India may face USD 11 billion annual oil shock if forced to scale back Russian imports

India could see its yearly oil import costs jump by USD 9–11 billion if pressure from the United States forces a retreat from Russian crude, analysts have warned. The looming risk follows American threats of imposing new tariffs and possible penalties linked to India’s continued purchases of Russian oil and defence equipment.

As the world’s third-largest oil consumer and importer, India has capitalised handsomely on access to heavily discounted Russian oil. These purchases surged after Western nations slapped sanctions on Moscow following its invasion of Ukraine in February 2022.

Prior to the conflict, Russian oil made up less than 0.2 per cent of India’s crude imports. Today, it accounts for between 35 per cent and 40 per cent, delivering significant savings on energy imports, cushioning retail fuel prices, and helping keep inflation under control.

The availability of cheap Russian barrels has also enabled Indian refiners to re-export processed fuels — even to countries that have barred direct imports from Russia — leading to record profits for Indian oil firms.

This lucrative setup now faces a serious threat. US President Donald Trump recently imposed a 25 per cent tariff on Indian exports and hinted at an additional, unspecified penalty for New Delhi’s continued dealings in Russian oil and weaponry. While the tariff is already in effect, the nature of the supplementary sanction remains undefined.

In comments reported by the New York Times on Saturday, two unnamed senior Indian officials asserted that there had been “no change” in government policy. One of them said the administration had “not given any direction to oil companies” to scale back Russian imports. “These are long-term oil contracts,” one source noted. “It is not so simple to just stop buying overnight.”

Meanwhile, Reuters reported that Indian state-run refiners had paused Russian oil purchases in the past week, citing shrinking discounts during July.

This development coincides with the European Union's decision to bar imports of refined products made from Russian-origin crude — a move that adds further pressure on Indian refiners.

Describing the dual blow, Sumit Ritolia, lead research analyst (refining & modelling) at global analytics provider Kpler called it “a squeeze from both ends”.

The EU sanctions, which take full effect in January 2026, could force Indian refiners to separate their crude sourcing streams. At the same time, US tariff threats raise the spectre of secondary sanctions — potentially disrupting the shipping, insurance, and financial channels that facilitate India’s Russian oil trade.

“Together, these measures sharply curtail India’s crude procurement flexibility, raise compliance risk, and introduce significant cost uncertainty,” Ritolia explained.

In the last financial year, India’s crude oil import bill exceeded USD 137 billion. Refiners such as Reliance Industries Ltd and Nayara Energy — jointly responsible for more than half of India’s daily Russian oil imports of 1.7–2.0 million barrels — are especially vulnerable. Nayara, part-owned by Russia’s Rosneft, was recently targeted by EU sanctions. Reliance, on the other hand, has become a key fuel exporter to Europe.

According to Kpler, Reliance’s diesel exports averaged 200,000 barrels per day (bpd) to Europe in 2024, with around 185,000 bpd so far in 2025 — figures heavily supported by the use of discounted Russian feedstock. “The introduction of strict origin-tracking requirements now compels Reliance to either curtail its intake of Russian feedstock, potentially affecting cost competitiveness, or reroute Russian-linked products to non-EU markets,” Ritolia added.

However, Reliance’s bifurcated refinery setup offers some agility. It can assign non-Russian crude to its export-oriented unit to remain EU-compliant, while processing Russian barrels at its domestically-focused plant.

Though technically possible, rerouting diesel exports to Southeast Asia, Africa, or Latin America would result in narrower margins, extended shipping times, and greater variability in demand — making it a commercially less attractive alternative, he noted.

Data from Kpler shows India’s Russian crude imports dropped to 1.8 million bpd in July, down from 2.1 million in June. This dip corresponds with seasonal refinery maintenance and weakened demand during the monsoon, but appears more pronounced among state refiners — suggesting heightened sensitivity to geopolitical risks.

Private refiners, who make up over 50 per cent of Russian crude imports, have also started reducing exposure and exploring alternative suppliers amid rising concern over US sanctions.

Replacing Russian crude, however, is no straightforward task. While West Asia remains the logical fallback, refiners face obstacles such as rigid pricing, contractual obligations, and mismatched crude quality, which could lower refining efficiency and profitability.

“The risk here is not just supply but profitability. Refiners will face higher feedstock costs, and in the case of complex units optimised for (Russian) Urals-like blends, even margins will be under pressure,” Ritolia said.

Looking ahead, Kpler expects India’s large private refiners — with strong trading capabilities and flexible setups — to pivot towards non-Russian suppliers in West Asia, West Africa, Latin America, or even the US, where viable. But this transition will be phased, shaped by regulations, contracts, and market dynamics.

Nevertheless, fully replacing Russian barrels poses serious challenges — logistically complex, economically burdensome, and geopolitically sensitive. While the shift may seem feasible on paper, in practice it is fraught with complications.

“Financially, the implications are massive. Assuming a USD 5 per barrel discount lost across 1.8 million bpd, India could see its import bill swell by USD 9–11 billion annually. If global flat prices rise further due to reduced Russian availability, the cost could be higher,” the firm said.

Such an outcome would strain public finances — especially if the government steps in to prevent a rise in pump prices — and potentially fuel inflation, pressure the rupee, and influence monetary policy decisions.

With agency inputs