India’s US oil pledge may not inflate import bill if OMCs broker reasonable prices

US President Donald Trump with Prime Minister Narendra Modi

India's decision to purchase more crude oil from the US may not lead to an increase in the country’s import bill as the oil marketing companies (OMCs) are expected to negotiate a reasonable price band for such buys, a senior government official said.

"Most of the oil is naturally linked to Brent crude prices, it is only transportation which may be more expensive. When we imported more oil from the US last time around it did not cost us much more, maybe because they were giving us slightly discounted oil, and freight costs were lower. The OMCs should be able to negotiate prices," the official said.

There are concerns that the decision to purchase more from the US could increase the cost of inbound shipments given that freight charges are lower on crude oil imports from the Middle East while Moscow offers a better bargain.

After a meeting between Prime Minister Narendra Modi and US President Donald Trump on February 13, both nations committed to increasing energy trade and establishing the US as a leading supplier of crude oil, petroleum products and liquefied natural gas to India.

So far in 2025, the benchmark Brent crude price has been hovering around $75 per barrel on account of muted global demand, after rising to $82 per barrel in January, significantly lower than the highs of $91 a barrel witnessed last year.

Freight costs a worry

"If you look at freight costs for transporting crude oil from the US to India, it is much higher than getting oil from the Middle East because of all the problems in terms of major shipping routes, etc," an analyst said on the condition of anonymity.

Whether India purchases more crude oil from the US or the Middle East is a function of pricing, the analyst said, adding, "it is very difficult to say if one will be advantageous over another. If we can figure out a pricing formula that is advantageous, we can secure LNG supplies (from the US) under a trade agreement over a long duration, which should be a positive (for India)."

Prashant Vasisht, VP & Co-Head, Corporate Ratings, ICRA told Moneycontrol that OMCs work on a thin margin, so offtake of the US oil by India will have to be driven by economic sense.

"There can be some nudge to increase (oil imports from the US) but economics will play an important role. American crude has to make economic sense for its share to rise significantly. On the LNG side, it is a different story, given that the US is the cheaper source of gas," Vasisht added.

Indian OMCs’ bottom line depends on marketing margins and gross refining margins (or GRMs). A higher price of crude oil reduces an OMC’s marketing margins—which is the profit earned by a company on the sale of a petroleum product (for instance petrol, diesel, ATF) in the retail market.

Russian crude

The official said that the commitment to buy more oil from the US may not reduce the country's reliance on cheaper crude from Moscow, given India's substantial imports in this category.

"It is difficult to say if it would lower our reliance on Russian oil because our oil requirement is so huge that it may accommodate both. Not necessarily at the expense of one particular country," the official added.

The analyst cited above said that India historically has had room to deal with both countries (Russia and the US) and balance it out to a certain extent. Surely, Russian crude oil in the current environment is beneficial for India, given the market is shrinking for them to sell their oil.

However, with the additional sanctions on Russia, even securing crude from Moscow has become difficult and the discounts have gone down from $7 (per barrel) in FY24 to $3-3.5 (per barrel) in the current year, the analyst added.a

The crude math

India is the third-largest consumer of crude oil in the world, with an import dependency of over 85 percent for the current fiscal.

Oil Minister Hardeep Puri recently told Moneycontrol that India already buys energy worth $20 billion from America, and a further increase in offtake would depend on commercial arrangements.

Puri clarified that India is looking to buy the cheapest oil available in the market.

Middle-Eastern countries have been India's traditional source of oil imports, including Saudi Arabia and Iraq.

Russia, however, recently became the largest crude supplier to India thanks to the discounts on offer. Moscow contributed over 30 percent to New Delhi's overall oil requirements in recent months, compared to just 0.2 percent before the Ukraine war broke out in 2022.

India's crude oil imports rose 6.42 percent on-year to $154.83 billion in the April-January period of the current fiscal.