Russian President Vladimir Putin (right) speaks with Indian Prime Minister Narendra Modi (left) during a visit to the Zvezda shipyard, while they are accompanied by the head of Russian oil giant Rosneft Igor Sechin (centre), outside the port of Vladivostok in Russia's Far East on September. October 4, 2019, ahead of the launch of the Eastern Economic Forum hosted by Russia.
Alexander Nemenov | AFP | Getty Images
The days of India buying cheap Russian oil may be over.
Blanket sanctions imposed by the United States on Russian energy companies and ship operators transporting oil will complicate Indian efforts to continue importing cheap Russian crude and could lead to higher inflation in Asia's third-largest economy, analysts said.
Bob McNally, president of Rapidan Energy Group, said the country could face a potential oil shock.
“India will be more affected than China by the sanctions, because India imports much larger quantities of its oil from Russia than from China,” he told CNBC.
last friday, The US Treasury announced sanctions on two Russian oil producing companiesBesides, the 183 ships are primarily oil tankers that ship barrels of Russian crude. At present, tankers subject to US sanctions remain Allowing crude oil to be unloaded until March 12.
South Asian country It imported 88% of its oil needs Between April and November 2024, little has changed from the previous year, according to government data. Data from business intelligence firm Kpler showed that about 40% of those imports came from Russia.
Of the 183 newly approved tankers, 75 have transported Russian oil to India in the past, according to data provided by Kpler. Last year alone, the 183 sanctioned tankers transported about 687 million barrels of crude oil, 30% of which was shipped to India.
“Most of these barrels went to Indian refineries, so the impact is likely to be greater there,” Aldo Spanier, chief commodities strategist at BNP Paribas, said in a research note following the sanctions.
Spanier added that the new US sanctions were deeper and broader than markets expected, and the unrest is expected to worsen.
India's Ministry of Petroleum and Natural Gas did not respond to CNBC's request for comment.
Oil prices on an annual basis
The sanctions also come at a time India is expected to overtake China As the world's number one consumer of oil in 2025, representing 25% of the total growth in oil consumption globally.
Growing demand for transportation and home cooking fuels is expected to spur that growth by 330,000 barrels per day this year — the most of any country, according to U.S. forecasts. EIA showed.
The latest Energy Information Administration data showed that India consumed 5.3 million barrels per day in 2023. This consumption is expected to rise by 220,000 barrels per day last year.
India was not always dependent on Russian oil.
Until 2021, Russian oil represented only 12% of India's oil imports by volume. By 2024, that share has risen to 37.6%, Moyu Xu, senior oil analyst at Kpler, told CNBC.
The catalyst for increasing oil imports was the Ukrainian war, which prompted some Western countries to impose sanctions on Russia and reduce their purchases of Russian crude. As Russian oil prices fell, India was able to get supplies cheaply from companies that were not subject to sanctions.
The price of Russian Urals crude against global benchmark Brent crude averaged about $12 per barrel from last August to October, according to the Standard & Poor's Global Index. Latest published data Last November. In 2024, the price of Russian Urals crude was also $4 per barrel cheaper than oil from Iraq, one of Major sources of India's crude oil importsIt showed data from Kepler.
“If India fully complies with US sanctions, we may see a sharp decline in Russian crude arrivals in February and possibly March,” Shaw added.
Supply disruptions to India could reach 500,000 barrels per day, Viktor Kurilov, a senior analyst at Rystad Energy, said by email.
No more cheap alternatives?
While the impact may eventually be mitigated as affected importers scramble for alternative suppliers in the Middle East, some industry observers say relief could take a few weeks to months to materialize.
Even in this case, oil prices from these alternative sources will not be that cheap. The price of global benchmark Brent crude recently rose to a five-month high of about $80 a barrel after the sanctions were announced, after a year of suffering due to oversupply and weak demand.
Data provided by Kpler indicate that prices for Middle Eastern crude, which is among the Indian alternatives, also rose this week.
“Depending on how quickly Russia resolves its logistical challenges and how well India and China cooperate with sanctions, oil prices could rise for a few weeks,” Kpler's Shaw said.
In addition, with Donald Trump's inauguration approaching, global supplies of cheap Iranian crude face the risk of tougher sanctions. Iran It constitutes 4% of the world's oil production In 2023, according to an environmental impact assessment report released last year.
“It's (also) a double blow for the major importer (India) as Iran is likely to face new pressure from sanctions with the incoming Trump administration,” Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC.
If the new sanctions are coupled with a potential curb on Iranian crude, Brent prices could rise further to $90 a barrel, Goldman Sachs wrote in a note published after the sanctions were announced.
Pain point in Indian economy
The Indian economy is “highly vulnerable” to fluctuations in oil prices Research paper published in 2023 created. Abdhoot Dhiri, Assistant Professor of Economics at Vellore Institute of Technology, and M. Ramachandran of Pondicherry University's Department of Economics, in the paper, said domestic retail prices of petrol and diesel rose “like rockets” in response to rising crude oil prices.
An analysis by the Reserve Bank of India in 2019 found that every $10 for every rise in oil prices This could lead to a 0.4% increase in overall inflation.
“High oil prices, if passed on to consumers, could further damage their purchasing power at a time when income and GDP growth are slowing,” said Dheeraj Nim, an economist at ANZ Bank.
Nim added that weak consumer demand may prevent producers from passing on the cost burden to consumers, meaning it may impact corporate profits instead. However, if the government chose to bear the additional costs, this would put pressure on its finances.
Not only will China and India have to pay more for the oil they consume, they will have to pay more to get it to their shores because tanker rates have also risen, said Andy Lipow, president of energy consultancy Lipow Oil Associates.
Coupled with a stronger US dollar and a weaker rupee, the impact on the Indian economy will be magnified, Lippu said.
The Indian rupee recently fell to a record low as a result Pressures resulting from the strength of the dollar and selling by foreign portfolio investors.
The country is no stranger to protests over rising fuel prices. In 2018, Widespread protests across the country The rise in gasoline and diesel prices to record levels led to the closure of businesses and schools in several areas.
