New US Sanctions Threaten to Disrupt India's Russian Oil Lifeline

New Delhi: India’s imports of Russian crude oil are likely to drop sharply in the near term but not halt entirely as new US sanctions on Moscow’s top oil exporters take full effect. This sentiment comes after US sanctions on Rosneft and Lukoil, and their majority-owned subsidiaries, took effect on November 21, effectively turning crude linked to these firms into a sanctioned molecule.

India’s crude oil imports from Russia, averaging 1.7 million barrels per day (bpd) this year, remained firm ahead of the cutoff, with November arrivals projected at 1.8-1.9 million bpd, as refiners maximise discounted purchases. But flows are expected to drop noticeably in December and January, with analysts estimating near-term declines to around 4,00,000 bpd.

“We expect a noticeable drop in Russian crude flows to India in the near term, particularly through December and January. Loadings have already slowed since October 21, though it is still early for definitive conclusions, given Russia's agility in deploying intermediaries, shadow fleets, and workaround financing,” said Sumit Ritolia, Lead Research Analyst, Refining & Modeling, Kpler.

Traditionally, reliant on Middle Eastern oil, India significantly increased its imports from Russia following the February 2022 Ukraine invasion. Western sanctions and reduced European demand made Russian oil available at steep discounts. As a result, India's Russian crude imports surged from under 1 per cent to nearly 40 percent of its total crude oil imports in a short span. In November, Russia continued to be India's top supplier, making up for about a third of all crude oil imported by the country.

The sanctions have resulted in companies like Reliance Industries, HPCL-Mittal Energy Ltd and Mangalore Refinery and Petrochemicals Ltd halting imports for now. The only exception is Rosneft-backed Nayara Energy, which is majorly dependent on Russian crude after supplies from the rest of the world were effectively cut off, following European Union sanctions on it.

“Based on the current understanding, no Indian refiner, other than Nayara's already-sanctioned Vadinar facility, is likely to take the risk of dealing with OFAC-designated entities, and buyers will need time to reconfigure contracts, routing, ownership structures, and payment channels,” Ritolia said.

Sanctions announced by the US target specific companies, not all Russian oil or all Russian producers. This means that crude supplied by non-designated Russian entities, for example, Surgutneftegaz, Gazprom Neft, or independent traders using non-sanctioned intermediaries, can still be legally purchased by Indian refiners, as long as no sanctioned entity, vessel, bank, or service provider is involved.

“Russian oil itself is not sanctioned; the suppliers are. That is why non-designated producers can legally step in to fill part of the gap created by the restrictions on Rosneft and Lukoil," he said.

The discounted Russian crude helped Indian refiners - from public sector Indian IOC, BPCL and HPCL to private sector Reliance Industries Ltd - post bumper profits in the last two years. It also helped keep retail petrol and diesel prices stable despite volatility in the international market, on which India is 88 per cent dependent to meet its oil needs.

India's crude oil import landscape is entering a period of sharp uncertainty as new US sanctions on top Russian exporters took full effect, forcing refiners to reassess Russian supply channels that have dominated their purchases for over three years