Indian state refiners may continue dirhams-only Russian oil deals amid fresh EU curbs, Trump's threats, sources say

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State-run Indian oil refiners are likely to continue purchasing Russian oil by making payments entirely in dirhams owing to the latest sanctions imposed by European Union (EU) as well as threats of an unspecified penalty from the US, both aimed at squeezing Moscow’s revenues, officials told Moneycontrol.

The European Union, on July 18, lowered the price cap for buying Russian oil to $47.6 per barrel from $60 a barrel while approving the 18th package of sanctions against Moscow over its war in Ukraine. However, the sanctions, for now, are not expected to impact Russian oil purchases by Indian refiners.

“EU sanctions would not have a direct impact as of now because we are buying through UAE traders,” a top refinery official told Moneycontrol.

Apart from this, US President Donald Trump on July 30 while announcing steeper tariffs on India, also hinted at an additional, unspecified penalty against the country linking it to New Delhi's purchases of arms and energy from Russia.

Following which on August 4, Trump intensified his threats stating that he will substantially raise the tariffs paid by India to the US.

"...India is not "only buying massive amounts of Russian oil, they are then, for much of the oil purchased, selling it on the Open Market for big profits. They don’t care how many people in Ukraine are being killed by the Russian War Machine," Trump said on Truth Social.

The US President is yet to elaborate on these higher tariff rates.

Defending India's decision, the Ministry of External Affairs (MEA) hours later said the government's policies on energy security are driven by national interest and not political alignment.

A senior Indian government official said that following the decision by EU and G7 nations in 2022, imposing a price cap of $60 per barrel for Russian tanker oil, Indian refiners continued to make payments in greenback to an extent, thanks to discounted crude from Moscow.

However, EU’s stricter sanctions this year have only solidified the practice of purchasing crude oil from Russia through dirhams by rerouting it through Emirati traders, officials added.

The senior official cited above however warned that increasing threats of secondary sanctions and its implications on India’s purchases of Russian oil has to be studied before taking concrete steps.

State-run oil refiners buy Russian oil through UAE-based traders, settling payments for these purchases in dirhams, as New Delhi failed to establish a direct rupee-rouble mechanism with Moscow for oil procurement.

Indian state-run oil refiners include Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL).

Oil refiners have presently ditched all other currencies, including Indian rupees, the US dollar and Chinese yuan to purchase Russian oil even as it was briefly explored by companies around the beginning of larger India-Russia energy trade in 2023.

“We were not making dollar payments even with $60 price cap. When we were buying from Rosneft (Russian state-run oil company), only then we used dollar briefly for a part of the purchase. But since then, Russian oil purchase is done through UAE traders in AED (official currency of UAE),” the refinery executive said.

Another refinery executive also confirmed to Moneycontrol that the entire payment for Russian oil is being made in UAE’s dirhams.

Meanwhile, Indian oil refiners are so far not exploring any other currencies for making Russian oil payments other than dirhams, a second government official said, adding that New Delhi has not made any progress on the rupee-rouble payment mechanism.

“Plan is to keep paying (for Russian oil) in dirhams. As of now, companies (state-run OMCs) are not exploring alternate currency for making Russian oil payments,” the second official said.

New Delhi has largely altered its oil sourcing strategy by increasing its reliance on Russian oil imports since the Ukraine war broke out in 2022.

From a mere 0.2 percent, India currently sources around 35-40 percent of its total crude oil imports from Moscow.

India’s petroleum minister Hardeep Singh Puri had said in July that India has the capability of restoring the earlier import strategy wherein New Delhi barely made Russian oil purchases, in case of secondary sanctions are imposed on buying Russian oil.

Trump on July 26 reduced the deadline for Russia to 15-20 days to end war with Ukraine, from an earlier deadline of 50 days, threating harsh sanctions if Moscow fails to end the conflict.

He had said earlier said that tariffs on Russian exports to the US could be increased to 100 percent, while also warning secondary sanctions on countries buying oil from Moscow, including India.

Data from Kpler, a global real-time data and analytics provider, shows that India’s crude oil imports from Russia tanked in July from the previous month by 24 percent. India imported 1.6 million barrels of Russian oil per day in July, compared to 2.1 million barrels per day (bpd) in June, according to Kpler data.

The drop in India’s Russian oil procurement, however, was not all due to tariff threat as July cargoes would have been placed in April-May, but aligning with seasonal refinery maintenance and weaker monsoon-driven demand, said Sumit Ritolia, lead research analyst, refining & modelling at Kpler.

Ritolia added that while a measured reduction in Russian oil intake appears technically and commercially feasible by Indian refiners amid the West criticizing countries for buying Russian oil, a complete disengagement remains unlikely in the near term.

“The challenge is not just to keep crude flowing, but to do so without blowing a hole in margins or destabilizing product economics. It is unlikely that Indian refiners will voluntarily halt Russian crude imports in the absence of a clear government directive. Russian barrels—particularly Urals—offer a combination of technical compatibility, favorable yield profiles, and strong refining margins that make them an attractive feedstock within the current refining slate,” said Ritolia.

Indian oil refiners procure Russian oil at discounted price, improving the companies’ margins.