Russia’s President Vladimir Putin (R) speaks with India’s Prime Minister Narendra Modi (L) during a visit to the Zvezda shipyard, as the head of Russian oil giant Rosneft Igor Sechin (C) accompanies them, outside the eastern Russian port far from Vladivostok in September. 4, 2019, before the start of the Eastern Economic Forum hosted by Russia.Â
Alexander Nemenov Afp | Getty Images
The days of India buying cheap Russian oil may be over.
Sweeping US sanctions against Russian energy companies and oil tanker operators will complicate Indian efforts to continue importing Russian crude and could raise inflation in Asia’s third-largest economy, analysts said.
The site could be looking at a possible oil strike, said Bob McNally, president of Rapidan Energy Group.
“India will be affected more than China by the sanctions, as India imports much more of its oil from Russia than China,” he told CNBC.
Last Friday, the US Treasury announced sanctions against two Russian oil producers, along with 183 vessels that are mostly oil tankers that have been carrying barrels of Russian oil. Currently, US-sanctioned tankers are allowed to offload crude until March 12.
The South Asian nation imported a significant 88% of its oil needs between April and November 2024, little changed from a year earlier, according to government data. About 40% of those imports came from Russia, data from trade intelligence firm Kpler showed
Of the 183 newly sanctioned tankers, 75 of them have transported Russian oil to India in the past, according to data provided by Kpler. Last year alone, 183 sanctioned tankers transported around 687 million barrels of crude oil, of which 30% was sent to India.
“Most of these barrels went to Indian refiners and, therefore, the impact is likely to be greater there,” BNP Paribas senior commodities strategist Aldo Spanier said in a research note after the sanctions.
The new U.S. sanctions were deeper and broader than markets had anticipated, and the disruptions are expected to intensify, Spanier added.
India’s Ministry of Petroleum and Natural Gas did not respond to a CNBC request for comment.
Oil prices from year to year
The sanctions are also coming at a time when India is expected to overtake China as the world’s number one oil consumer in 2025, accounting for 25% of total oil consumption growth globally.
Rising demand for transportation and home cooking fuels is set to drive this increase of 330,000 barrels per day – the most of any country, forecasts from the US Energy Information Administration showed.
India consumed 5.3 million barrels per day in 2023, the latest EIA data showed. This consumption is expected to have increased by 220 thousand barrels per day last year.
India was not always so dependent on Russian oil.
By 2021, Russian oil accounted for only 12% of India’s oil imports by volume. By 2024, that percentage had risen to 37.6%, Muyu Xu, senior oil analyst at Kpler, told CNBC.
The catalyst for the increase in oil imports was the war in Ukraine, which led some Western countries to impose sanctions against Russia and limit their purchases of Russian crude oil. As Russian oil prices fell, India was able to increase supplies cheaply from companies that were not under sanctions.
The discount for Russian Urals crude to global benchmark Brent averaged about $12 a barrel from last August to October, according to the most recent data released by S&P Global last November. In 2024, Russia’s Urals was also cheaper by $4 a barrel compared to oil from Iraq, one of India’s main sources of crude imports, data from Kpler showed.
“If India were to fully comply with US sanctions, we could see a sharp drop in Russian crude oil arrivals in February and potentially in March,” Xu added.
Supply disruptions in India could be as much as 500,000 barrels per day, Rystad Energy senior analyst Viktor Kurilov said by email.
No more cheap alternatives?
While the impact may eventually ease as affected importers try to find alternative suppliers in the Middle East, some industry watchers say relief could still take weeks to months to materialize.
Even then, the price of oil from these alternative sources will not be that cheap. The world’s benchmark Brent crude oil recently advanced to a five-month high of around $80 a barrel after the sanctions were announced, after a year of languishing on oversupply and weak demand.
Middle Eastern crude prices, which are among India’s alternatives, also rose this week, data provided by Kpler suggested.
“Depending on how quickly Russia resolves its logistical challenges and how India and China cooperate with sanctions, oil prices could rise for several weeks,” Kpler’s Xu said.
Moreover, as Donald Trump’s inauguration approaches, the world’s supply of cheap Iranian oil is also facing the risk of tougher sanctions. Iran accounted for 4% of world oil production in 2023, according to an EIA report published last year.
“It is [also] bit of a double whammy for the main importer [India] as Iran is likely to face the pressure of new sanctions with the incoming Trump administration,” Helima Croft, global head of commodities strategy at RBC Capital Markets, told CNBC.
If the new sanctions are accompanied by a potential curb on Iranian crude, Brent prices could rise further to $90 a barrel, Goldman Sachs wrote in a note published after the sanctions were announced.
A pain point of the Indian economy
The Indian economy is “sensitively sensitive” to fluctuations in oil prices, a research paper published in 2023 found. Domestic retail prices of petrol and diesel rise “like rockets” in response to rising oil prices raw, Abdhut Deheri, assistant professor of economics at Vellore Institute of Technology, and M. Ramachandran of Pondicherry University’s economics department said in the study.
Analysis by the Reserve Bank of India in 2019 found that every $10 per barrel increase in oil prices could lead to a 0.4% increase in headline inflation.
“Higher oil prices, if passed on to consumers, could further erode their purchasing power at a time when incomes and GDP growth have slowed,” Dhiraj Nim, an economist at ANZ.Â
However, weak consumer demand could prevent producers from passing the cost burden on to consumers, meaning it could hurt companies’ profits, Nim added. Although if the government chooses to bear the additional costs, it will strain its finances.
Not only will China and India have to pay more for the oil they consume, they will have to pay more to deliver it to their shores because oil tanker rates have also increased, said Andy Lipow, president of energy consultancy Lipow Oil Associates.
Combined with a stronger US dollar and weaker rupee, the impact on India’s economy will be magnified, Lipow said.Â
India’s rupee recently fell to a record low as a result of pressure from a strong greenback and selling by foreign portfolio investors.
The country is no stranger to protests over high fuel prices. In 2018, widespread protests across the country against record high gasoline and diesel prices led to the closure of businesses and schools in some regions.
