OPINION India’s Oil Dilemma: Navigating the fallout of U.S. sanctions on Rosneft and Lukoil

When the U.S. announced sanctions on Russia’s leading oil giants, Rosneft and Lukoil, on October 22, it was more than just another move in the West’s economic war with Moscow.

The new U.S. sanctions on Russia's oil companies will tighten global crude supply, test India’s energy security, and could reset the balance of economic diplomacy between New Delhi, Washington, and Moscow

When the U.S. announced sanctions on Russia’s leading oil giants, Rosneft and Lukoil, on October 22, it was more than just another move in the West’s economic war with Moscow. By targeting two of the world’s largest integrated oil producers, Washington has sent a shockwave through the global energy system — one that will reverberate far beyond Russia’s borders.

India, which has become a major buyer of Russian crude since 2022, finds itself in the crosshairs of these shifting energy currents. For Reliance Industries and Indian PSUs, the message is clear: compliance trumps accessibility and preferential pricing. The suspension of imports from these sanctioned entities is already being prepared. But this compliance comes at a cost — both strategic and economic — as India recalibrates its oil basket and broader diplomatic posture.

The shock to global trade flows

The immediate fallout of Washington’s measures is unmistakable. Around three million barrels per day of Russian crude will effectively disappear from the regular international market, tightening global supply and lifting Brent and WTI prices by 3-5%.

For refineries from Jamnagar to Shenzhen, the scramble for alternatives has begun.

The sanctions have rippled through global trade channels in ways that go beyond just price movements. Supply chains have tightened sharply as sanctions disrupt shipping, insurance, and dollar settlements related to Russian oil. Tanker availability will decline, while freight insurance premiums will spike, choking liquidity in an already fragmented maritime network. At the same time, global oil trade flows will get reconfigured. Displaced Russian crude may get rerouted towards China and smaller Asian buyers through “shadow fleets” operating outside mainstream compliance systems. On the other hand, the pricing leverage of Gulf and U.S. exporters, will increase because of the rising import demand and constrained supply.

The broader outcome will be a tide of inflationary pressures which will impact most countries, including India. With oil benchmarks climbing, manufacturing and transport costs are set to rise once again — threatening to undercut the fragile rebound in trade volumes that had begun to gather pace earlier this year. The sanctions, in short, mark a more profound shift: energy flows are being driven as much by geopolitics as by market economics.

Impact on India: Cost, competitiveness, and leverage

For India, this development lands like a double-edged sword. Russian crude, once a peripheral source, had grown to nearly 36% of India’s total imports by mid-2025, significantly lowering the average landed cost of crude oil. With Rosneft and Lukoil together supplying nearly 60% of India’s Russian barrels, their suspension abruptly removes access to discounted crude. This is certain to increase India’s import bill.

With 85% of crude sourced externally, Indian refiners must now buy crude from costlier markets across West Asia, Africa, and the Americas. Even a modest 2% rise in the annual crude import price could mean the loss of $4–5 billion in oil-linked savings.

The implications for downstream industries are immediate: the reduced spread between input and output prices will squeeze the profitability of India’s refining exports, eroding the price advantage Indian diesel and gasoline shipments have enjoyed in Europe and parts of Asia.

The geopolitics of alignment and autonomy

Also, the new sanctions arrive at a moment when the balance of global alignments is under flux. In Washington, President Trump’s second term has injected a fresh assertiveness into the use of sanctions as a strategic tool to isolate Moscow. This puts New Delhi in a delicate position — caught between long-standing ties with Russia and yet the need to keep bilateral relations with its largest trading partner at an even keel.

In this context, three consequences warrant attention. The first is a strengthened U.S.–India bilateral trade agreement that could anchor India more firmly within the Western economic bloc. Washington’s willingness to offer tariff relief or preferential access in exchange for energy realignment could strengthen India’s position within the Indo-Pacific’s strategic network. The second is the likely strain on India–Russia economic cooperation. The suspension of crude imports not only erodes one of the most tangible links between the two nations but could delay joint ventures in which Indian companies hold stakes.

Finally, the structural consequence of these sanctions also means India's heightened vulnerability to the politics of the Gulf. As India substitutes Russian barrels with Middle Eastern supply, it grows more exposed to OPEC+ decisions, regional instability, and price manipulation risks. The sanctions, therefore, are not simply an external imposition — they catalyse a deeper reconfiguration of India’s energy dependence and foreign-policy posture.

Strategic Responses: Five pathways for India

1. Diversify import geography: Expand term contracts with Saudi Arabia, Iraq, the UAE, and the U.S., while negotiating with emerging producers like Brazil, Guyana, and Nigeria to mitigate disruption risks. The diversification should prioritize compatible crude grades and logistical reliability.

2. Deploy strategic petroleum reserves: Temporarily release stocks from India’s Strategic Petroleum Reserve to cushion supply shocks and maintain refinery throughput until alternative supplies stabilize.

3. De-dollarize oil payments to the extent possible: Develop and expand rupee-dirham and rupee-based settlement systems with Gulf partners, shielding transactions from dollar-linked sanctions. Over time, bilateral INR-denominated energy deals could advance financial resilience.

4. Accelerate the renewable pivot: Push the National Renewable Energy roadmap more aggressively, scaling up biofuels, green hydrogen, and electric mobility to structurally reduce import dependence and redefine energy security.

5. Maintain dual-track diplomacy: Continue engagement with Russia through non-sanctioned channels — such as LNG, fertilizers, and coal — while strengthening energy and trade conversations with the U.S. and G7. This balanced approach can safeguard India’s autonomy while deepening Western economic integration.

The emerging energy order

The suspension of Russian crude imports is more than a commercial inconvenience; it marks an inflection point in India’s energy diplomacy. In the near term, it brings higher import costs and margin pressures, adding strain to inflation and external balances. Over the long term it may also compel India to move to more strategically grounded, partnership-led architecture aligned with its global ambitions.

Energy trade has long been the quiet foundation of India’s geopolitical posture. Now, it has become its most visible frontier. As global supply chains fracture into distinct geopolitical camps, India’s true strength will lie not in picking sides but in navigating between them — ensuring that its quest for energy security reinforces, rather than restricts, its global economic ascent.