Indian Refiners Face Higher Costs as Russian Oil Imports Decline

Sanctions squeeze forces a rethink in Indian refining

India’s refining sector is moving into a costlier phase as tightened US sanctions on Russia’s largest oil producers disrupt trade routes that delivered cheap crude for nearly three years. The discounts that made Russian barrels a standout bargain have narrowed, banks and insurers have toughened compliance checks, and cargoes connected to blacklisted suppliers face higher transaction risk. For Indian refiners, that means reworking crude slates, paying more for alternative grades, and trimming processing plans where flexibility has shrunk.

India imports about 86 percent of the crude it processes. Since mid 2022, Russia rose to become India’s largest supplier, often providing close to one third of total inflows. At the peak, more than 1.7 million barrels per day arrived, largely tied to Rosneft and Lukoil sales that came with discounts of 8 to 12 dollars per barrel relative to Middle East benchmarks and easier settlement through intermediaries. That window is closing fast as sanctions now target not only producers but also the shipping, insurance and trading networks that helped move those barrels to Asia at scale.

Why the Russian discount is fading

The latest measures hit the plumbing that kept Russian oil flowing to India. Shipping firms and marine insurers face penalties, traders are wary of exposure, and banks have become far more selective when clearing payments. With that, the discount on many Russian grades has thinned or vanished on a delivered basis, while the risk premium has risen. India’s import costs on some replacement cargoes are running about 5 dollars a barrel above Dubai linked averages, according to traders and refinery executives. Russia’s share in India’s crude basket has slipped to roughly 34 percent this fiscal year from about 36 percent in the previous two years.

Settlement channels that once supported large volumes through non Western intermediaries are now less reliable. Compliance teams are scrutinizing bills of lading for any trace of Rosneft or Lukoil, and several cargoes booked through entities tied to sanctioned firms have been cancelled. The result is a reset in procurement, with refiners pivoting to the Middle East, West Africa, Brazil and the United States to secure steady supply even if it costs more.

What the new rules change and by when

Washington’s package directly targets Rosneft and Lukoil. Companies have been told to wind down transactions with those producers by November 21, and financial institutions are expected to police that deadline. The effectiveness of the squeeze will hinge on whether banks process payments for any cargoes that appear linked to sanctioned firms, even indirectly. Oil prices jumped after the announcement, with Brent crude rallying several percent as traders priced in tighter availability and higher freight.

US officials say the aim is to restrict money flowing to Russia’s war effort while keeping enough oil on the market to avoid a price spike. US Treasury Secretary Scott Bessent framed the message clearly.

The sanctions aim to cut off funding for the Kremlin’s war machine and encourage allies to join.

India has not issued a blanket ban on Russian oil. The government’s public line remains that purchases are guided by energy security, affordability and the need to serve 1.4 billion people. Refiners are adjusting within that framework, trimming exposure where sanctions risk is highest and seeking compliant routes for any Russian barrels that still meet legal and banking constraints.

How Indian refiners are reshaping supply

The industry response is visible in tenders and trade flows. Processors are moving quickly to diversify cargoes, secure more term supply from traditional partners in the Gulf, and tap the Atlantic Basin for incremental barrels. Some Russian volumes may still arrive through sellers that are not sanctioned, but refiners are clearly preparing for a much smaller flow than in recent months.

Reliance Industries

India’s biggest private refiner has been the largest buyer of Russian crude since 2022. After the new measures, executives expect flows linked to Rosneft and Lukoil to drop to minimal levels. Reliance has been active on the spot market for alternatives, picking up cargoes from the Middle East, the United States and Brazil. Recent purchases include Qatari al Shaheen, Iraqi Basra Medium, Abu Dhabi Murban and Upper Zakum, along with US grades such as West Texas Intermediate and Mars. The company has signaled it will comply with sanctions while maintaining relationships with current suppliers where transactions remain lawful.

Indian Oil Corporation

IOC initially paused new Russian contracts while it reviewed exposure to blacklisted producers. It then resumed limited purchases that comply with the rules, buying five cargoes for December arrival from sellers that are not sanctioned. Some of these barrels include ESPO crude reportedly priced around parity to Dubai quotes, reflecting weaker demand from China after state refiners there suspended purchases. IOC has also issued a tender to identify up to 24 million barrels from the Americas for the first quarter of 2026, and has bought additional West African grades, including volumes from Angola and Nigeria, to balance its slate at workable prices.

State refiners and MRPL

Mangalore Refinery and Petrochemicals has shifted toward Gulf supply, recently buying 2 million barrels of Abu Dhabi Murban via tender to replace Russian barrels. The refiner plans to rely more on spot purchases and term providers in the coming months. Bharat Petroleum and HPCL Mittal Energy have cut Russian exposure and stepped up purchases from the United States and the Gulf, mirroring the broader state sector strategy of risk reduction and supply diversification.

Nayara Energy

Nayara, which has Rosneft influence in its shareholding structure, faces tighter constraints. Its options to replace Russian volumes on short notice are more limited, and the refiner may need to adjust runs or crude quality until stable supplies are secured from alternative sources.

Across the sector, executives expect a sharp reduction in Russian inflows rather than an immediate halt. Some barrels could still reach India through intermediaries that sit outside sanctions, but banks will likely block any cargoes that show a direct link to the listed producers in shipping documents.

Run rates, margins, and the consumer link

Through September, total crude processing in India slipped to the lowest level in nearly 19 months. Publicly, refiners cited scheduled maintenance, yet managers acknowledge that the loss of flexibility from cheap Russian blends is forcing tighter planning. When the discount was wide, processors could run harder, build inventories, and time product exports to capture margins. With discounts shrinking and freight rising, each cargo decision carries more risk and less cushion.

