Caught in the Trump-Putin game of chicken: India’s Russian oil imports’ future and options

Over the past few weeks, significant imports of Russian crude by Indian refiners surfaced as a major point of friction for the Donald Trump administration in its relationship with New Delhi. On August 6, Trump announced that an additional 25 per cent tariff on Indian goods—on top of the 25 per cent tariff already announced—would take effect after 21 days. New Delhi described this targeting of India over its acquisition of Russian oil as “unjustified and unreasonable”. India stated that these imports commenced because its traditional energy supplies were diverted to Europe after Russia’s February 2022 invasion of Ukraine. Furthermore, India asserted that the US had “actively encouraged such imports by India for strengthening global energy markets stability”

The renewed pressure from the US and other Western powers—pressuring Russia’s top trade partners to cut down on imports from the country—are aimed at forcing the Kremlin’s hand into ending the Ukraine war. For Trump, who wants the over three-year-old Russia-Ukraine war to end within days, this is an opportune time to pressure India over its Russian imports, given that New Delhi and Washington are locked in sensitive trade pact negotiations. Experts also see it as a ploy by Trump to extract a more favourable trade deal from India.

For India—the world’s third-largest consumer of crude oil with an import dependency level of 88 per cent—the questions are on various counts—from possible shifts in crude sourcing strategy to potential expansion of its oil import bill, and balancing its strategic autonomy while dealing with the Trump White House. The questions may be obvious, the answers, not so much.

How India’s crude import mix could evolve

When Russia invaded Ukraine in February 2022, Moscow’s share in New Delhi’s oil imports was less than 2 per cent. With much of the West shunning Russian crude following the invasion, Russia began offering discounts on its oil to willing buyers. Indian refiners were quick to avail the opportunity, leading to Russia—earlier a peripheral supplier of oil to India—emerging as India’s biggest source of crude within a matter of months. Russia now accounts for 35-40 per cent of India’s total oil imports by volume.

India currently imports approximately 1.7–2.0 million barrels per day (bpd) of Russian oil, accounting for roughly 38 per cent of its total crude intake, according to global real-time data and analytics provider Kpler.

India’s public sector refiners for the time being have paused Russian oil purchases, which had already slowed down in previous weeks, it is learnt. To be sure, the government has so far not issued any advice or directive to refiners to cut down on Russian oil imports. While some industry experts see the recent slowdown in oil imports from Russia is being seen as a signal by New Delhi to Washington, sources in India’s refining sector say that it is also due to discounts on Russian crude narrowing considerably.

In the eventuality that Indian refiners have to indeed replace their Russian oil barrels, a multi-regional approach would be required, which would entail buying a lot more from India’s traditional oil suppliers in West Asia like Iraq, Saudi Arabia, and the UAE, while also increasing imports from other regions—West Africa, the US, and Latin America.

But replacing such massive volumes of Russian crude is no mean task, and is fraught with undesirable consequences for Indian refiners.

“Reducing Russian crude isn’t as simple as flipping a switch—it’s tied to long-term contracts, operational setups, and market adaptability that can’t be undone overnight,” said Sumit Ritolia, Lead Research Analyst, Refining & Modeling, at Kpler.

According to experts, while Indian refiners can operate without Russian crude from a technical standpoint, the shift would involve major economic and strategic trade-offs.

“Indian refiners can technically adapt to the loss of Russian barrels, but with significant economic consequences. Replacing 1.7–2.0 Mbd (million bpd) of discounted, medium-sour crude would erode refining margins and misalign product yields,” noted a recent report by Kpler.

West Asian medium-sour crude grades, while closer in quality to Russia’s flagship Urals crude, come with higher costs, tighter availability, and logistical challenges, which could make the transition to these barrels commercially painful for Indian refiners, although not prohibitive.

“A balanced replacement strategy may involve 60–70% of substitute volumes from the Middle East, with US and African/LatAm (Latin American) crudes serving as tactical fillers. Nevertheless, none match Russian barrels in cost, quality, or reliability,” the Kpler report added.

The price impact

According to a recent report by Nomura, the implied discount on Russian crude oil for Indian refiners was estimated to have declined to around $2.2 per barrel in 2024-25 from over $12 per barrel in 2022-23. At 1.8 million bpd, the annual import of Russian crude by India comes out to 657 million barrels a year.

Assuming the $2.2-per-barrel discount, Indian refiners would have to pay around $1.5 billion extra to replace Russian oil on an annualised basis. In its analysis, Kpler said that India could face an additional $3-5 billion in import costs, based on a $5-per-barrel premium on the replacement volumes, as the current difference on landed price basis between Russia and non-Russian oil is around $5 per barrel.

Prima facie, given India’s oil import bill for 2024-25 (FY25) was $143 billion, these additional cost estimates do not appear to be unaffordable, more so in the context of the risk to India’s merchandise exports to the US. But it is worth noting that if a large oil importer like India suddenly comes to the market to replace up to 2 million bpd of crude, it is bound to heat up international oil prices—or at least prices of the grades India would be seeking—which would again inflate New Delhi’s oil import bill.

Add to that the risk of a bulk of India’s Russian oil barrels not finding takers elsewhere, and the impact could be more significant. Experts believe that China, the other top buyer of Russian oil, may only be able to additionally absorb only a fraction of oil that may become available if India pulls out entirely. The reasons are multiple—Beijing’s reluctance to increase reliance on any one crude source, subdued oil demand in China, and the fact that Beijing, too, is locked in tense trade negotiations with Washington.

Nomura economists estimate that given India imported 1.8 billion barrels of oil in FY25, India’s annual import bill could rise by around $1.8 billion for every $1 increase in global crude prices. According to Kpler’s analysis, the combined effect of loss of discounted barrels and the potential increase in international oil prices due to a chunk of Russian supply going off the market could push up India’s annual oil import bill by up to $11 billion. India’s economy is vulnerable to global oil price volatility. It also has a bearing on the country’s trade deficit, foreign exchange reserves, the rupee’s exchange rate, and inflation rate, among others.

“If global prices rise further (a scenario in which Russian crude exports are being curtailed, in the absence of sufficient buying interest from India), the financial burden could increase significantly… A spike in the import bill could even lead to a reduction in overall crude purchases. India’s limited storage capacity further constrains its ability to manage such disruptions,” Kpler noted, adding that as per its estimates, China may only be able to absorb only an additional 200,000-300,000 bpd of Russian crude.

There are already indications that the market is bullish medium and heavy sour crude grades as Indian refiners look at options to pivot away from Urals’ centrality in their oil import slate and seek replacements.

On its part, India has maintained over the years that as a country that depends on energy imports, it will buy oil from wherever it gets a good deal, as long as the oil is not under sanctions. To be sure, Russian oil is not under sanctions, and is only subject to a price cap imposed by the US and its allies that applies if Western shipping and insurance services are used for transporting the oil.

Despite the noise from sections of the West against India over the country’s hefty purchases of Russian crude, this shift in oil and petroleum product trade had Washington’s blessings, as the US wanted energy markets to remain stable and well-supplied, according to various US officials who served in the Joe Biden administration.