Indian Refiners Face Higher Costs as Sanctions Squeeze Russian Oil Supply

Cheap Russian crude gives way to costlier supplies

India's refiners are preparing for a sharp reduction in Russian oil deliveries as US sanctions on Rosneft and Lukoil disrupt supplies that have offered substantial savings for nearly three years. Companies face a November 21 deadline to wind down transactions with the two producers, while banks, insurers and shipping companies are tightening checks on the cargoes they handle.

As of October 31, 2025, India has not imposed a blanket ban on Russian oil. Refiners are nevertheless reducing purchases with the greatest sanctions exposure, securing replacement barrels from the Middle East, the United States, West Africa and Brazil, and checking whether remaining Russian purchases can satisfy legal and banking requirements.

India imports about 86 percent of the crude it processes. Since mid 2022, Russia has become its largest supplier, often accounting for close to one third of incoming crude. At the peak, Russian deliveries exceeded 1.7 million barrels per day, largely through sales connected to Rosneft and Lukoil.

Those supplies came with discounts of $8 to $12 per barrel against Middle East benchmarks and easier payment arrangements through intermediaries. Russia's share of India's crude basket has now slipped to roughly 34 percent this fiscal year, compared with about 36 percent in each of the previous two years, a decline of approximately two percentage points.

Some replacement cargoes are costing about $5 per barrel above Dubai linked averages, according to traders and refinery executives. The pressure reaches beyond the purchase price: more expensive shipping, slower payment approvals and fewer acceptable suppliers are making it harder for refiners to plan production and protect their margins.

Why the discount is losing its value

Russian oil became attractive because its lower price gave Indian processors room to cover transport and refining costs while still earning healthy returns. That advantage is shrinking as discounts on many Russian grades narrow or disappear once the full cost of delivery is included.

Shipping firms and marine insurers face penalties, traders are cautious about their exposure, and banks have become more selective about clearing payments. A cheaper barrel at the point of sale can become a more expensive purchase when freight, insurance and transaction risk are added.

Payment channels through intermediaries outside the West, which previously supported large trading volumes, are also becoming less reliable. Compliance teams are examining bills of lading, the documents recording a cargo's shipment, for connections to Rosneft or Lukoil. Several cargoes booked through entities linked to sanctioned companies have been cancelled.

Indian refiners are responding by seeking more supply from established Gulf partners and additional cargoes from the Atlantic Basin. Some Russian barrels may still arrive through sellers outside sanctions, but the industry is preparing for much smaller flows than in recent months.

What the November 21 deadline changes

Washington's package directly targets Rosneft and Lukoil and requires companies to wind down transactions with them by November 21. Financial institutions are expected to enforce that deadline through their payment checks. The practical reach of the measures will depend partly on whether banks approve cargoes connected to the producers, including through intermediaries.

US officials describe the objective as restricting revenue for Russia's war effort while keeping enough oil available to avoid a price spike. US Treasury Secretary Scott Bessent described the purpose of the sanctions and called for support from allies:

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

Brent crude rose several percent after the announcement as traders priced in tighter supplies and higher freight costs. India's government continues to say that purchases are guided by energy security, affordability and the needs of 1.4 billion people.

The changes span several stages, from Russia's rise as a supplier to procurement plans for early 2026:

• Since mid 2022, Russia became India's largest crude supplier, with peak deliveries exceeding 1.7 million barrels per day.
• Through September 2025, India's total crude processing fell to its lowest level in nearly 19 months.
• In October 2025, US crude shipments to India reached roughly 575,000 barrels per day, the highest since 2022.
• November 21 is the deadline to wind down transactions with Rosneft and Lukoil.
• Indian Oil has bought five compliant Russian cargoes for December arrival and is seeking up to 24 million barrels from the Americas for the first quarter of 2026.

Reliance turns to a wider range of suppliers

Reliance Industries, India's biggest private refiner, has been the country's largest buyer of Russian crude since 2022. After the latest sanctions, executives expect its flows connected to Rosneft and Lukoil to fall to minimal levels.

Reliance has been buying replacement cargoes on the spot market, where companies purchase individual shipments rather than rely solely on continuing supply contracts. Its recent purchases include Qatari al Shaheen, Iraqi Basra Medium, and Abu Dhabi's Murban and Upper Zakum grades.

US purchases include West Texas Intermediate and Mars, while Brazil is another source of replacement supply. Buying several grades gives the company more choices as it adjusts the mixture of crude entering its refineries.

Reliance has signaled that it will comply with sanctions while maintaining relationships with existing suppliers where transactions remain lawful. Its task is to keep crude arriving without allowing supplier connections, shipping arrangements or payment checks to interrupt refinery operations.

Indian Oil resumes limited Russian purchases

Indian Oil Corporation initially paused new Russian contracts while reviewing its exposure to blacklisted producers. It subsequently resumed limited purchases that comply with the rules, buying five cargoes for arrival in December from sellers that are not sanctioned.

Some of those barrels include ESPO crude, reportedly priced around parity with Dubai quotes. In simple terms, that means a price close to the benchmark rather than a large discount. Weaker Chinese demand, after state refiners there suspended purchases, has helped make those supplies available.

IOC is also seeking a much larger pool of alternatives. It has issued a tender to identify up to 24 million barrels from the Americas for the first quarter of 2026. A tender invites suppliers to submit offers, allowing a buyer to compare prices, grades and delivery arrangements.

Additional purchases from West Africa, including Angola and Nigeria, are helping IOC balance its crude mixture at workable prices. Its approach combines limited Russian buying that passes compliance checks with a broader search for supplies outside Russia.

