Oil and pressure: How India became Russia's oil lifeline after Ukraine war

India's growing reliance on discounted Russian crude has reshaped its import basket, pushing out traditional West Asian suppliers and raising questions about how easily the country could pivot

India’s oil diplomacy is under immense pressure from the United States (US). Talked about in hushed tones in the western circles for some time now, India’s ties with Russia, especially its purchase of discounted oil since the Ukraine war broke out, has come under scrutiny by none other than the US President Donald Trump.

 

As geopolitical tensions rise, the country finds itself in the crosshairs of renewed warning from Trump, who has threatened to impose steep tariffs, starting at 25 per cent plus an unspecified penalty for what he calls a punishment for ‘fuelling the war machine’. The Ministry of External Affairs (MEA) has pushed back, calling the threats “unjustified and unreasonable,” and defending India's purchases as essential for keeping domestic energy prices in check.

 

 

However, the diplomatic defiance is hiding a more complicated reality. India's increasing dependence on discounted Russian crude has changed its import pattern. While it would certainly be theoretically feasible to return to suppliers such as Saudi Arabia or the US, analysts say that this would come with higher costs, technical challenges, and a possible hit to India's energy security assessment.

 

Before Russia’s February 2022 invasion of Ukraine, its global crude oil output share stood at around 13 per cent (in 2021), making it one of the world’s top producers behind only the US and Saudi Arabia. Despite that, Russia's role in India’s crude import basket was minuscule, just about 0.2 per cent. In January 2022, India imported roughly 68,000 barrels per day (bpd) of Russian oil, compared to 1.23 million bpd from Iraq and 883,000 bpd from Saudi Arabia, according to data from Kpler, a real-time analytics firm.

 

Who were India’s top oil suppliers before the war? 

India traditionally sourced crude from West Asian giants, primarily Iraq, Saudi Arabia, and the United Arab Emirates . These grades, such as Arab Light or Basrah, are relatively low‐sulphur and lighter, yielding more valuable products like gasoline and diesel with less processing required. Indian refineries, many built around such slates, enjoyed structural advantages in processing efficiency and product yield.

 

In 2021, OPEC nations accounted for more than 70 per cent of India's crude oil imports; however, by mid-2023, this amount had decreased to below 50 per cent.

 

This shift was caused not only by the price competitiveness of Russian oil, but also because many OPEC producers, including Saudi Arabia, were cutting back on their oil outputs to secure higher global prices. However, Russia, under the pressure of Western sanctions, was able to sell discounted oil to the Asian market for as long as was possible as a way of achieving ongoing revenue to maintain sustainable revenue. India was happy to step in, balancing its energy needs with pragmatic diplomacy.

 

What are the differences between Urals and West Asian crudes? 

Russian crudes such as Urals are heavier and higher in sulphur content compared to West Asian grades like Arab Light or Basrah. Refining lighter, sweeter crudes typically yields higher shares of middle distillates and reduces desulphurisation costs. While blending is possible, excessive use of Urals beyond design parameters can strain refinery hardware. Thus, Indian refiners had to carefully manage blends when increasing Urals intake.

 

However, the economic advantages were hard to ignore. Indian refiners were buying Russian oil at discounts of $25-30 per barrel below Brent crude during much of 2022 and 2023. This allowed them not only to reduce import costs but also to export refined fuels, such as diesel and petrol, to Europe and other markets at global prices, pocketing significant margins in the process.

 

Estimates suggest that the Indian government and domestic refiners saved billions of dollars on oil purchases during this period. Between April 2022 and March 2023, India is believed to have saved over $5 billion on its oil bill thanks to discounted Russian crude. Over two financial years, India saved nearly $13 billion on oil imports, according to ICRA. In turn, Indian refiners were able to ramp up exports of refined products, often made from the same Russian crude, to countries that had sanctioned Moscow, profiting from the arbitrage.

 

By how much did Russia’s share surge in India’s oil basket? 

After February 2022, Russia rapidly displaced West Asian suppliers. By June 2022, Russian crude imports to India hit about 1.12 million bpd, overtaking Iraq and Saudi Arabia. By early 2023-24, Russia accounted for roughly 40 per cent of India’s oil imports, firmly consolidating its position as India’s top supplier.

 

In the fiscal year 2024-25, India imported about 87.4 million tonnes of Russian oil, representing nearly 36 per cent of its total imports (approx 244 million tonnes) and valued at over $50 billion, around 35 per cent of its $143 billion oil import bill. In June 2024 alone, Russia supplied 43.2 per cent of India's crude imports, more than Iraq, Saudi Arabia and the UAE combined.

 

How has India managed the payment hurdle with Russia? 

India has managed payment hurdles by bypassing the dollar system. Switching from traditional US dollar-denominated transactions to settling payments in the UAE dirham (AED) through intermediaries based in the United Arab Emirates. This adaptation became necessary as Western sanctions on Russia, especially the G7/EU oil price cap and related financial restrictions imposed from 2022, made dollar payments risky and, at times, unfeasible for Indian refiners.

 

Indian state-run oil refiners such as Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL) now make payments for nearly all Russian oil purchases entirely in UAE dirhams through Emirati traders.

 

Attempts to establish a direct rupee-rouble payment mechanism with Russia have so far failed. As a result, payments in Indian rupees or direct US dollars are not widely used. Brief use of dollars was reported only when purchasing from Russia’s Rosneft directly, before stricter sanctions and enforcement.

 

However, recent US sanctions targeting vessels and intermediaries carrying Russian oil have caused at least two tankers bound for India to divert elsewhere .

 

What is the way ahead for India? 

Discounted Russian crude helped shield India from inflation spikes and supported refinery exports and margins . But as US tariffs loom and Russian discounts narrow, India faces a potential $9-11 billion annual increase in its oil import bill if it shifts away from Russian barrels. India’s recalibrated oil map, born of pragmatism, may soon face renewed stress.