It is no mystery that India’s oil trade has undergone a major shift since Russia’s invasion of Ukraine in 2022. Once heavily reliant on the Middle East for crude oil, India turned to Russia as a key supplier after Moscow began offering steep discounts. In just a short span, Russian oil went from making up less than 1 per cent of India’s imports to around 40 per cent, helping the country save billions in energy costs. However, in the wake of the fresh sanctions imposed by the United States targeting Russia’s oil trade a month ago, the situation may again be on a changing course.
Western sanctions on Russia were meant to cut its energy revenues and limit its ability to fund the war in Ukraine. But the sanctions also reshaped global oil markets, creating opportunities for buyers like India and China to secure cheaper crude. For India, which imports over 85 per cent of its crude oil needs, this was a deal too good to pass up. Even as the West shunned Russian oil, India continued to purchase large quantities, refining it into fuels like petrol and diesel, some of which ironically ended up being exported back to European markets. However, the discounts on Russian crude have gradually shrunk. While Indian refiners once secured Russian oil at prices USD 18-20 lower per barrel than other sources, the gap has narrowed to less than USD 3. Meanwhile, the United States introduced fresh sanctions on 183 tankers last month, which make up Russia’s so-called “shadow fleet.” These aging vessels have played a crucial role in moving Russian oil to buyers like India and China, bypassing Western restrictions. With many of these ships now blacklisted, transporting Russian oil will become more expensive. This could considerably raise the costs for buyers and potentially make West Asian crude a more attractive option.
India has so far managed to avoid direct involvement in the price cap imposed by the G7 and European Union, which restricts the use of Western insurance and shipping services for Russian oil sold above USD 60 per barrel. Indian refiners buy Russian crude on a ‘delivered basis’, meaning suppliers are responsible for transportation. But with fewer tankers available, freight costs are bound to rise, eating into whatever discounts Russia can offer. This is already pushing Indian refiners to reconsider their options. In recent months, India has increased imports from Iraq, Saudi Arabia, and the UAE, traditional suppliers that had taken a backseat after Russia’s emergence as the dominant seller. With the cost advantage of Russian oil shrinking, this trend is expected to continue. There’s also a possibility that Russia may be forced to offer deeper discounts to retain its market share, but how much it can afford to do so remains uncertain!
Evidently, India’s energy strategy remains pragmatic. The country has consistently defended its decision to buy Russian oil, arguing that as a developing economy, it must prioritise affordability and energy security over geopolitics. Although Western nations have criticised India for continuing to trade with Russia, they have also indirectly benefited from it—refined fuel made from Russian crude has been exported to Europe and other G7 nations. As new sanctions take effect in March, India will have to navigate a changing oil landscape. While Russian oil will still be available, its cost-effectiveness is no longer guaranteed. If freight rates rise sharply and supply chains become more complicated, India may pivot further back to West Asian suppliers. At the same time, the situation remains fluid—if Russia finds ways to bypass the latest restrictions, discounts could return, keeping it in the game.
India’s ability to adapt will determine how well it manages the anticipated changes. For now, its energy policy remains driven by economics rather than political pressure.