Russia is already working to circumvent the latest US sanctions to ensure India can continue to import high levels of cheap Russian crude oil, according to industry analysts.
Since the outbreak of the Ukraine war, India has become the world’s second largest purchaser of Russian crude oil, which has been heavily discounted due to the impact of western sanctions.
US-India relations have plummeted in recent months as Donald Trump has attempted to coerce India into halting its reliance on cheap Russian oil, accusing it of bankrolling Vladimir Putin’s war in Ukraine.
In August, Trump hit India with an punitive 25% tariff on imports into the US over their purchase of Russian crude. However, India refused to back down, maintaining that its purchase of Russian oil was a sovereign issue and that India’s energy policies would not be dictated by third countries. Trade negotiations between the two countries have since failed to reach any agreements.
Last week, the Trump administration once again upped the ante on India with threats to impose 500% tariffs and withdraw from several India-led global initiatives over ongoing Russian oil purchases.
It came as questions have been raised over the effectiveness of the latest US sanctions intended to disrupt the flow of cheap Russian oil to India. From the end of November, US sanctions were brought in to target any companies or refineries that purchased oil from Rosneft and Lukoil, Russia’s two largest oil exporters and the biggest sellers of oil to India.
Figures showed it has had an initial impact, with India’s imports of Russian oil dropping from an average of 1.7m barrels of Russian oil a day, mostly bought from Rosneft and Lukoil, to roughly 1.2m barrels a day in December – a decrease of around a third.
However, industry experts have cast doubts that these sanctions marked the end of India’s dependence on cheap Russian crude in the long term. Even after the sanctions, four out of India’s seven biggest oil refineries are still primarily running on Russian oil.
There are already indicators that Russia has begun reorganising its supply chain to allow countries such as India to circumvent the US sanctions. In a notable loophole, as long as the crude oil is supplied by a company which is not Rosneft or Lukoil, then the refinery is not subject to US sanctions.
Export data shows several new Russian oil exporters had emerged by December, likely intended to act as shadow middlemen between the Russian oil giants and refineries in countries such as India.
“It looks like the new players are emerging, which is a sign that Russia is already trying to reorganise the supply chain,” said Homayoun Falakshahi, the head crude oil analyst at Kpler. “Obviously the Russians are not going to sit and just watch the sanctions take effect, they will try to bypass them as much as they can.”
Falakshahi said these new companies were already beginning to dominate exports and it was likely just a matter of “two or three months until the full supply chain gets reorganised and most of the barrels then get supplied by companies which are not Rosneft or Lukoil”.
So far, the Indian government has issued no direct mandate to state or private refineries on Russian oil, only encouraging them to act in the best interests of their operations. During a visit to India in December, the Russian president, Vladimir Putin, vowed shipments of Russian oil to India would remain “uninterrupted”, in defiance of the US.
The low price of Russian oil is hard for countries such as India, which imports 90% of its oil, to turn away from. After the US sanctions, the discounts on Russian crude have dropped even further, making them $9 or $10 per barrel cheaper than oil from countries such as Saudi Arabia or Iraq, presenting a significant bargain for India’s refineries.
“For the companies that are still willing, buying Russian oil is a risk worth taking because it would represent savings of almost $4bn over a year,” said Falakshahi. “We expect that imports, at least by India’s public sector, will soon return to the levels seen previously.”
He was echoed by June Goh, a senior oil market analyst for Sparta Commodities. “The discount is just too attractive for the Indian refiners not to buy the oil,” she said.
Goh said this expectation had also been reflected in the response from the global oil market. “Initially, when things blew up, we saw oil prices rising quite significantly,” she said. “However, we have now seen prices falling off. The market just doesn’t believe that this sanctions enforcement will likely take place in a big way.”
One exception has been Reliance, India’s biggest private oil company and previously the largest buyer of Russian oil. Since November, the conglomerate publicly declared it would no longer import Russian crude into its Jamnagar refinery and had an “impeccable record” of abiding by sanctions and January marked the first month of no Russian crude imports.
It appears this is in response to the US sanctions but also EU sanctions preventing Russian-origin oil processed in a third country being allowed into the bloc. The EU is one of Reliance’s largest export markets for diesel and jet fuel and therefore violating the sanctions could present a heavy risk to their business.
But as Reliance seeks an alternative to Russian crude, analysts said Trump’s recent actions in Venezuela and the US capture of Nicolás Maduro could present a well-timed opportunity for the conglomerate.
According to reports, Reliance is among the companies in talks with the US for authorisation to resume purchases of Venezuelan oil, which India had previously exported before sanctions were brought in. In a statement, a Reliance spokesperson said they would “consider buying the oil in a compliant manner”.