Retail pump prices have not changed for now, which puts pressure on marketing margins when crude rallies or the rupee weakens. Oil marketing companies can absorb higher input costs for a period, but that capacity is finite. If international prices stay firm and replacement barrels remain expensive, the likely outcomes are a combination of selective retail price adjustments or temporary fiscal support. Market strategists warn that a sustained upswing in crude could widen the import bill and add to inflation risks, which would complicate monetary policy and the fiscal math.

Payment, shipping and the shadow fleet

Sanctions risk has shifted from the wellhead to the paperwork that moves oil. Banks now demand clean provenance for each cargo. If Rosneft or Lukoil appears anywhere on a bill of lading, finance departments are reluctant to approve letters of credit. Some traders are exploring chain transfers to non sanctioned entities, but that raises legal and reputational risk for counterparties and their bankers. Even when a cargo is technically compliant, delays in payment clearance add cost and uncertainty.

On the water, the newest restrictions designated more than 180 ships, many of which have carried Russian oil to Asia. Analysts estimate that about 95 percent of the newly targeted vessels transported Russian origin barrels during the last year, including roughly 450,000 barrels per day delivered to India. With a smaller pool of acceptable tankers, freight rates are climbing and voyage planning is more complex. Reflagging or changes in vessel ownership may eventually create workarounds, yet those steps take time. Each extra transfer or charter premium reduces the netback for the seller and raises the landed cost for the buyer.

China, prices, and the global ripple

China and India are the two biggest markets for Russian crude. China typically takes East Siberia Pacific Ocean crude by pipeline and ship, while India buys mostly Urals by tanker. After the latest US actions, major Chinese state companies suspended deliveries tied to the blacklisted Russian producers while compliance teams review exposure. Smaller independent processors in China may keep buying, but at lower volumes and with greater caution. Indian refiners have largely paused direct purchases connected to the sanctioned firms, while exploring whether barrels from not sanctioned sellers can pass bank checks.

The pullback has already tightened the market for Middle East and Atlantic Basin grades. Spot premiums for Murban, Basra Medium, Upper Zakum and select West African crudes have risen as Chinese and Indian demand shifts back to those streams. Brent crude pushed above recent averages after sanctions were announced, and traders expect price swings to remain frequent as buyers and sellers test what is possible under the new limits. Freight costs are another lever lifting delivered prices into South and East Asia.

What can replace Russian barrels

There is no single substitute for Russian Urals, a medium sour grade that fits well with India’s complex refineries. The closest matches are in the Gulf. Iraq’s Basra Medium and Abu Dhabi’s Upper Zakum provide similar yields and sulfur profiles, and Saudi supply can cover heavier portions of the slate. Light grades such as Murban and US WTI can be blended to maintain refinery balances for gasoline and naphtha where needed. Brazil’s Buzios and Tupi offer additional options, although scheduling and freight from the South Atlantic require careful planning.

Flows from the United States are already rising. US crude shipments to India reached roughly 575,000 barrels per day in October, the highest since 2022, and tenders point to more. Indian Oil has sought up to 24 million barrels from the Americas for early 2026 to build optionality. West African barrels from Angola and Nigeria are filling gaps as well, although rising Chinese demand for Atlantic Basin grades limits how much India can take at a price that preserves margins.

Refiners say the total cost to replace Russian supply could lift India’s annual import bill by less than 2 percent if alternative flows stabilize. Even so, delivered costs are higher today than during the period of wide discounts. Tools to manage volatility include more active use of strategic petroleum reserves, incremental gains in domestic output, and refined product export scheduling that balances local demand with international cracks. The priority is to keep refineries well supplied without triggering financial or compliance stress.

Policy calculus in New Delhi

Officials have signaled that procurement decisions are guided by energy security at affordable prices and by the need to avoid disruptions in banking and shipping. India has not endorsed unilateral sanctions, yet refiners generally avoid violating US measures because secondary sanctions can choke off finance and insurance. Diplomatic engagement with Washington continues, including discussions about trade. Recent US tariffs on Indian goods have added tension, but both sides are exploring ways to steady commercial ties while India diversifies energy sources.

At home, policymakers have a few levers if crude stays elevated. They can allow limited retail price increases, adjust taxes on fuels to cushion consumers, or target support to vulnerable sectors if required by inflation dynamics. None of those choices is cost free, which is why the current approach emphasizes a flexible crude slate and strict compliance. The strategy aims to preserve growth momentum, keep inflation manageable, and maintain access to global finance as refiners transition away from heavy dependence on Russian barrels.

The Bottom Line

• US sanctions on Rosneft and Lukoil are pushing Indian refiners to cut Russian oil purchases and rework crude slates.
• Russia’s share of India’s crude imports has slipped to about 34 percent from roughly 36 percent in prior years.
• Discounts on Russian crude have narrowed while bank and insurer scrutiny has increased transaction risk.
• Companies face a November 21 deadline to wind down transactions with the sanctioned Russian producers.
• US crude deliveries to India rose to around 575,000 barrels per day in October, the highest since 2022.
• Indian Oil paused and then resumed compliant Russian purchases, and is seeking up to 24 million barrels from the Americas for early 2026.
• MRPL bought Abu Dhabi Murban, while other state refiners reduced Russian exposure and turned to the Gulf and the United States.
• Indian refinery runs in September fell to the lowest level in nearly 19 months, reflecting maintenance and tighter crude flexibility.
• Sanctions on more than 180 ships have reduced tanker availability and pushed freight costs higher to Asia.
• Replacing Russian barrels could raise the annual import bill by less than 2 percent if alternative supplies stabilize.
• Retail fuel prices are unchanged for now, but tighter margins increase the chance of future adjustments if crude stays high.