India can wean off Russian oil without heavy costs

Mint

2 days ago

India is caught between a rock and a hard place, navigating fresh US tariffs of up to 50% while maintaining long-standing ties with Russia. At the heart of the dilemma: India's oil purchases from Moscow.
With the higher tariff posing a significant disadvantage, many experts suggest New Delhi could gradually pivot away from Russian oil. Such a shift would come at limited macroeconomic cost, though refiners could face reduced diesel yields, tighter margins, and higher procurement expenses.
India imported crude oil worth $143 billion in FY25, of which $50.2 billion came from Russia.
The switch may not be prohibitive.
Historically, India wasn't a major importer of Russian crude. Before Russia's 2022 invasion of Ukraine, it made up just 1.5% of India's oil imports, with Iraq (21.6%) and Saudi Arabia (18.6%) as the top suppliers. But as sanctions drove Moscow to offer steep discounts, India ramped up purchases—reducing its reliance on these West Asian sources to help stabilise global crude prices.
According to Nomura, the immediate impact of a shift away from Russia would be the loss of discounts, now about $2 per barrel, costing roughly $1.5 billion annually. The bigger risk would be a rise in global crude prices triggered by India's redirected demand. Every $1 increase in crude could add another $1.8 billion to India's import bill.
The State Bank of India (SBI) estimates India's fuel import bill will rise by $9-12 billion if India stops oil imports from Russia.
India can go back to its traditional oil import partners, with increased energy purchases from the US also on the cards.
'India may shift to the traditional Middle-Eastern (West Asian) producers under annual deals with the flexibility to request more supply every month," the SBI said in a report.
However, Russian crude is well-suited for India's refinery infrastructure. According to global real-time data and analytics provider Kpler, a reversal will result in a mild yield shift and a small reduction in primary throughput rates, among others, the Press Trust of India reported.
However, economists feel India is in a position to re-evaluate its reliance on Russian oil as discounts are not as attractive a proposition as they were two years ago, at around $12 per barrel.
Since Indian oil refiners are purchasing Russian oil using the UAE dirham, a shift to oil from West Asia and the US, among others, and thereby dollars, could put some pressure on the Indian rupee, but its impact is also expected to be minimal, and the Reserve Bank of India (RBI) will be ready to cushion any volatility.
'The rupee looks oversold technically, (and) the impact on India's oil import bill may not be significant," Barclays said in a report. 'There is still scope for a trade deal, given the time gap to actual implementation of higher tariff rates, and last but not least, we would expect the RBI to cap rupee weakness."
For Russia, losing the Indian market would mean some lost revenue, but with China as its top buyer and currently facing no penalties, Moscow's export flows may not be under severe strain.