In his final days in office, former U.S. President Joe Biden announced what is being described as the “most significant sanctions yet” hitting Russia’s oil and gas revenue. The sanctions target some of Russia’s largest producers, Gazprom Neft and Surgutneftegas, along with their subsidiaries, and ship insurance providers Ingosstrakh and Alfastrakhovanie, as well as 183 vessels that have shipped Russian oil. In an unprecedented move, six Russian oil tankers still under construction were included in the sanctions, as was Shandong Port Group, a China-based oil terminal operator, and two Indian ship management companies for their alleged involvement in the transportation of Russian oil and gas.
As the largest buyers of Russian crude oil between December 5, 2022, and December 31, 2024, China and India are expected to be hit hard by the sanctions.
Shandong Port has already banned U.S.-sanctioned vessels from calling at its ports, and Indian refineries have halted trade with sanctioned tankers and entities. Indian government-owned banks such as the State Bank of India and Punjab National Bank are exercising extreme caution and withholding payments to Russian exporters.
In India, there is growing uncertainty over the future of the India-Russia oil supply deal signed between Reliance and Rosneft last month, after Rosnefteflot, a subsidiary of Rosneft, was hit with sanctions.
Since the Ukraine war, India has become the second largest buyer of Russian crude oil, owing to the hefty discount Russia offered to bypass sanctions. Prior to the war, India secured most of its oil from the Middle East, with Russia not even featuring among India’s top 20 partners.
New Delhi has always maintained that it has never violated U.S. sanctions. It has argued that it buys Russian crude at a price below the G-7 price cap of $60 per barrel, which the White House acknowledged as well.
India had begun reducing its imports of Russian oil even before the latest round of sanctions. It had refused to buy LNG from Russia’s Arctic LNG 2 project after Moscow cut its discounts.
In 2017, the United States delivered its first shipment of crude oil to India. By 2021, India became the largest purchaser of U.S. crude oil. Then when the Red Sea shipping crisis delayed the arrival of cargoes in early 2024, New Delhi turned to its traditional partners in the Middle East to secure supplies. Following the temporary U.S. sanctions waiver on Venezuela the same year, Indian refiners started importing more than 175,000 barrels of crude oil per day from Venezuela. It is clear that India’s oil strategy is dictated by navigating the volatile oil market; India procures its oil imports from new sources, whichever offers New Delhi the lowest price.
In the near term, India is unlikely to face any disruption to its existing oil supply from Russia, as the sanctions allow a grace period exempting supplies loaded before January 10 and unloaded before March 12. New Delhi has already secured its Russian oil supplies for the next two months, as the ships were already in transit before the sanctions were announced.
A closer look at the sanctions indicates that the shipments that are likely to be the least affected will be on Urals freight, which is mostly destined for India. However, Russian exports are likely to face serious logistical difficulty in the long term due to the lack of available tonnage, forcing India to diversify its import supplies. Here also, New Delhi does not have much to worry about since there is no shortage of suppliers in the global oil market.
Last week, India’s largest refinery, Indian Oil Corporation purchased 7 million barrels of spot Middle Eastern and African crude oil via tenders. Other state-run refineries like the Mangalore Refinery and Petrochemical Ltd and Bharat Petroleum Corp Ltd have also issued tenders seeking crude oil. However, the rising cost of spot premiums for Middle East crude is a concern for New Delhi.
India’s Minister for Petroleum and Natural Gas Hardeep Singh Puri has indicated the “possibility” of India increasing U.S. oil and gas purchases. Other potential suppliers include Iraq, which has already boosted supply to India, accounting for 24 percent of India’s overall oil imports in December 2024. The UAE’s share in New Delhi’s imports also increased, with imports up by 22.1 percent from November levels.
The same month, Saudi Arabia cut its official crude oil prices for Asian customers to the lowest level in four years, in a bid to regain market share from competitors. Iran, which was India’s third largest source of crude oil until 2019 — when the United States reimposed secondary sanctions on Tehran – is also exploring a resumption of crude oil supply to India. While it is unclear if Iran will make a comeback as a major oil partner for India, with international crude oil prices soaring, New Delhi can be expected to resume re-evaluating options for purchasing Iranian oil, which were stalled following heightened Iran-Israel tensions in April 2024.
With India’s oil demand surpassing that of China in the first ten months of 2024, a trend expected to continue in 2025, there is no doubt that global oil players will look to make their presence felt in India. Therefore, the impending decline in the supply of Russian oil is both a challenge and an opportunity for New Delhi to revisit how it can diversify its oil imports.
