is estimated at $12-15, taking into account the discount offered to India by Russia. An additional consideration is the longer voyage time of 32 to 40 days against 25 to 30 days earlier,” said Pankaj Srivastava, senior vice-president of commodity markets oil at Norway-based energy research and intelligence firm Rystad Energy. 

While discounts on West Texas Intermediate (WTI) crude could drive increased supply to India, Russian Urals and US WTI cannot be treated as direct replacements due to major differences in crude quality and yield profiles, Srivastava said.

 

“Refineries process crude on a blended basis to achieve their design crude properties. The crude basket at major Indian refineries ranges from 80-100 different grades," he said.

 

In a joint statement issued on Saturday, India and the US outlined a framework for an interim trade agreement, including commitments on market access and resilient supply chains. India said it intends to purchase $500 billion worth of US energy products, aircraft and parts, precious metals, technology products, and coking coal over the next five years.

 

However, the statement did not provide details on the expected increase in energy trade. In a press briefing, Commerce and Industry Minister Piyush Goyal later said the Ministry of External Affairs would share the details.

 

According to Rystad Energy’s analysis, replacing Urals with WTI in a typical bottom-of-the-barrel conversion refinery could lead to a 25 per cent reduction in effective refinery capacity. This would be driven by WTI’s higher gasoline yield and lower output of vacuum gas oil and vacuum residue, Srivastava said.

 

He added that the $500 billion commitment was expected to be more focused on the gas and LNG, and possibly ethane rather than crude oil. “The WTI quality is not suited for diesel-focused Indian refineries’ configuration,” he said.

 

In a note, equity research firm Elara Capital said increasing US energy imports or imports of Venezuela oil (lower grade than others) could limit gains due to cheaper Russian crude. “However, we continue to monitor the upcoming developments and expect that India is likely to follow the FTA rulebook," it said.

 

India imported 243 million tonnes (mt) of crude oil worth $137 billion in 2024-25. Russia accounted for about 30 per cent of these imports, though purchases from the US have also increased. Data from maritime intelligence firm Kpler shows India’s average crude imports from the US rose to 318,000 barrels per day (bpd) in 2025, up from nearly 200,000 bpd in 2024.

 

In October 2025, India’s monthly crude imports from the US hit their highest level since March 2021, as Indian refiners bought over 550,000 bpd of crude oil from the country. Imports from Russia tapered in the past few months.

 

The Executive Order issued by the White House on February 6 stated that India had committed to stopping direct or indirect imports of Russian oil and signalled increased purchases of US energy products. It also warned that resuming Russian oil imports could trigger the reimposition of a 25 per cent additional duty on Indian goods.

 

The order shows how India’s energy purchases have been central in the ongoing trade pact negotiation. India ramped up energy supplies, including crude oil, LPG and LNG, from the US in the last year.

 

In a first, Indian public-sector oil companies last month finalised a one-year contract to import around 2.2 mt of LPG from the US. These volumes, which are to be sourced from the US Gulf Coast for the 2026 contract year, represent close to 10 per cent of India’s annual LPG imports.

 

India is dependent on imports for around 60 per cent of its domestic LPG demand. To secure supplies, it is looking to diversify sources, as nearly 90 per cent of LPG imports currently come from West Asian suppliers, such as the UAE, Qatar, Kuwait, and Saudi Arabia.

 

Despite deepening energy ties between India and US, Indian officials have repeatedly said that purchases would be based on economics of the deal. Importing energy from the US is costlier due to higher freight costs and longer transit times. Cargoes arriving in India from the US take around 45-50 days, compared to 7-8 days from West Asia and 30 to 45 days from Russia.

 

Indian refiners are seeking steeper discounts on Venezuelan oil as its highly viscous and acidic nature makes it difficult to process. Mukesh Ambani-led Reliance Industries (RIL) and Russia-backed Nayara Energy were the top Indian buyers of Venezuelan crude prior to the US sanctions imposed on Caracas. Historically, state-run refiners processed only limited volumes.

 

After US President Donald Trump captured Venezuelan President Nicolás Maduro, he said American oil companies would “rebuild the oil infrastructure” of Venezuela. Global trading houses Vitol and Trafigura have since obtained US licences to load and export Venezuelan crude.

 

Experts believe that Indian refineries with deep bottom-of-the-barrel conversion capabilities can process heavy Venezuelan crude without major operational issues. India has done so in the past, with average monthly intake of 2-2.5 million barrels in the first half of 2024, declining to about 1.6 million barrels per month in the first half of 2025.

 

“The key factor remains the level of discount, which will need to be negotiated,” Srivastava said. “Given the current US-India engagement, this issue is expected to be addressed. However, Venezuelan crude cannot fully replace Urals. In the near term, Indian refineries are likely to process Venezuelan crude alongside increased supplies from West Asia, Latin America, and Africa,” he said.

 

The Rystad Energy executive added that, given current geopolitical uncertainties, India’s optimal strategy is to diversify crude sourcing and avoid over-reliance on any single supplier. Expanding procurement from Brazil, Guyana, Venezuela, Argentina, the US, and selectively from Russia would provide much-needed stability and resilience to India’s crude sourcing strategy, he said. 

Indian refiners to avoid Russian oil deliveries in March-April 

To seal a trade deal with the US, Indian refiners are avoiding Russian oil purchases for delivery in March and April, and are expected to stay away from such trades for longer according to refining and trade sources. On Friday, both announced a framework for a deal they hope to conclude by March. Indian Oil, Bharat Petroleum, and Reliance Industries are not accepting offers from traders for Russian oil loading in March and April, said a trader who talked to the refiners. These refiners, however, had already scheduled some deliveries of Russian oil in March, refining sources said. [Reuters]