India’s oil refiners are scrambling to alter their crude oil sourcing strategy after the US slapped fresh sanctions against Russian producers.
Last Friday, the US Treasury Department slapped sanctions against Russian oil producers Gazprom Neft and Surgutneftegas, as well as 183 vessels involved in transporting cheap Russian oil, principally to China and India.
The measures are designed to tighten revenue channels supporting Moscow’s war in Ukraine, and are expected to disrupt global oil markets, industry officials and analysts said on Monday.
Back in 2022, the Group of Seven (G7) nations had slapped a $60 per barrel price cap to halt Russian crude flows to major markets, including India.
On Monday, Brent crude futures rose $1.35, or 1.69 per cent, to $81.11 per barrel, hitting their highest level since August. The price hike reflects market fears over tightened supplies as sanctioned vessels accounted for an estimated 1.7 million barrels per day (bpd) of Russian oil exports in 2024, according to Goldman Sachs. The bank noted that this volume represented approximately 25 per cent of Russia’s total crude exports.
“Friday’s announcement amplifies upside risks to our Brent crude forecast range of $70–$85 per barrel in the short term,” Goldman Sachs analysts said in a note.
India, the world’s third-largest crude importer, relies on imports to meet 85 per cent of its oil demand. Analysts warn that rising crude prices could widen India’s current account deficit by 0.55 per cent for every $10 increase per barrel, while retail inflation may climb by 0.3 per cent. Such pressures could deplete foreign reserves, weaken the rupee, and escalate corporate costs.
Indian refiners, including Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL), are now exploring alternative sources in the Middle East, Africa, and Latin America to mitigate potential shortfalls in Russian supplies. However, competition from other major buyers, particularly China, is expected to tighten global supply and drive up costs.
The sanctions on Russia’s “shadow fleet”—tankers reflagged or insured domestically to bypass Western restrictions—add another layer of complexity.
A senior government official said Monday that a wind-down period until March 12 will allow for existing contracts to be honoured. However, sanctioned vessels will not be permitted to dock at Indian ports after that date unless specific exemptions apply.
Despite the sanctions, Indian refiners do not anticipate significant disruptions in the next two months, as vessels already en route will fulfil current contracts.
Russia became India’s largest crude supplier in 2023, accounting for nearly 40 per cent of its imports, a sharp rise from less than 1 per cent before the Ukraine conflict.