Trump's tariff: What Indian refiners stand to lose if Russian oil stops flowing

India Today

18 hours ago

When the fuel that powers your engine starts lighting fires under your feet, it's probably time to rethink your route. That's exactly the situation Indian oil refiners find themselves in.What began as a jackpot deal, as in cheap Russian crude flowing in after the Ukraine war, is now turning into a diplomatic bonfire. With the US turning up the heat through fresh tariffs and calling out India's continued oil trade with Moscow, the once-sweet deal is now sinking both margins and international relations.advertisementFor over two years, Indian refiners have been taking advantage of discounted Russian crude. But with the US tightening its stance, that door may soon begin to close.TRUMP'S TARIFF PUSH BRINGS UNCERTAINTYIn a move that could reshape trade ties, US President Donald Trump recently signed an executive order that slaps an extra 25% tariff on several Indian exports.
The decision, which raises duties on many products to 50%, came with a clear message: Washington is unhappy with India's continued purchases of Russian oil.This new tariff puts India in a tough spot. On one hand, stepping away from Russian barrels means higher energy costs. On the other, staying the course risks damaging trade ties with the US, India's biggest export market.WHAT'S AT STAKE?The numbers lay out the dilemma. According to Bloomberg, India saved around $3.8 billion in the past year by importing cheaper Russian crude. But during the same period, it exported goods worth $87 billion to the United States.'If you look at the size of India's trade with the US, and how much it saves from Russian oil, it's clear what India would do,' said Warren Patterson, head of commodities strategy at ING Singapore. 'Are you going to risk $87 billion in exports to save a few billion on oil?'For India's state-run oil refiners, moving away from Russia could eat into profits. An industry official told The Economic Times that going back to Middle Eastern crude would affect gross refining margins, a key measure of profitability.Estimates from PTI suggest that dropping Russian imports could push India's annual oil bill up by as much as $11 billion. And with Russia still supplying about 10% of the world's oil, any change in buying patterns could also impact global prices.HOW DID INDIA'S OIL MIX CHANGE?Before the Ukraine war, India sourced most of its oil from the Middle East. Iraq, Saudi Arabia, and the UAE were the top suppliers.In 2021, India bought 24% of its crude from Iraq, 16% from Saudi Arabia, 10% from the US, and only 2% from Russia, according to the National Bureau of Asian Research.But after sanctions isolated Russian oil from Western buyers, Moscow offered steep discounts. India took the opportunity. By mid-2024, Russia was supplying 41% of India's oil imports. In July 2024 alone, India imported over 2 million barrels per day from Russia, according to Reuters.advertisementThere were good reasons for the shift. Russian Urals crude was cheaper than the global benchmark Brent. With lower input costs, Indian refiners could increase fuel production and export it, even to Europe and the US.Petroleum product exports rose 3.4% by volume in FY25, touching 64.7 million tonnes. But weak international prices meant export earnings fell nearly 7% to $44.3 billion, data from the Petroleum Planning and Analysis Cell (PPAC) showed.IF INDIA HAS TO CHANGE COURSEIf pressure from the US forces India to scale back Russian oil imports, the country will likely return to its old energy partners — Middle Eastern producers and other global suppliers.IOC, the state-run refiner, has already begun adjusting. Reuters reported that IOC has booked 7 million barrels for September delivery from sources in West Asia, Brazil, Guyana, the US, and Canada. Most of these barrels come from North America.Middle East: Iraq remains a reliable option, with India having imported 49.9 million tonnes from it in FY24. Saudi Arabia and the UAE are also expected to play a larger role again.advertisementUnited States: US oil imports to India jumped over 50% in the first half of 2025. Lighter American crude blends are suitable for Indian refineries and could help replace Russian barrels.Americas: Brazil, Canada and Guyana are now on India's radar, offering supply diversification.Africa: Nigeria and Angola have long been oil partners to India. In FY22, India bought Rs 85,000 crore worth of crude from Nigeria alone.IT WON'T BE AS CHEAP, BUT IT'S DOABLERussia gave India affordable oil when prices were high globally. If that supply becomes too risky, India's oil companies will turn to alternative sources. But it will come at a price, both in terms of money and margins.'Russian crude oil was cheap for Indian refiners. If we have to go back to importing from the Middle East, the gross refining margin may go down,' an official told The Economic Times.Still, India is not without options. Its infrastructure and relationships with old suppliers are intact. The switch may not be easy or as profitable, but it could help India steer through rising global pressure, at least for now.United States: India's crude imports from the US jumped over 50% in the first half of 2025. US oil – especially lighter, sweeter grades – are well-suited for Indian refiners looking to produce high-quality fuels.The Americas: India is actively tapping Brazil, Guyana and Canada for crude. These countries help expand sourcing flexibility and reduce overdependence on any one region.West Africa: Nigeria and Angola remain reliable suppliers. The Indian Consulate in Lagos and the Directorate General of Commercial Intelligence & Statistics (DGCI&S) show strong trade links:In FY22, India's imports from Nigeria hit $10.29 billion, with $10.03 billion of that in crude oil.Nigeria was the fourth-largest supplier of crude oil and LNG to India in 2020.Angola's exports to India have also grown, dominated by crude oil, driving a steady trade deficit in India's books.So, where next?advertisementRussia gave India cheap oil and a chance to boost refining margins. If that door closes, India won't be stranded. It has the infrastructure and relationships to adapt, but it will come at a cost.In the end, India may be forced to turn back the clock. Its old oil partners -- Iraq, Saudi Arabia, the UAE, Nigeria, and even the US -- still have the capacity and willingness to supply. The logistics are familiar, the relationships are proven, and the geopolitical risks are lower.Returning to them won't be as profitable as Russian barrels, but it offers stability in an increasingly volatile global order. If tariffs tighten the screws, India's best option may lie in rediscovering the suppliers it once relied on.- Ends
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