India to turn to Middle Eastern suppliers for crude oil as US tightens sanctions on Russia

The Biden administration on January 10 imposed new sanctions on Russian oil producers Gazprom Neft and Surgutneftegaz and about 180 tankers that ship Russian oil.

India’s crude oil imports from Middle Eastern suppliers including Iraq and Saudi Arabia are likely to rise in the coming months as the US further tightens sanctions on Russia.

On January 10, the Biden administration imposed new sanctions on Russian oil producers Gazprom Neft and Surgutneftegaz, as well as on about 180 tankers shipping Russian oil, in an attempt to curb Moscow’s revenues used to finance the war in Ukraine. The new sanctions are also an attempt to disrupt the shadow fleet of Russia.

India, which is currently importing around 30 percent of its crude oil requirements from Russia, is expected to diversify sources, leaning towards the Middle East on account of proximity. “India would look at diversifying its source of imports as sanctions (on Russia) increase. After Russia, the biggest basket for India is the Middle East and logistically the region is proximal to us, which means transportation cost would be relatively lower than other sources of import,” said Hitesh Jain, Lead Analyst, Yes Securities.

A senior government official told reporters that India does not foresee any disruption to Russian oil supply in the next two months as US sanctioned tankers are allowed to discharge crude until March. Indian refiners, however, would not accept oil from the sanctioned Russian entities thereafter, the official added.

Russian oil share in India’s crude imports has been declining recently. India’s import of Russian crude oil in December 2024 fell to the lowest in the year on account of rising domestic demand from Moscow as its refineries resumed operations after the maintenance season. To supplement the drop in Russian volumes in December, refiners increasingly turned to traditional Middle Eastern suppliers.

Despite the steep fall in imports, Russia remained the top crude oil supplier to India, data from commodity market analytics firm Kpler showed. India imported 1.44 million barrels per day (bpd) of crude oil from Russia in December, declining from 1.78 million bpd in the previous month. Meanwhile, Iraq supplied 1.23 million bpd of crude oil to India in December, higher than 890,000 bpd in the previous month, while Saudi Arabia supplied 582,000 bpd of crude, compared to 621,000 bpd in November.

India’s shift to Middle East suppliers also come as the discounts offered by Moscow to the Indian refiners on purchase of crude oil have declined sharply in 2024 on account of a bigger market for Russian oil.

“India has already started to negotiate with Saudi and other Middle East suppliers. The Middle East does have additional capacity and given the production, they have artificially kept off the market. How soon they can bring that onstream and what price it will come at, that is something which will be keenly looked at,” Probal Sen, Senior Research Analyst, ICICI Securities, said.

“According to estimates, around 40 percent of oil exports from Russia are under the (new) sanctions. If we assume the same proportionate response, that means half a million barrels a day (to India from Russia) would be at risk, either in terms of supply not being there or a higher price being paid for it because you will have to arrange for unsanctioned ships, insurance costs, freight and so on and so forth. So, that would be a big impact,” added Sen.

Ballooning import bill

With Russian oil expected to be replaced by supplies from the Middle East, India’s oil import bill is likely to expand given Moscow used to supply crude at discounted prices.

“In FY23, we got a discount of as much as $6-$7 per barrel on benchmark crude from Russia, which dropped to around $3.5-$4 a barrel in FY24. This has recently dropped to around $3 per barrel. If you assume 30 percent of India’s oil imports are coming from Russia, that is a fairly big number. India’s oil import bill would almost go up by $1 per barrel, which is a fairly big number, given the import of 4.5 million barrels per day of crude oil,” said Sen.

India’s crude oil import bill in the current fiscal till November stood at $91.8 billion, up 5 percent from last year. India is dependent on imports of crude oil for over 85 percent of its domestic requirements.

Trump regime awaited

The new regime in the US under Donald Trump, who is expected to bring an end to the war between Russia and Ukraine, might do away with the sanctions imposed by the Biden administration. Experts believe that Trump’s stance on sanctions against Russia would not be as strict as the outgoing government, paving the way for freer movement of oil from Moscow.

Trump would take charge as the 47th US President on January 20.

Crude oil production from the US is also expected to pick up as the Republican leader has a pro-hydrocarbon approach.