For Prime Minister Narendra Modi, it’s a dilemma that has cast the spotlight on an uncomfortably large oil import bill — as well as the dangers of walking a geopolitical tightrope in an age of exceptional volatility.
If New Delhi yields to the threat, it could jeopardize a long-standing relationship with Moscow that extends beyond energy, and it would give up a strategic advantage that provided vital fiscal space. If Modi allows refiners to keep buying, as his defiant response and domestic pressure would suggest, he instead courts a direct blow to the economy and damaged ties with the country’s top trade partner, risking far more than he might gain.
India saved a modest $3.8 billion in the year to March on oil purchases as discounts on Russian crude narrowed, according to ratings agency ICRA. But it exported roughly $87 billion worth of goods to the US in 2024.
A well-supplied oil market, plus less attractive discounts for Moscow’s flagship Urals crude, mean that in theory Modi has space to wean the country off Russian oil entirely, dialing back imports that have surged dramatically since 2022. But practice could prove quite different, as his top opponent and party peers line up to criticize US tactics, stirring nationalist fervor.
“It’s very, very unlikely that Indian oil imports from Russia will go to zero,” said Vandana Hari, founder of consultancy Vanda Insights. “Everyone understands Trump’s aim is to try and pressure Putin, but to do it with a gun on India’s shoulder is not going down well with New Delhi.”
US President Donald Trump — eager to slash the US’s trade deficit with India and, simultaneously, to gain traction in discussions with Russian counterpart Vladimir Putin to end the conflict in Ukraine — has demanded that India stop “fueling the war machine” with purchases of discounted Russian barrels. He threatened earlier this week to impose punitive levies on top of a planned 25% that kicks in later this week. Washington confirmed on Wednesday an extra 25% would be added within 21 days.
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In the absence of official guidance, Indian refining executives expect an increase in buying from the US as talks continue, but also expressed caution. State-owned processors, which tend to purchase Russian crude through spot deals, are already staying on the sidelines, according to people with direct knowledge of their procurement plans. They asked not to be named as they are not authorized to speak to the media.
Refiners like Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. have instead stepped into the spot market over the past week to buy a variety of grades from alternative suppliers — including the US, Nigeria and the United Arab Emirates — seeking cargoes for prompt delivery.
For longer-term supplies, Asian traders expect Indian refiners to approach Middle Eastern producers such as Saudi Arabia and Iraq. With year-long contracts typically negotiated near the close of the Indian fiscal year ending in March, buyers will likely be able to seek small incremental volume adjustments from the likes of Saudi Arabian Oil Co., known as Aramco.
But, absent a full sanctioning of Russian oil, no one in the industry has yet pointed to a formal or a wholesale change.
Historically, India has not been a significant importer of Russian crude, depending more heavily on the Middle East. All that changed in 2022, after the invasion of Ukraine and a $60-per-barrel price cap imposed by the Group of Seven nations that aimed to limit the Kremlin’s oil revenues while keeping supplies flowing globally.
India eschews sanctioned crude from Iran or Venezuela, but this was a permitted bargain and purchases leapt higher, often at the expense of more traditional suppliers like Saudi Arabia, Iraq and Nigeria. Russia, which accounted for a negligible portion of India’s total imports in 2021, today makes up around 37%, according to data analytics firm Kpler. That’s made India one of the two dominant buyers of Russian crude, along with China.
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Government officials argue that the shift helped to prevent a supply crunch and to cool sky-high prices — and until now the US seemed to agree. On a visit to India last year, Treasury officials described the price cap as “a mechanism for India and other partners to access Russian oil at discounted prices.” The focus was on guaranteeing supply, and there would be no effort to curb Indian purchases, they said.
Trump’s decision to abruptly move away from that position — without imposing fresh sanctions — has left the government nonplussed, with officials warning that removing Russia would push global oil prices to more than double from their current levels, a warning that harks back to sharp moves in 2022.
BloombergThe timing, though, has been fortuitous for India, making it at least possible to curb Russian imports. Oil is trading at under $70 and is plentiful, thanks to a move by the Organization of the Petroleum Exporting Countries to return more barrels to the market. It has the option to add more. That leaves choices for a buyer that remains a key source of future demand growth — even if that means being forced to rebuild some relationships.
“If you look at the size of India’s trade with the US, and look at how much savings India gets from buying Russia crude, it’s pretty clear what India would do,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. “Are you going to risk up to $87 billion worth of exports to the US in order to save a few billion from oil discounts?”
Discounts on Russian oil have certainly narrowed. In May, Indian buyers paid $4.50 a barrel less for their Russian crude imports than they did for Saudi purchases. That’s far less impressive than back in 2023, when the gap exceeded $23 a barrel, even though India is a price-conscious market.
“The economic cost of shifting suppliers away from Russia is not actually that big,” said Shilan Shah of Capital Economics. “It feels like a political decision rather than an economic one. India doesn’t want to be seen caving to Trump’s demands. India and Russia have pretty longstanding trade relations, which I think India would be keen to maintain.”
Assuming the full tariff is in fact implemented, the lasting headache here may be for Russian producers, left to find other buyers for India’s roughly 1.8 million barrels per day of purchases. China has shown itself happy to take sanctioned oil — but has also long demonstrated its eagerness to retain diverse supply to guarantee energy security. It has little appetite to become dependent on Russian crude, cheap or otherwise.
Still, China may take just enough crude to at least cushion the blow for global oil markets as India winds down, leaving no other substantial buyers to fill the gap.
“China will be very, very careful about soaking up all the Russian crude that’s being diverted from India,” Vanda Insights’ Hari said. “The oil will likely be offered at deeper discounts. But, if China absorbs a substantial amount, guess where Trump’s eye will turn next?”
