India Cuts Russian Oil Imports Amid Sanctions, Trade Talks

Key Takeaways:

• Significant reduction in India's Russian oil orders for December.
• Impact of Western sanctions and US-India trade negotiations.
• Potential increase in US oil purchases as part of trade agreements.
• Diversification of oil sources from the Gulf and other markets.

India Reduces Russian Oil Purchases Amid Sanctions Pressure and Trade Negotiations

India's Russian oil imports are experiencing a notable decline for December, signaling that Western sanctions and ongoing trade discussions between the United States and India are significantly influencing India's procurement strategy. According to sources familiar with the matter, India's top five refiners have not placed any orders for Russian crude oil for December delivery so far. Typically, crude oil deals for the following month need to be finalized by the 10th of the current month.

This shift in India's procurement strategy, as the world's third-largest oil importer, comes after the Trump administration doubled tariffs on all Indian imports to 50% in August and sanctioned two major Russian oil producers, Rosneft PJSC and Lukoil PJSC, last month. India has heavily relied on discounted Russian oil in recent years, drawing criticism from the United States for allegedly supporting Russia's war efforts in Ukraine.

Data from Kpler indicates that the top five refiners, namely Reliance Industries Ltd., Bharat Petroleum Corp. Ltd., Hindustan Petroleum Corp. Ltd., Mangalore Refinery and Petrochemicals Ltd., and HPCL-Mittal Energy Ltd., account for approximately two-thirds of India's Russian oil imports this year.

US Trade Negotiations Play a Role

The knowledgeable source indicates that this caution on the part of Indian refiners is partly due to ongoing trade negotiations between New Delhi and Washington. President Trump stated on Monday that the two countries were "very close" to reaching an agreement. India has pledged to increase its purchases of US oil as part of the negotiation framework.

Only two refiners, Indian Oil Corp. and Nayara Energy Ltd., have purchased some Russian oil for December. Indian Oil Corp. is buying from non-sanctioned sellers, while Nayara Energy, which is partly owned by Rosneft, continues to rely solely on Russian oil.

Challenges Due to Sanctions Complexities

The source says that traders have been offering Russian oil from non-sanctioned suppliers at a discount of $3-$4 per barrel in the spot market. However, Indian buyers are hesitant due to the need to conduct a lengthy and complex due diligence process to ensure no sanctioned entities are involved in the supply chain.

So far this year, 36% of India's oil imports have come from Russia. However, the impending global oil supply glut will make it easier for it to find alternative sources. Indian Oil Corp. is seeking to purchase as much as 24 million barrels of American oil for delivery in January-March. Hindustan Petroleum also recently purchased 4 million barrels of US and Middle Eastern oil, scheduled to arrive in January.

Diversifying Sources

Refiners have also reached out to traditional suppliers in the Gulf to make up for the shortfall in Russian oil. The knowledgeable source revealed that executives from Indian state-owned refineries met with officials from Saudi Aramco and Abu Dhabi National Oil Co. (ADNOC) on the sidelines of an industry conference in Abu Dhabi last week and received assurances regarding supply.