US Bill to sanction Russian oil: Why it could become not just India’s, but the world’s problem

India depends on imports to meet over 88% of its crude oil needs, and Russia currently makes up over half of these imports. While the proposed legislation would certainly be a cause of concern for New Delhi, the key aspect to remember is that the Bill does offer some room for workarounds and concessions from Washington. India is expected to push for those, if at all the Bill is enacted, according to industry experts and analysts.

What the new Bill proposes

The new version of the Bill proposes tariffs of up to 100% on the top five buyers of Russian oil and natural gas, against the proposal of a blanket 500% tariff on buyers of Russian energy in the original version that had been hanging fire.

India’s oil imports. Russian oil makes up a significant chunk. Data source: Kpler

While this reduction in proposed tariffs appears meaningful on paper, the cap is still too high for India, which is also working to finalise a trade deal with the US. Importantly, from New Delhi’s point of view, the new Bill does give powers to the US president to waive the application of its provisions.

For New Delhi, meaningfully reducing Russian oil imports is just not an option in the prevailing circumstances of global energy supply tightness amid the West Asia crisis. Even for Washington, taking away millions of barrels of Russian oil from the global market when energy flows from West Asia remain stifled wouldn’t be prudent. That would worsen an already worrying supply situation and would certainly send oil prices soaring, something that the Donald Trump administration wouldn’t want ahead of the midterm polls in the US later this year.

The prevailing energy market dynamics and the West Asia conflict also add uncertainty over the expected timeline of its passage. Nonetheless, India would most certainly move to communicate its energy concerns to Washington, something that was done last year as well when the original bill was mooted.

India’s challenge

With much of the West shunning Russian crude following the country’s February 2022 invasion of Ukraine, Russia began offering discounts on its oil to willing buyers, including Indian refiners. This is how a peripheral supplier of oil to India became India’s biggest source of crude, displacing the traditional West Asian suppliers.

This proved to be a strong energy security hedge amid the West Asia crisis, as oil flows from the Gulf dried up. As per Kpler data, India’s Russian oil imports rose to 2.7 million barrels per day (bpd) in June-July, accounting for well over half of New Delhi’s total oil imports.

Analysts say that despite the threat of sanctions, Russian crude remains the most practical and competitive source of supply for Indian refiners and is difficult to replace.

Russian oil

“The US Senate’s vote to advance tougher sanctions on Russia increases policy risk around Russian crude flows, but does not change our near-term outlook for Indian or Chinese purchases,” said Sumit Ritolia, modelling and refining manager at commodity market analytics provider Kpler.

“The measures still face further legislative and administrative hurdles, with the eventual impact depending largely on how aggressively the US administration chooses to implement them, including the use of exemptions or waivers. Recent experience suggests that when physical supply security becomes a concern, policymakers retain an incentive to avoid measures that could unnecessarily disrupt crude availability,” he said.

If the Bill does indeed become law, analysts say India would push for waivers. “India would almost certainly push for it (waiver), and it would make sense for the US to agree as a friendly concession, especially given how serious the situation is for New Delhi,” Abu Dhabi-based energy analyst Natalia Katona had told The Indian Express in July, when the Bill was unveiled.

She added that the Bill “risks colliding” with the India-US trade talks. That would be counterproductive for both Washington and New Delhi, which have made progress in negotiations after initial setbacks and hiccups. 

Viability of revised Russia sanctions bill

The big question now is will the bill be enacted in its current form, and if yes, when? Energy market experts are sceptical about the prospects for the proposed legislation, particularly in the context of market volatility and stress due to the Strait of Hormuz crisis. 

Moreover, the presidential waiver provision and other changes in the bill provide enough room for the US government to make exceptions and navigate the prevailing situation more pragmatically even if the bill becomes law.

“The question is whether this bill is economically real at all. I simply do not see this bill passing, or remaining in its current form. Firstly, it has already been diluted from a 500% tariff threat against virtually all buyers of Russian oil and gas to a maximum of 100% aimed at only the five largest. European exemptions and presidential waivers have also been added. That tells you the political slogan is already being adjusted to economic reality,” Katona had said.

“Secondly, the timing could not be worse. Trying to squeeze Russian oil out of the market during a renewed Gulf crisis would be dangerously explosive. Brent is already trading above $85 per barrel, while traffic through the Strait of Hormuz has dropped sharply. Removing or even threatening several million barrels per day of Russian supply at the same time would risk another price spike,” she added.

The original Bill sat in the US Senate for more than 15 months without action. The new one has cleared the first hurdle, but its fate in the House of Representatives remains to be seen.