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Russian President Vladimir Putin (R) speaks with Indian Prime Minister Narendra Modi (L) during a visit to the Zvezda shipyard, with Igor Sechin (C) head of Russian oil giant Rosneft outside the eastern Russian port of Vladivostok. On the 4th of 2019, before the start of the Eastern Economic Forum organized by Russia.
Alexander Nemenov Afp | Getty Images
India’s days of buying cheap Russian oil may be over.
Sharp US sanctions against Russian energy companies and ship operators of oil-carrying vessels will complicate India’s efforts to continue importing cheap Russian crude and could increase inflation in Asia’s third-largest economy, analysts said.
The country could be in for a potential oil shock, said Bob McNally, president of Rapidan Energy Group.
“India will be more affected by the sanctions than China, because India imports a much larger amount of its oil from Russia than China,” he told CNBC.
last friday The US Treasury announced sanctions against two Russian oil producersAlong with 183 vessels carrying barrels of Russian crude. Today, there are still ships sanctioned by the US permission to unload crude oil until March 12.
South Asian nation it imported a significant 88% of its oil needs Between April and November 2024, little changed from a year earlier, according to government data. About 40% of those imports came from Russia, data from trade intelligence firm Kpler showed.
Of the 183 ships sanctioned, 75 of them have transported Russian oil to India in the past, according to data provided by Kpler. Last year alone, the 183 sanctioned ships transported 687 million barrels of crude, of which 30% was sent to India.
“Most of these barrels went to refineries in India, so the impact is likely to be there,” BNP Paribas senior commodities strategist Aldo Spanier said in a research note after the sanctions.
The new US sanctions were deeper and more extensive than markets had anticipated, and the disruptions are expected to increase, Spanier added.
India’s Ministry of Petroleum and Natural Gas did not respond to CNBC’s request for comment.
Oil prices between years
Punishments also come at a time India has a tendency to overtake China As the world’s leading oil consumer in 2025, it accounted for 25% of the growth in total oil consumption.
Growing demand for transportation fuels and home cooking fuels will drive this growth to 330,000 barrels per day this year – the most of any country, the US predicts. It was shown by the Energy Information Administration.
India consumed 5.3 million barrels per day in 2023, the latest EIA data showed. This consumption is expected to increase by 220,000 barrels per day last year.
India was not always dependent on Russian oil.
As recently as 2021, Russian oil accounted for just 12% of India’s oil imports by volume. By 2024, that share had risen to 37.6 percent, Kpler senior oil analyst Muyu Xu told CNBC.
The catalyst for the increase in oil imports was the war in Ukraine, which led some Western countries to impose sanctions against Russia and reduce their purchases of Russian crude. As Russian oil prices fell, India was able to cheaply source supplies from unsanctioned companies.
According to S&P Global latest published data last november In 2024, Russian Urals were $4 per barrel cheaper than Iraqi oil, one of them. India’s main sources of crude oil importsKpler’s data showed.
“If India were to fully comply with the US sanctions, we could see a sharp drop in Russian crude inflows in February and potentially March,” Xu added.
Supply disruptions in India could be as high as 500,000 barrels per day, Rystad Energy senior analyst Viktor Kurilov shared via email.
No more cheap alternatives?
Even if the impact eases as affected importers turn to alternative suppliers in the Middle East, some industry observers say relief could still take weeks or months to materialize.
However, the price of oil from these alternative sources will not be so cheap. Global benchmark Brent crude recently hit a five-month high of around $80 a barrel after the sanctions were announced following a year of oversupply and weak demand.
Crude prices in the Middle East, among alternatives to India, also rose this week, data from Kpler suggested.
“Depending on how quickly Russia solves its logistical challenges and how India and China continue to cooperate with sanctions, oil prices could rise in a few weeks,” Kpler’s Xu said.
Also, as Donald Trump’s inauguration approaches, the world’s supply of cheap Iranian crude is also at risk of tougher sanctions. Iran they made up 4% of the world’s oil production in 2023, according to the EIA report released last year.
“It’s also a double whammy for the major importer (India), as Iran will likely face new sanctions pressures with the incoming Trump administration,” Helima Croft, head of global commodities strategy at RBC Capital Markets, told CNBC.
If the new sanctions are accompanied by a cut in Iranian crude, Brent prices could rise further to $90 a barrel, Goldman Sachs wrote in a note published after the sanctions were announced.
India’s economy is a pain point
India’s economy is “significantly vulnerable” to fluctuations in oil prices, A research paper published in 2023 was established. Domestic retail prices of petrol and diesel rise “like rockets” in response to the rise in crude oil prices, Abdhut Deheri, assistant professor of economics at Vellore Institute of Technology and M. Ramachandran of Pondicherry University’s economics department, said in the research paper.
An analysis by the Reserve Bank of India in 2019 found that oil prices rose by $10 per barrel. it can lead to a 0.4% increase in general inflation.
“Higher oil prices, if passed on to consumers, could further damage their purchasing power at a time when incomes and GDP growth have slowed,” Dhiraj Nim, ANZ economist.
However, weak consumer demand may prevent producers from passing on the burden of costs to consumers, which means lower corporate profits, Nim added. Even if the government chooses to bear the additional costs, it would strain its finances.
Not only will China and India have to pay more for the oil they consume, they will also have to pay more to deliver it to their shores because tanker rates have also risen, said Andy Lipow, president of energy consultancy Lipow Oil Associates.
Combined with a stronger US dollar and a weaker rupee, the impact on India’s economy will increase, Lipow said.
As a result, the Indian rupee has fallen to record lows recently pressure from a strong green card and selling by foreign portfolio investors.
The country is no stranger to protests over high fuel prices. in 2018, widespread protests across the country against record gasoline and diesel prices caused businesses and schools to close in several regions.
