As Russian oil discount narrows, economists think India can afford import diversification

Indian Express

14 hours ago

With US President Donald Trump doubling the tariff on Indian goods to 50 per cent, economists think India can afford to reduce its purchase of Russian oil due to the narrowing of the discount on offer and diversify its sourcing.
From around 2 per cent prior to the invasion of Ukraine in February 2022, the share of Russian oil in India's oil imports has increased sharply to 35-40 per cent, with Indian refiners lapping up discounted Russian oil that was shunned by developed nations. However, the tariff war instigated by Donald Trump – initially with a focus on addressing the US' trade deficit with other nations – has seen the imposition of so-called secondary tariffs on India for its purchase of Russian energy and defence equipment. On July 30, Trump threatened a 25 per cent on India and an additional unspecified 'penalty' for its Russian trade. On Wednesday, the penalty was revealed to be a further 25 per cent tariff on Indian goods that will come into effect on August 27.
According to Barclays economists led by Aastha Gudwani, the purchase of discounted Russian oil helped lower India's oil import bill by around $7 billion-10 billion in 2024 to $186 billion.
'As of now, the discount on oil imports from Russia having narrowed to around $3-8/barrel lower than Middle eastern grade. Media reports suggest that Indian refiners would be pushed to pivot towards traditional West Asian suppliers and new players such as Brazil to make up for lost Russian supplies, with price increases around $4-5/barrel. With global oil prices in 2025 so far settling around $9/barrel lower than 2024, such a diversification of oil supply sources is unlikely to hurt India's oil import bill,' they added.
Meanwhile, Nomura economists Sonal Varma and Aurodeep Nandi estimate the implied discount on Russian crude oil for Indian refiners declined to around $2.2 per barrel in 2024-25 from over $12 per barrel in 2022-23. As such, if India chooses to reduce its purchase of Russian oil, India's annual import bill may only rise by around $1.5 billion, they calculated.
Morgan Stanley economists were in agreement, estimating that the discount India got on Russian crude oil in 2024-25 was only $2-3 per barrel.
To be sure, Indian refining companies began cutting their purchase of Russian oil even prior to Trump's threat of a 'penalty'. In July, India's crude imports from Russia averaged 1.6 million barrels per day, as per data from Kpler, a global trade data and analytics firm, down 24 per cent from June.
However, a move by India to procure more oil from countries other than Russia could push up prices globally, which would raise the import bill. While difficult to estimate, Nomura economists think that given India imported 1.8 billion barrels of oil in 2024-25, India's annual import bill could rise by around $1.8 billion for every $1 increase in global crude prices.
'Domestically, the government will likely keep pump prices constant, which means there is likely to be minimal inflation and growth impact from any shift in oil procurement. This also means that the ultimate cost of any transition will most likely have to be borne by public sector oil marketing companies, and eventually by the government if it needs to compensate them for these under-recoveries at a later stage,' Nomura said, adding that it did not see a 'major upside risk' to the Indian government's fiscal deficit target of 4.4 per cent of GDP for the current fiscal.
Meanwhile, reduced demand for Russian oil from Indian refiners, especially state-run ones, is already beginning to reflect in prices, with Homayoun Falakshahi, head of crude oil analysis at Kpler, pointing out on Wednesday that private refiners were 'still scooping barrels, but at a lower pace. Four Aframaxes are currently waiting to discharge at Jamnagar and Vadinar'. An aframax is a type of oil tanker.
According to Falakshahi, India's negotiations with the US could lead to New Delhi agreeing to raise its oil and gas purchases. The energy trade between the two countries is worth around $7.5 billion a year.
'This has already started to be the case, with the country's imports of US crude on the rise lately to an average of 225 kbd (thousand barrels per day) since May, nearly twice as much the levels from early 2025. Indian refiners could realistically increase their intake of US crude by another 100 kbd to previous highs of ~300 kbd in 2021,' Falakshahi said. However, he added he was sceptical that India will be able to completely stop the import of Russian oil.
Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy.
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