US sanctions on Russia impact India’s oil imports as discounts shrink

India’s crude oil imports from Russia are facing significant disruptions following the sweeping sanctions imposed by the United States on January 10 targeting the Russian energy sector. Bharat Petroleum Corporation Ltd (BPCL) has reported difficulty in securing Russian oil cargoes for March, with imports expected to drop to 20% of BPCL’s overall crude mix, down from 31% in the October-December quarter.

The sanctions include restrictions on Russian oil producers Gazprom Neft and Surgutneftegas, blacklisting 183 vessels involved in Russian energy exports, and targeting oil traders, service providers, and tanker operators. BPCL Director (Finance) Vetsa Ramakrishna Gupta confirmed that Russian oil had been booked for January and February, but sufficient cargoes for March remain unavailable.

Russian oil, which accounted for 34-35% of BPCL’s crude basket at the start of FY24, has been critical to India’s energy needs due to its discounted prices. However, discounts have shrunk from $8.5 per barrel in FY23 to just $3-$3.2 currently. Gupta noted that BPCL would turn to Middle Eastern oil to replace Russian volumes.

India, the second-largest buyer of Russian crude since the Ukraine conflict, imported 1.7 million barrels per day in 2024, making Russia its top supplier. The rise was fueled by discounts as Western nations shunned Russian oil following a $60-per-barrel price cap imposed by the G7, EU, and Australia in 2022.

The latest sanctions target Russia's "shadow fleet" of tankers used to bypass the price cap. India has decided to halt deliveries by sanctioned vessels, with exceptions for oil cargoes booked before January 10 and unloaded by March 12. The sanctions have temporarily pushed global oil prices to $83-84 per barrel, though Gupta expects prices to stabilize at $75-80.

These restrictions are part of broader efforts by Western nations to limit Russia’s revenues for its war in Ukraine. While Russia has managed to reduce revenue losses from 23% to 9% monthly by expanding its shadow fleet and new markets, the sanctions are expected to create near-term disruptions for Indian refiners reliant on discounted Russian crude.