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The outgoing administration in the United States announced sweeping new curbs on Russia’s oil trade last week, imposing sanctions on 183 tankers, the bulk of the so-called “shadow fleet” that has kept Russian oil flowing to consumers such as India and China. The sanctions also targeted Russian oil companies Gazprom Neft and Surgutneftegas, insurance companies, and other entities involved in the country’s oil sector and trade.
The sanctions, the biggest against Russia’s oil shipping sector since the invasion of Ukraine in February 2022, will impact India, given that Russia is its biggest source market for crude oil.
Specific fallouts will depend on variables including the Russian response in terms of pricing and delivery, as well as the policy direction the incoming Donald Trump administration takes on Russia and the war in Ukraine.
The Kremlin has said that the US sanctions could destabilise global markets, and Moscow would do everything possible to minimise their impact.
Government sources said Indian refiners will accept oil cargoes on the sanctioned vessels booked up to January 10 – when the US sanctions were announced – which can be delivered until March 12. This wind-down period has been provided to enable existing contracts for Russian oil to be fulfilled.
India is not part of the sanctions regime against Russia, but it has, like most other countries, generally tried to not fall foul of them in order to avoid secondary US sanctions. Ship tracking data show the vast majority of oil tankers sanctioned earlier by the US have not been used since.
Industry experts expect the India-Russia oil trade to be impacted in the near term beyond the wind-down period. This, however, is unlikely to disrupt overall oil imports – enough supply is available from other oil exporting countries.
India, the world’s third-largest consumer of crude oil, depends on imports to meet more than 85% of its requirement. Russia was a marginal supplier to India before the war in Ukraine; it is now India’s biggest supplier of crude, after Moscow began to offer significant discounts to offset the impact of the West shunning its oil. In 2024, Russian oil accounted for nearly 38% of India’s total oil imports, according to tanker data.
Data from commodity freight analytics firm Kpler show 102 of the 183 sanctioned tankers transported Russian crude to either India or China or both at least once in 2024.
According to Kpler’s analysis, the sanctioned tankers together handled more than 530 million barrels of Russian crude exports last year – of which around 300 million barrels were shipped to China, and the bulk of the remaining exports were to India.
While Russia would now want to rapidly increase the number of non-sanctioned tankers at its disposal, industry experts said this mammoth exercise would take time to progress.
Meanwhile, as fewer tankers are available to transport Russian oil, its freight costs are expected to shoot up, which will eat into the discount and make oil from other major suppliers, especially those in West Asia, more competitive, at least in the short term.
In the absence of meaningful discounts on Russian crude, Indian refiners will likely gravitate towards traditional suppliers such as Iraq, Saudi Arabia, and the United Arab Emirates. Indian refiners recently increased imports from West Asia as Russia cut back on exports due to seasonally high domestic demand. Sources in the government and refining sector have indicated that ample supply is available from other major sources markets.
Iraq, Saudi Arabia, and the UAE, India’s top three crude suppliers before the war began, are currently at numbers 2, 3, and 4 in the list of India’s oil suppliers respectively.
Russia’s shadow fleet – aging tankers of uncertain ownership – emerged largely to dodge the Western price cap on its oil exports, which prohibited the use of Western shipping and insurance if the oil was priced at more than $60 per barrel.
The idea of the cap, which has been in effect from December 5, 2022, was to limit Russia’s revenues while still keeping oil flowing to global markets in order to avoid shortages that would drive up energy prices and inflation.
India is not a signatory to the price cap. Indian refiners buy Russian oil on a “delivered basis”, which means that chartering of tankers and associated procedures are the responsibility of the supplier. Not being involved in the shipping keeps them insulated from possible price cap-related complications.
While Russia would be looking to rebuild the shadow fleet, sources in India’s refining sector said the latest sanctions could force it to price its crude below $60 per barrel in the medium term, so that Western shipping and insurance services can be used. These would lead to lower revenues for Russia, but given that it does not have many buyers beyond India and China, it might be forced to discount its oil to the extent that it complies with the price cap.
Donald Trump, who enters the Oval Office on January 20, wants to end the war by brokering a peace deal between Moscow and Kyiv. He has a good relationship with Russia’s President Vladimir Putin – even though what trajectory the sanctions and US policy in general towards Russia may take under him remains uncertain.
In their public pronouncements, both Trump and Vice President-elect J D Vance have made it clear that they neither want the war to drag on nor have American taxpayer-funded aid flow indefinitely to Ukraine.
But this does not necessarily mean a softer US sanctions policy under the new administration. It has been pointed out that the latest sanctions have, in fact, provided Trump with leverage to push Russia in the direction that he favours in the negotiations to end the war.
