 "Russian invasion of Ukraine")
When Vladimir Putin marched into Ukraine on February 24, 2022, backed by the full force of the Russian military, he likely did not anticipate that a war he expected to end in a few months would go through two American presidents, drive liquefied natural gas (LNG) prices to record highs, and create a supply source of cheap oil for the world's fastest growing major economy. Never before in history has a country been able to capture 45 per cent of a major crude oil market in just over two years, the way Russia has India’s.
February 24, 2025 marks the third anniversary of the Russian invasion of Ukraine. The war has devastated many, and become a proxy battle between the US-led western world and Russia. Neutral countries like India, China and Turkey, though, have gained from western geopolitical rivalries, and the unravelling of relations between Europe and the US following Donald Trump’s return to presidency.
However, with signs of peace now on the horizon – after US officials met their Russian counterparts in Riyadh last week – it is unclear how a possible ceasefire and an end to sanctions will pan out for India.
The war provided Prime Minister Narendra Modi’s government with an opportunity to reinforce India’s strategic autonomy by resisting Washington’s pressure to sanction Russia. New Delhi has continued to maintain trade relations with both the US and Russia.
“India’s oil import structure has undergone a tectonic shift since the war, with Russia emerging as a cheaper, high-quality, and dependable supplier of crude oil,” said Narendra Taneja, a Delhi-based leading energy expert. “Russia will remain a key crude supplier for Indian refiners.”
After China, India has been the biggest global beneficiary of cheap Russian oil. This has enabled Indian refiners to save tens of billions of dollars in sourcing costs, and enjoy some profitability while keeping pump prices stable for the consumers. Cheaper crude has also made fuel exports competitive for companies like Reliance Industries.
The war led to an initial surge in gross refining margins, which enabled Indian Oil, Bharat Petroleum and Hindustan Petroleum to reduce their dependence on New Delhi for financial support since these state-run refiners lack the authority to adjust petrol, diesel, and liquefied petroleum gas (LPG) prices in line with international rates. This has helped ease the fiscal burden on the government by doing away with the necessity to provide for humongous energy subsidies in the annual Budget to bail out oil companies.
“India imported Russian crude after the crisis because of the benefits we got — almost one-third of our crude basket came from Russia,’’ said Swarnendu Bhushan, co-head of research, Institutional Research, PL Capital. “Earlier, the discount was much higher than it is now,’’ he added.
Discounts are why India sources Russian oil, said R Ramachandran, oil industry consultant and former director, refineries, Bharat Petroleum. ''Without, say, a $3-$4 per barrel discount, when I process, it is at a disadvantage to the Arab mix or something in terms of yield and margin creation," he added.
The numbers
Urals, Russia’s export benchmark grade, is a medium, low-sulphur grade containing impurities. Its high transport costs and additional maintenance expenses, amounting to 70c- $1 per barrel in some cases, made it unattractive to Indian refiners prior to the war.
In February 2020, Indian Oil signed its first term contract to import Russian crude after New Delhi’s push for a deeper energy relationship with Russia in response to Putin’s overtures and the need to diversify from Gulf supplies. The refiner agreed to import up to 2 million tonnes (40,000 barrels per day [bpd]) of Urals, then oil minister Dharmendra Pradhan said after meeting Rosneft CEO Igor Sechin.
However, ship tracking data reveals that in 2020, Indian Oil imported only 3,000 bpd in 2020 and none in 2021 — despite the agreement. In 2021, a year before the invasion, Russian oil shipments averaged only 100,000 bpd for a 2.4 per cent share of India’s total imports.
“Unlike fixed-term agreements with West Asia, term contracts with Russia or with suppliers in the Americas are optional,” a trader from a state refiner explained. “We only take crude if the delivered price offers value.”
This changed dramatically when the war began and Russia offered steep discounts.
In 2022, India’s Russian oil imports surged seven-fold to 740,000 bpd from a year earlier, capturing a 16.4 per cent market share, according to data from market intelligence agency Kpler. In 2023, imports more than doubled to 1.8 million bpd, reaching 39 per cent of total crude imports. These levels sustained into 2024.
The import of Russian crude jumped in 2023, when discounts averaged $15 per barrel in the first quarter — seven times current levels — after western powers imposed a $60 per barrel price cap on Russian oil. India capitalised on these discounts, buying Russian oil worth $132 billion over the past three fiscal years, averaging $44 billion annually, according to calculations based on Customs data. In contrast, Russian crude imports had stood at a mere $2.5 billion in the year before the war.
In fiscal 2023-24 (FY24), India imported $46.5 billion worth of Russian oil, followed by $35.8 billion in April-November of FY25, according to Customs data values on a delivered basis. The influx of Russian crude has displaced supplies from the US, West Africa, United Arab Emirates (UAE), and Saudi Arabia, ship tracking data shows. The share of US oil has halved since FY22, while that of Saudi Arabia and Iraq has dropped by 6 percentage points each. Iraq’s oil exports to India totalled $28.9 billion in FY24, Saudi Arabia’s $21.7 billion, and US crude purchases stood at just $5 billion.
Impact of US sanctions
The latest round of US sanctions, imposed by the outgoing Biden administration on January 10, 2025, has disrupted India’s Russian oil purchases. The measures targeted 183 tankers, Russia’s state-owned shipping giant Sovcomflot, two major Russian oil producers, two insurers covering Russian crude shipments to India, and some major Dubai-based Russian traders. These restrictions are expected to reduce Russia’s share of India’s crude market to 20-25 per cent in March, industry officials said.
India’s top refining officials, it is learnt, struggled to make headway in crude supply negotiations with the Russian delegation at the recent India Energy Week in Delhi.
Russian suppliers are yet to find a solution to resume regular supplies given India’s insistence on “clean cargoes”. Indian refiners have already rejected all US-sanctioned cargoes heading their way in February. But that has not stopped Russia from shipping an estimated 1.7 million bpd of oil that month – 15 per cent higher than pre-sanction December 2024 levels, Kpler data shows.
Prices and outlook
“Much now depends on how the US-Russia talks on the Ukraine war proceed,” said Tilak Doshi, an international energy expert.
“Once Russian supply normalises, the discounts will disappear,” Bhushan said. “So, we might cut down on sourcing Russian oil.” He expects Russia’s share to whittle down to just 10 per cent once the discounts go.
Peace in Ukraine may lead to additional flows of Russian oil over time, but Trump’s threat to choke Iranian oil exports might offset this surplus, Bhushan said. He was unsure whether the Organisation of the Petroleum Exporting Countries (OPEC) would immediately boost production because “they have tried to maintain the balance, and they don’t want to let prices slide below $70 per barrel”.
The European crude benchmark, Brent, has remained volatile this year — rising from $76.7 per barrel in early January to $83 per barrel on January 13 after new US sanctions were announced, before falling back to $76 per barrel. India’s crude oil basket, which comprises mostly medium, sour grades preferred by its refiners, and some light, sweet oils, has averaged $79 per barrel in FY25 – down $13 per barrel from FY23 when the war pushed prices to an average of $93.1 per barrel, which was the highest since FY15.
Many experts expect prices to remain stable in the range of $70-$80 per barrel this year, irrespective of the outcome of the peace talks.
“As oil prices approach $80 per barrel, it could be a level that both Saudi Arabia and the UAE are happy with,” Doshi added.
