Crude Choices

To buy or not to buy: that is India’s question. For nearly three years, India has reaped the benefits of cheap Russian crude. When Western buyers shunned Moscow’s barrels after its 2022 invasion of Ukraine, India stepped in, securing discounts of up to $20 a barrel and cushioning itself against the global energy shock.

However, those days are now ending following sanctions imposed by United States President Donald Trump on Rosneft and Lukoil - Russia’s two largest oil companies. Trump has accused them of funding President Vladimir Putin’s “war machine.” Washington has decreed that transactions with these firms must cease by November 21. For India, which imports some 2 million barrels of Russian oil a day, mostly from Rosneft and Lukoil, the clock is ticking.

Two problems now loom. First, paying sanctioned firms will become nearly impossible. Second, Indian companies that continue to buy Russian crude could themselves face ‘secondary sanctions’ that can isolate firms from the global financial system. For New Delhi, which has long prided itself on strategic autonomy, the sanctions threaten both energy security and diplomatic balance.

The private sector is already recalibrating. Reliance Industries, India’s largest refiner and one of the biggest importers of Russian oil, is reportedly preparing to scale back its purchases. Reliance has extensive exposure to the American market, and its executives are in no mood to tempt fate. The firm had signed a 25-year deal with Rosneft to buy up to 500,000 barrels a day, but now that arrangement looks untenable. By contrast, India’s state-owned refiners, who buy via intermediaries, may find temporary workarounds.

The politics are as combustible as the oil. Trump has already doubled tariffs on Indian exports to 50 percent, half of it punitive for buying Russian crude. The hypocrisy is obvious: Washington has largely spared China, Russia’s biggest oil buyer, from similar scrutiny but has gone after India.

For India, the sanctions are a rude reminder of how its energy dependence constrains its foreign policy. Over 85 percent of India’s crude is imported. When the Ukraine war began, Russian oil accounted for less than 2 percent of India’s imports; now it exceeds 40 percent. The discounts have narrowed, but the geopolitical costs are rising. Indian refiners must now weigh the risk of cheap oil against the peril of being cut off from Western markets. This moment also tests India’s diplomatic dexterity. Officially, New Delhi opposes unilateral sanctions and insists on acting in its national interest. Yet it has quietly avoided dealings with sanctioned countries before, such as Iran. However, finding alternative suppliers is not easy.

Some see a silver lining. The sanctions could accelerate India’s long-delayed energy diversification, away from Russia and toward the Middle East, Africa and Latin America. Others fear that reduced access to discounted crude will strain India’s already high fuel prices. Either way, the fallout from Washington’s latest move will be profound.