Will US tariffs and shrinking discounts force India to abandon Russian crude?

New Indian Express

03-08-2025

In February 2021, India's crude oil import strategy underwent a significant shift as the country began substantially increasing imports from Russia. Within a few months, Russian Urals crude—which previously accounted for just 0.2% of India's total crude imports—emerged as a top supplier, surpassing Iraq and Saudi Arabia. Imports peaked at 2.15 million barrels per day (bpd) in May 2023 and have since fluctuated based on discounts and global market dynamics.
This diversification coincided with the Russia–Ukraine conflict and was not well-received by Western nations, which accused India of indirectly supporting Russia's war efforts by keeping its economy afloat. As Europe shunned Russian energy to weaken Moscow's finances, Russia redirected its supply toward Asia. China emerged as the top importer, buying nearly half of Russia's crude oil, followed by India, Turkey, and some European countries, including Hungary and Slovakia.
India's Petroleum Minister Hardeep Singh Puri has repeatedly asserted that India—the world's third-largest oil consumer—has diversified its sources from 27 to 40 countries and will continue to buy crude from any source offering the best deal. Indeed, Russia remained India's top crude supplier during the first half of 2025, with an average of 1.67 million bpd, marginally higher than the 1.66 million bpd during the same period last year.
However, the situation grew more complicated on July 30, 2025, when US President Donald Trump announced a 25% reciprocal tariff on Indian imports, along with additional penalties linked to purchases of Russian crude. This marked an escalation in Western efforts to pressure India to stop importing Russian oil, in hopes of further weakening Moscow's energy-dependent economy. This raises a pressing question: Will India continue importing Russian Urals, or will it be forced to return to its traditional suppliers?
Why India Needed Discounted Russian Crude
India is heavily reliant on crude oil, importing about 88% of its total consumption. With a daily consumption of 5.8 million barrels in 2024, India ranks third globally, behind the US (20.3 million bpd) and China (16.5 million bpd).
Importantly, India doesn't just buy crude for domestic use but also processes and exports it. With the world's fourth-largest refining capacity at 5.17 million bpd, India exported petroleum products worth $60.07 billion in FY 2024–25 (April 2024 to March 2025). Key export destinations include the Netherlands, UAE, Singapore, and Australia. This makes access to cheaper crude critical for both domestic consumption and maintaining refining profitability.
Both public sector companies—Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL), and Mangalore Refinery and Petrochemicals Ltd (MRPL)—and private players like Reliance Industries and Nayara Energy have been major importers of Russian crude. Notably, Indian refiners have primarily sourced Russian oil through the spot market.
According to the Commerce Ministry, India exported 4.86 million tonnes of petroleum products worth $4 billion to the US alone in FY 2024–25. Reliance Industries is the largest exporter of fuel to the US. As per GTRI data, India imported $50.3 billion worth of crude oil from Russia in FY2025—over one-third of its total crude bill of $143.1 billion. Exports to the EU dropped from $19.2 billion in FY2024 to $15 billion in FY2025, a 27.1% decline.
The oil and gas sector is also a major contributor to government revenues. In FY 2024–25, it contributed ₹415,181 crore to the Central exchequer (down from ₹432,394 crore the previous year) through various taxes and duties. Contributions to the State exchequers rose to ₹325,583 crore (up from ₹318,762 crore), via VAT, royalties, and other levies.
Can India Drop Russian Crude?
While Russian crude has dominated India's oil basket over the past two years, this trend is drawing increasing scrutiny from Western governments. Recently, the European Union imposed fresh sanctions, including direct measures against Nayara Energy (formerly Essar Oil Ltd.), in which Russia's Rosneft holds a stake. Additionally, the EU has revised the G7-imposed price cap, reducing it from $60 per barrel to a dynamic cap set at 15% below the average market price of Urals crude (currently estimated at $47.60/bbl). These steps have made importing Russian crude more complex for India.
Despite the pressure, experts believe that India can diversify its crude oil sources without much disruption. According to Prashant Vasisht, Senior VP and Co-Group Head, Corporate Ratings at ICRA, India has multiple alternatives and, until FY2023, sourced less than 2% of its crude from Russia.
However, he warned that since Russian crude accounts for 7% of global supply, its exclusion from the market would push up global oil prices, affecting not just India but the broader energy market.
'If the discounts are removed, India's crude import bill would rise by less than 2%,' said Vasisht.
Moreover, the discount on Russian crude has already shrunk. According to the Ministry of Commerce, Russian oil earlier came at a $10–16/bbl discount. At one point, the discount went as high as $30/bbl. Now, it has fallen to just $2.5–4/bbl, reducing the attractiveness of Russian crude. This explains why Indian refiners are open to increasing imports from Iraq, UAE, and Saudi Arabia—which together already supply 45–50% of India's oil—and even from the US, following a bilateral energy trade agreement signed in February 2025.
As per S&P Global Commodity Insights, India imported 271,000 bpd of crude from the US between January and June 2025—a 51% increase from a year earlier.
What Lies Ahead?
While a complete exit from Russian crude is unlikely in the immediate term, a reduction in imports appears feasible. A senior official from the Petroleum Ministry clarified that Russian crude is not yet under formal sanctions, unlike oil from Iran and Venezuela, which Indian refiners avoid.
Meanwhile, state-owned oil companies say they are awaiting the outcome of ongoing trade talks with the US, which may lead to reduced tariffs. Refiners are confident they have adequate supply options and are prepared to diversify further if directed by the government.
For now, refiners remain in a 'wait and watch' mode, hoping for a diplomatic breakthrough that could lower trade tensions—and avoid significant disruption to India's energy security and refining economics.