Indian oil refiners can shift away from Russian crude after US President Donald Trump imposed sanctions on Moscow’s two largest oil companies — but the move will come at a cost, analysts said Friday.
Trump has claimed that Indian Prime Minister Narendra Modi has agreed to cut its Russian oil imports as part of a prospective US trade deal — something New Delhi has not confirmed.
Relations between the countries plummeted in August after Trump raised tariffs on Indian exports to the United States to 50 percent.
US officials have accused India of helping to fund Russia’s war in Ukraine by buying discounted oil from Moscow.
There has been no immediate response from India’s foreign or oil ministries, or from major refiners, since Washington announced the sanctions on Wednesday.
“The key is to what extent Modi bends to the American will,” Jorge Montepeque of ONYX Capital said, adding that the “initial responses were that the state oil companies were very cautious.”
Oil prices jumped more than five percent after the US sanctions were announced.
“Any recalibration means… paying more for alternative oils,” Montepeque told AFP. “One of the areas would be the Middle East and the price is shooting up.”
Reliance Industries, the privately-owned main Indian buyer of Russian crude, said that comments it made about a “recalibration” of purchases to follow government guidelines had been made before US sanctions were issued.
Since sanctions were imposed, the company did not comment to AFP.
Oil versus tariffs
India, one of the world’s largest crude oil importers, relies on foreign suppliers for 85 percent of its oil needs.
Long dependent on Middle Eastern producers, New Delhi began purchasing heavily discounted Russian crude in 2022, capitalising on Western sanctions that limited Moscow’s export options.
India imported just over 1.6 million barrels per day from Russia in September, according to trade intelligence platform Kpler.
Kpler, in October 21 comments made just before the sanctions, said that the economics were “compelling”.
“Russian barrels remain deeply embedded in India’s energy system for economic, contractual, and strategic reasons,” it said.
“Russian crude remains structurally vital for India, accounting for roughly 34 percent of its total imports and offering compelling discounts that are too significant for refiners to ignore.”
Analysts said, however, that it would not be technically difficult for Indian refiners to adjust.
“Indian refiners can easily pivot away if needed, the trade-off would be mainly pressure on refining margins,” said Vandana Hari, a Singapore-based oil market analyst.
But she noted that the “import bill will climb”.
Hari said that a weaker rupee “adds to the burden”, though it was not as “big a sticker shock as might have been if crude was in the $70s or $80s.”
The United States is India’s top trading partner, but New Delhi is yet to secure a formal deal.
Indian Trade Minister Piyush Goyal said Thursday, in remarks carried by state-run media, that talks with Washington were “progressing” and that he hoped for a “fair and equitable agreement in the near future.”
Analysts at Nomura suggested Friday that pricier oil would be compensated if a trade deal was struck.
“We believe that the near-term costs of a recalibration of oil import away from Russia should be more than offset by the benefit from lowering of US tariffs,” it said.
