Donald Trump and Vladimir Putin have always had a unique relationship — a tango of praises and sanctions, as if each side were waiting for the next twist in the ongoing geopolitical rollercoaster. Just when it seemed they might make peace, the Trump administration pulled out the sanctions card again, this time slapping Russia’s oil giants, Rosneft and Lukoil, with measures that would make even their notoriously unpredictable relationship seem unsurprising. While Washington wants to tighten the screws on Moscow’s energy sector, for countries like India and China, the fallout is about to get more complicated.
Rosneft and Lukoil are central to Russia’s energy strategy, with their combined output accounting for nearly half of the country’s total oil production and a significant portion of global supply. These sanctions represent a sharp escalation of US policy towards Russia, which, over the past few years, has fluctuated between attempts at diplomacy and direct economic punishment. For India, however, the sanctions carry immediate and far-reaching consequences, not just for energy supply but also for how the country navigates its position between global powers.
Rosneft and Lukoil are far from minor players in the global energy arena. Last year, Rosneft produced approximately 3.7 million barrels per day of crude, about 3.3 per cent of global supply. Rosneft has extensive ties to India, including owning a 49 per cent stake in Nayara Energy, which operates a 400,000 bpd refinery in Gujarat. The refinery processes mostly Russian crude and, under existing EU sanctions, has already seen reduced output. Lukoil, Russia’s second-largest oil producer, added another 1.6 million barrels per day to global supply last year. The sanctions not only impact Russian oil but also put the future of India’s refineries, which rely heavily on these supplies, at risk. US officials have even warned that they could target any entity — bank or buyer — that continues to deal with Rosneft or Lukoil, effectively threatening secondary sanctions on Indian and Chinese refiners.
The sanctions freeze all US assets of these companies and prohibit American firms and financial institutions from doing business with them. While the full effects won’t be felt until November 21, when the grace period expires, the announcement itself has already shaken the global oil market. US oil prices spiked by roughly 5 per cent as markets anticipated the loss of millions of barrels per day in Russian oil exports. In India, the world’s largest buyer of seaborne Russian crude, the response was swift: Refiners, particularly those linked to Rosneft and Lukoil, have begun scrambling to reassess their oil procurement strategies. In fact, even in 2019, when the Trump administration imposed sanctions on Iran, cutting off India’s access to Iranian crude, the state-owned Indian Oil Corporation swiftly pivoted by signing long-term contracts to import US oil and securing additional cargoes from the Gulf and West Africa to keep refinery operations stable. That episode of managing sudden supply disruptions has since made Indian refiners far more agile in adjusting sourcing strategies when geopolitics collide with energy security.
For India, these sanctions are a substantial geopolitical challenge too. Russian crude has been a crucial component of India’s energy supply, offering attractive discounts compared to Middle Eastern crude. Indian refiners have benefited immensely from these price reductions, using Russian oil to produce gasoline, diesel, and other refined products. But with these sanctions in place, Indian refiners now face a difficult choice: Comply with US sanctions and risk supply shortages, or continue buying Russian oil and risk secondary sanctions from the US. Supply chains and pricing will undoubtedly feel the strain. If Asian refiners, including those in India, scale back Russian oil imports, Russia will need to find new outlets for its oil, likely at even steeper discounts, or store it in floating reserves.
Amid these developments, India’s broader trade agenda continues to evolve on the diplomatic front. On October 24, India and the US began drafting the bilateral trade agreement (BTA) following a “broad convergence” among negotiators during recent talks in Washington. India’s Commerce Minister emphasised that New Delhi seeks a fair and equitable deal, underscoring its preference for long-term, mutually beneficial agreements over hasty decisions. A US delegation is expected to visit India to continue these discussions and finalise the terms of the contract. This trade deal could open new avenues for energy cooperation, particularly in natural gas and renewable energy, potentially offsetting reliance on Russian oil. However, as these talks progress, India’s challenge remains balancing its strategic interests with Russia while advancing its economic and energy security goals with the US and other global partners.
The sanctions on Russian oil also highlight a broader trend in global energy politics: The fragmentation of the oil market. The West still sets many of the rules, from price caps to sanctions lists. Still, countries like India, China, and others are pushing back by developing alternative financial systems and creating new payment channels. As the US doubles down on sanctions, Russia is pushing to decouple its energy trade from Western financial systems and has already been exploring alternative payment methods, including local currencies such as the Indian rupee and the Chinese yuan. India, as one of the largest consumers of Russian oil, has been slowly moving towards these alternative payment systems. If the US sanctions continue to tighten, India will likely expand its use of rupee-rouble and yuan-rouble transactions, further challenging the dominance of the US dollar in global trade.
This shift in financial systems could reduce the West’s influence over global energy markets and contribute to the rise of a multipolar energy order, where the US dollar is no longer the only game in town. The key question for India is how far it will go in resisting US pressure to secure affordable energy for its rapidly growing economy. Will it continue to import Russian oil, even as US sanctions mount, or will it gradually comply, risking higher energy costs and economic difficulties at home? Finally, the geoeconomic consequences of this decision will be far-reaching, not just for India but for the future of global energy trade. How India balances these competing interests will shape its future energy strategy and its role in the broader geopolitical landscape.
The writer is a fellow and lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at the Observer Research Foundation
