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Russian President Vladimir Putin (R) speaks with Indian Prime Minister Narendra Modi (L) during a visit to the Zvezda shipyard, as the head of Russian oil giant Rosneft Igor Sechin (C) accompanies them, outside of the Russian port of Vladivostok in the far east of September. 4, 2019, before the start of the Eastern Economic Forum hosted by Russia.
Alexander Nemenov Afp | Getty Images
India’s days of buying cheap Russian oil could be over.
Expanded U.S. sanctions against Russian energy companies and oil tanker operators will complicate India’s efforts to continue importing cheap Russian crude and could push up inflation in the country’s third-largest economy. Asia, analysts said.
The country could see a potential oil shock, said Bob McNally, president of Rapidan Energy Group.
“India will be more affected than China by the sanctions, as India imports a much larger amount of its oil from Russia than China,” he told CNBC.
Last Friday, the The US Treasury has announced sanctions on two Russian oil producersalong with 183 vessels that are mainly oil tankers that shipped barrels of Russian crude. Currently, the tankers sanctioned by the United States are still allowed to unload crude oil until March 12.
The 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 these imports come from Russia, data from trade intelligence firm Kpler showed.
Out of the 183 tankers 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 tankers transported around 687 million barrels of crude, of which 30% were shipped to India.
“Most of these barrels went to Indian refiners and so the impact will probably be bigger there,” BNP Paribas senior commodities strategist Aldo Spanier said in a research note following the sanctions. .
The new US sanctions were deeper and broader than markets expected, and the disruptions are expected to intensify, Spanier added.
India’s Ministry of Petroleum and Natural Gas did not respond to a request for comment from CNBC.
Oil prices year on year
The sanctions also come at a time when India is poised to overtake China as the world’s leading oil consumer in 2025, accounting for 25% of the growth in total oil consumption in the world.
Increased demand for transportation fuels and home cooking fuels is expected to drive this growth by 330,000 barrels per day this year – the most of any country, forecasts from the United States. The Energy Information Administration showed.
India will consume 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 so dependent on Russian oil.
Until 2021, Russian oil was only 12% of India’s oil imports by volume. By 2024, that share had grown to 37.6%, Muyu Xu, senior oil analyst at Kpler told CNBC.
The catalyst for the increased oil imports was the war in Ukraine, which prompted some Western countries to impose sanctions against Russia and limit their purchases of Russian crude. As Russian oil prices fell, India was able to pick up cheap supplies from companies that were not sanctioned.
The discount of Russia’s Urals crude to the global benchmark Brent has averaged about $12 per barrel from last August to October, according to S&P Global. the latest published data last november In 2024, Russia’s Urals was still cheaper by $4 per barrel compared to oil from Iraq, one of India’s main sources of crude oil importsdata from Kpler demonstrated.
“If India were to fully comply with US sanctions, we could see a sharp drop in Russian crude oil arrivals in February and potentially in March,” Xu added.
Supply disruptions to India could be as high as 500,000 barrels per day, Rystad Energy senior analyst Viktor Kurilov shared via email.
Are there no more cheap alternatives?
While the impact may eventually be mitigated as affected importers scramble to source alternative suppliers in the Middle East, some industry observers say relief may still take weeks to months to materialize.
Even then, the price of oil from these alternative sources will not be that cheap. World benchmark Brent crude recently advanced to a five-month high of around $80 a barrel after the sanctions were announced, after a year of languishing from oversupply and weak demand.
Middle Eastern crude prices, which are among India’s alternatives, also rose this week, data provided by Kpler suggested.
“Depending on how quickly Russia resolves its logistical challenges and how cooperative India and China remain with the sanctions, oil prices could spike for a few weeks,” Kpler’s Xu said.
Also, as Donald Trump’s inauguration approaches, the world’s supply of cheap Iranian crude is also facing the risk of tighter sanctions. Iran constituted 4% of world oil production in 2023, according to an EIA report published last year.
“Is it [also] a bit of a double whammy for the key importer [India] as Iran is likely to face new sanctions pressure with the incoming Trump administration,” Helima Croft, global head of commodities strategy at RBC Capital Markets, told CNBC.
If the new sanctions are accompanied by a potential curb on Iranian crude, Brent prices could rise even higher to $90 per barrel, Goldman Sachs wrote in a note published after the sanctions were announced.
A pain point of the Indian economy
The Indian economy is “significantly vulnerable” to fluctuations in oil prices, a research paper published in 2023 established. Domestic sales prices of gasoline and diesel are increasing “like rockets” in response to the increase in crude oil prices, Abdhut Deheri, assistant professor of economics at the Vellore Institute of Technology and M. Ramachandran from the economics department of Pondicherry University said in the research paper.
Analysis by the Reserve Bank of India in 2019 found that every $10 per barrel increase in oil prices. It could lead to an increase of 0.4% in general inflation.
“High oil prices, if passed on to consumers, could also damage their purchasing power at a time when income and GDP growth are slowing,” Dhiraj Nim, an economist at ANZ.
However, weak consumer demand could dissuade manufacturers from passing on the burden of costs to consumers, meaning it could lower companies’ profits instead, Nim added. Even if the government decides to assume the additional costs, it will tighten its finances.
Not only will China and India have to pay more for the oil they consume, they will have to pay more for it to be delivered to their shores because oil tanker rates have also increased, said Andy Lipow, president of the consultancy. energy Lipow Oil Associates.
Combined with a stronger US dollar and a weaker rupee, the impact on the Indian economy will be magnified, Lipow said.
The Indian rupee has recently fallen to a record low due to pressure from a strong greenback 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 led to the closure of businesses and schools in many regions.
