Indian refiners’ margins may shrink but supply likely to remain intact in absence of Russian barrels: Experts

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Indian refiners might face higher crude costs and tighter margins if new threats of secondary sanctions on Russian oil materialise, while oil supply would likely remain undisrupted, experts told Moneycontrol.

US President Donald Trump reduced the deadline for Russia to 15-20 days to end the war with Ukraine, from the earlier 50-day deadline. Trump had said earlier that US tariffs on Russian exports would be increased to 100 percent, while also threatening to impose secondary sanctions on countries buying Russian oil, such as India.

The real risk for India refiners, if Russian oil supplies are curbed, lies in margin erosion as oil from the Eurasian country is procured at discounted prices, said experts. However, India’s strategy of diversification should shield it from potential supply risks.

“Currently, Russian barrels are about $3–8 per barrel cheaper on a landed-cost basis for Indian refiners than Middle Eastern or US grades. Losing access to these cheaper barrels means refiners’ input costs would increase, squeezing refining margins and potentially translating to higher wholesale and retail fuel prices,” said Sumit Ritolia, lead research analyst, refining and modelling, Kpler, a global trade data and analytics firm.

While this will have an impact on refiners' bottom lines, India having moved to sourcing crude oil from alternative sources to ensure energy security would offset the absence of Russian barrels.

Oil minister Hardeep Singh Puri had said on July 17 that India is not unduly worried about Trump imposing secondary sanctions on buying Russian oil. Puri added that India has diversified its oil sources and the global market is well-supplied as several countries plan to further boost output. India buys crude oil from 40 nations currently, compared to 27 countries in 2007, said Puri.

To be sure, India currently buys around 40 percent of its oil from Moscow, compared to only 0.2 percent before the Russia-Ukraine war in 2022, thanks to Moscow dropping prices and shipping terms to attract buyers. India is dependent on imports for around 90 percent of its domestic crude oil requirements.

“India will source from elsewhere. India can buy on spot; there is ample supply (of crude oil) so no issues,” said Harshraj Aggarwal, analyst at Yes Securities.

Puri had hinted that India could move back to a pre-Ukraine war scenario, where the country relied on Russia for a meagre portion of its oil supplies, were secondary sanctions to kick in.

Meanwhile, the European Union on July 18 announced new sanctions on Russian oil including lowering the price cap to $47.60 barrels per day from $60 per day while also imposing a ban on import of refined products made from Russian oil by other countries, such as India.