India Tells Refiners to Draw Up Plans for Non-Russian Crude

India told its oil refiners to come up with plans for buying non-Russian crude, a scenario that would have far-reaching consequences for the global oil market if it ultimately meant reduced dealings with Moscow.

The government has asked state-owned processors to prepare an outline of where alternate barrels can be sourced and at what volume if Russian flows get stopped, people familiar with the matter said, asking not to be named due to the sensitivity of the matter. One of the people said that the instruction amounted to scenario planning in case Russian crude were to become unavailable.

The request came after a social-media post on Wednesday by US President Donald Trump threw the Asian nation’s fuel makers into disarray. Trump said in his post that India would face “penalties” because of ongoing purchases of Russian energy that helped to fund the war in Ukraine. 

India is a critical source of demand for Russian oil and Moscow would have to divert millions of barrels a month to China and other buyers if New Delhi were to halt buying. They’ve helped Russian barrels to keep flowing to the world — largely undisturbed — despite wide-ranging western sanctions.

So far the Indian government hasn’t set out its position and people with knowledge of the matter said it’s still evaluating the situation and will continue to do so for several more days. 

India’s refiners have been racing to buy barrels from elsewhere and there are tentative signs that they might be scaling back Russian cargo purchases. 

A senior executive at a major Indian oil refiner said the company would try to source more crude from the Middle East and Africa, while still looking to the government for guidance on how to proceed. The situation was not entirely unexpected, but would increase costs and reduce margins, said the executive, who asked not to be identified due to the sensitivity of the matter.

The refiners have now almost completed their monthly cycle of booking Russia’s Urals cargoes for September loading and aren’t buying more pending clarification from the government, according to separate people familiar with the matter, who asked not to be identified because they’re not authorized to speak to the media. 

The processors, who have become heavily dependent on cut-price Russian energy over the past few years, were already grappling with a proposed European Union ban on their exports of diesel made from Russian oil. With Washington now taking a harder line against the Kremlin too, the race to identify alternative sources of crude is gathering pace.

India is heavily dependent on imported energy, and more than a third of its overseas purchases of crude come from Russia. Along with China, it has become the most important buyer of Moscow’s oil, with many of its refiners coming to rely on the discounted barrels.

Trump’s comments have created “more uncertainty” for Indian refiners on their Russian crude imports, said Vandana Hari, the Singapore-based founder of Vanda Insights, an oil consultant. The uncertainty could last until Aug. 7, unless Putin makes a conciliatory move before that, she said, referring to Trump’s deadline for a ceasefire in Ukraine. 

The shares of Indian refiners fell on Thursday. State-run Indian Oil Corp., the nation’s biggest processor, dropped as much as 3.2% in Mumbai, with Bharat Petroleum down as much as 4.1%. Hindustan Petroleum Corp. lost as much as 3.7% and privately owned Reliance Industries Ltd. dipped as much as 2%.

Flurry of Tenders

Spokespeople at Indian Oil, Bharat Petroleum, Hindustan Petroleum, Reliance Industries and the oil ministry didn’t immediately reply to requests for comment.

Even in the days before Trump’s announcement, state-owned refiners had been issuing buy tenders for unusually short-notice arrival dates. Indian Oil most recently issued a tender for crude arriving in late September to early October, shortly after awarding a similar one for roughly the same dates.

Bharat Petroleum purchased Middle Eastern and West African grades this week, also for delivery in late-September to early-October. Typically, tenders issued at this time would be for oil arriving in mid-to-late October.

Still, there’s skepticism that Asian buyers of Russian oil can completely pivot to alternative supplies. 

“Finding a replacement of Russian crude on the global market would be difficult, given the large volumes, faster-than-expected declines in OPEC spare capacity, and differences in crude qualities,” Goldman Sachs Group Inc. analysts including Yulia Grigsby said in a note. 

India bought about 1.63 million barrels a day of Russian crude last year, more than a third of its total imports, according to ship-tracking data compiled by Bloomberg. Those volumes have largely held up so far this year.

“There will be a scramble for cargoes,” said R. Ramachandran, an Indian oil industry veteran who was director of refining at Bharat Petroleum Corp. before leaving the company in 2020. “There is plenty of crude available in the market, it’s just that India will have to pay more” and it would probably take three to six months before supply lines were realigned.

India, keen to keep trade talks with the US on track, is weighing options to placate the White House, including boosting US imports, according to people familiar with the matter.