India's Russian Oil Trade: Understanding the Options Amid Diplomatic Tensions

US President Donald Trump has claimed that Prime Minister Narendra Modi intends to stop buying Russian oil. This issue is central to a diplomatic and trade dispute between the two nations. Indian oil companies, major buyers of Russian oil, are waiting for government guidance on this matter. Currently, Russian oil accounts for over a third of India's crude oil processing, making an immediate halt challenging.

India is a significant player in the global oil market as the third-largest importer and consumer. It imports 87% of its approximately 5.5 million barrels per day consumption. Russia, a leading crude oil producer and exporter, has become a key supplier to India due to discounted prices following Western sanctions on Moscow.

Russian Oil Trade Dynamics

Traditionally, India sourced two-thirds of its crude from Middle Eastern countries like Iraq and Saudi Arabia. However, after the Ukraine invasion in February 2022, India turned to discounted Russian oil. Russia's share of India's total oil imports rose from 1.7% in FY20 to 40% in 2023-24, making it India's largest supplier.

In September, India's crude imports were about 4.7 million barrels per day, with Russian crude accounting for 1.6 million bpd or 34%. This was slightly below the average Russian imports during the first eight months of 2025. In early October, Russian supplies increased to 1.77 million bpd.

Challenges in Stopping Russian Oil Imports

Halting Russian oil supplies immediately is impractical as contracts are made weeks in advance. Deliveries until November are already contracted. If Trump's claim holds true, Indian refiners might stop contracting new deliveries from Russia by late November. Current import levels of 1.6-1.8 million bpd seem feasible for the near future.

Kpler data suggests Trump's statement about India cutting Russian oil imports may be political posturing without official confirmation from New Delhi. Indian imports of Russian crude remain strong at 1.8 million bpd in October, up by approximately 250,000 bpd from September.

Economic Implications of Russian Oil

Russian crude is crucial for India, making up about 34% of total imports and offering significant discounts. Even with reduced discounts compared to 2023, Russian barrels remain cost-effective for Indian refiners due to high gross product worth margins from grades like Urals.

If India stops importing Russian oil, it would need to rely on limited alternatives, potentially driving global crude prices up to USD 100 per barrel amid rising demand and tight supply. Analysts warn that removing Russia as a supplier could lead to higher prices and inflation globally.

Potential Alternatives and Challenges

Replacing Russian crude would require sourcing from multiple regions. The Middle East remains the most viable option operationally, while US grades like WTI Midland could contribute up to 400,000 bpd despite being lighter and yielding less diesel.

West African and Latin American crudes offer moderate potential as substitutes. A balanced strategy may involve sourcing 60-70% from the Middle East with US and African/LatAm crudes as tactical fillers.

US Imports and Expert Insights

Kpler indicates that while India can increase US imports, logistical and economic challenges limit this to around 400,000-500,000 bpd. Indian refiners continue diversifying their sources but face compatibility issues with US grades.

Prashant Vasisht from Icra Ltd stated that domestic refiners will choose crude based on economics and availability. Although Russian crude volumes remain high, decreasing discounts make Middle Eastern crudes attractive due to proximity.

If Russian oil becomes inaccessible, India could face an additional USD 3-5 billion in annual import costs based on a USD 5 per barrel premium on current import levels. This financial burden could rise if global prices increase further without sufficient buying interest from India.

With inputs from PTI