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Informist, Thursday, Mar. 6, 2025

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – The Indian government is drawing up a plan to slash its crude oil imports from Russia as these no longer offer a cost advantage. According to the plan, India is likely to cut its oil imports from Russia by half, and make up for the shortfall with a commensurate increase in imports from West Asia, people aware of the development said. 

 

The plan, currently in the works, will reduce India's oil imports from Russia to 0.9 million barrel per day, while pushing up imports from West Asia to 3.5 million barrels per day, a senior finance ministry official told Informist. India, the third-largest consumer of oil, requires about 5 million barrels of oil per day, of which over 88% is imported. Currently, the country imports 1.8 million barrels per day from Russia, 2.6 million barrels from West Asia and 0.6 million barrels from a mix of other nations, which it will continue even under the revised plan, the official said.  

 

India procured oil from Moscow at discounted rates after Western countries imposed sanctions on Russia, but fresh measures by the US in January have created headwinds to this bilateral trade. This has curbed near-term supply of Russian oil to Indian refiners, who are finding it difficult to secure adequate cargoes. Consequently, Indian refiners have had to diversify import sources.

 

Former US president Joe Biden, before demitting office, slapped sanctions on more than 200 entities and individuals, including major Russian oil producers Gazprom Neft and Surgutneftegas, Russian insurance companies Ingosstrakh and AlfaStrakhovanie Group, and shadow fleet vessels. As a result, freight charges, insurance costs, and the price of non-sanctioned Russian oil has gone up, nullifying the discounts India enjoyed.

 

Officials from the Prime Minister's Office and the ministries of oil, finance, and external affairs have vetted this plan, another official said. While the government does not directly procure oil, it can nudge state-owned oil companies – the primary importers – to make a move in this direction. 

 

In 2021, before Russia's invasion of Ukraine in 2022, India imported 4.2 million barrels per day of oil, of which 24?me from Iraq, 16% from Saudi Arabia, 10% from the US, and 2% from Russia. Since then, gradually, the share of imports from Russia climbed to almost 40%, while Iraq's share slipped to 20%, Saudi Arabia's fell to 15%, and that from the US dropped to 4% in 2022. 

 

In a report last week, the International Monetary Fund said India saved around $7 billion per year by importing crude oil at a discounted price from Russia. According to data from the commerce ministry, India imported $154.84 billion worth of oil in the first 10 months of 2024-25 (Apr-Mar), the bulk of which came from Russia, with data showing that merchandise imports from Russia were worth $54.45 billion in Apr-Jan, against $50.81 billion a year ago.

 

While the receding price benefit of Russian oil could be the main trigger behind India's redistribution of its oil imports, it also comes at a time when India is repositioning its trade relationships with the US, especially after President Donald Trump's re-election. At a meeting with Trump last month, Prime Minister Narendra Modi had committed to increase India's energy imports from the US after Trump expressed displeasure over Washington's trade deficit with India, and threatened to impose high tariffs. Modi agreed to make the US the leading supplier of oil and natural gas.

 

Besides, while India does not have to primarily worry about US sanctions on Russia as long as there is enough oil available in the market, fears related to operational challenges in securing Russian oil remain. Indian banks and companies have significant exposure to the US financial system and ever since the first round of sanctions, Delhi and Moscow had to navigate the issue of settlements and payments through various bilateral set-ups.  End

 

US$1 = INR 87.07

 

Edited by Avishek Dutta

 

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