Other refiners face different constraints

Mangalore Refinery and Petrochemicals has shifted toward Gulf supply, buying 2 million barrels of Abu Dhabi Murban through a tender to replace Russian crude. MRPL plans to rely more on spot purchases and suppliers under term arrangements in the coming months.

Bharat Petroleum and HPCL Mittal Energy have also reduced their Russian exposure and increased purchases from the United States and the Gulf. Their moves reflect the broader state sector strategy of spreading purchases across suppliers and reducing transaction risk.

Nayara Energy faces tighter constraints because of Rosneft's influence in its shareholding structure. Its options for replacing Russian volumes quickly are more limited, and it may need to change processing levels or the quality of crude it uses until dependable alternative supplies are secured.

Across the industry, executives expect Russian inflows to fall sharply rather than stop immediately. Intermediaries outside sanctions may still sell some barrels, but banks are likely to block cargoes whose shipping documents show a direct connection to the listed producers.

Paperwork and tanker availability raise costs

Banks now want clear records showing where each cargo came from and which companies handled it. If Rosneft or Lukoil appears anywhere on a bill of lading, finance departments are reluctant to approve letters of credit. These are bank commitments that help assure sellers they will receive payment.

Some traders are considering transfers through chains of entities that are not sanctioned. Such arrangements bring legal and reputational risks for buyers, sellers and their banks. Even a cargo that satisfies the rules can become more expensive if payment clearance is delayed.

Shipping restrictions add another layer of difficulty. The newest restrictions designated more than 180 vessels, many of which carried Russian oil to Asia. Analysts estimate that about 95 percent of the newly targeted ships transported Russian crude during the previous year, including roughly 450,000 barrels per day delivered to India.

A smaller pool of acceptable tankers is pushing freight rates higher and making voyage planning more complicated. Changes in a ship's flag or ownership may eventually create alternative arrangements, but those steps take time.

Each additional transfer or charter premium affects both sides of the transaction. It reduces the seller's netback, the money left after transport and related costs, while increasing the buyer's landed cost, the total paid to bring the oil to its destination.

China's pullback increases competition elsewhere

China and India are the two largest markets for Russian crude, but they generally buy different grades through different routes. China typically receives East Siberia Pacific Ocean crude by pipeline and ship, while India mostly buys Urals transported by tanker.

Major Chinese state companies suspended deliveries linked to the blacklisted Russian producers after the latest US action while their compliance teams reviewed exposure. Smaller independent Chinese processors may continue buying, although at lower volumes and with greater caution.

Indian refiners have largely paused direct purchases connected to the sanctioned companies while assessing whether cargoes from sellers outside sanctions can pass bank checks. Their search for alternatives overlaps with China's, increasing competition for oil from other regions.

Spot premiums for Murban, Basra Medium, Upper Zakum and selected West African grades have risen as Chinese and Indian demand shifts toward those supplies. A premium is the extra amount a buyer pays above the reference price for a particular grade.

Brent moved above recent averages after the sanctions announcement. Traders expect frequent price swings as buyers and sellers test which transactions remain possible, while higher freight charges add to delivered prices in South and East Asia.

Which barrels can replace Russian Urals?

Russian Urals is a medium sour crude that suits India's complex refineries. Medium describes its density, while sour refers to its sulfur content. Refineries must account for both because different crude grades produce different balances of fuels and require different processing.

No single alternative replaces Urals in every respect. Iraq's Basra Medium and Abu Dhabi's Upper Zakum offer similar yields and sulfur profiles, making Gulf supplies among the closest matches. Saudi crude can cover heavier portions of the mixture a refinery processes.

Lighter grades such as Murban and US West Texas Intermediate can be blended into refinery supplies to maintain the balance needed for gasoline and naphtha production. Brazil's Buzios and Tupi provide further options, although voyages from the South Atlantic require careful scheduling and freight planning.

US shipments to India reached roughly 575,000 barrels per day in October, the highest level since 2022, and tenders point to further purchases. IOC's search for up to 24 million barrels from the Americas for early 2026 gives it more choices over suppliers and delivery dates.

Angolan and Nigerian crude is filling gaps as well. Rising Chinese demand for Atlantic Basin grades, however, limits how much India can buy at prices that preserve refining margins.

Refiners estimate that replacing Russian supply could increase India's annual crude import bill by less than 2 percent if alternative flows stabilize. Delivered costs are already higher than during the period of wide Russian discounts, making the price and reliability of those replacements central to that estimate.

Lower processing and tighter margins reach consumers

India's total crude processing fell through September to the lowest level in nearly 19 months. Refiners publicly cited scheduled maintenance, while managers also acknowledged that losing flexibility from cheap Russian blends was forcing tighter planning.

Wide discounts previously allowed processors to run harder, build inventories and time fuel exports to capture better margins. Narrower discounts and higher freight costs leave less room to absorb an expensive cargo or a delay. Refining margins are the difference between the cost of crude and processing and the revenue from selling the resulting products.

Retail pump prices have not changed for now. That leaves pressure on marketing margins when crude prices rise or the rupee weakens, because companies must spend more on supply without receiving a matching increase from customers.

Oil marketing companies can absorb higher costs for a period, but their capacity is finite. If international prices remain firm and replacement barrels stay expensive, possible responses include selective retail price changes or temporary fiscal support. No retail price adjustment or support measure has been decided in the account as of October 31.

Market strategists warn that a sustained increase in crude prices could enlarge the import bill and add to inflation risks. Higher inflation would complicate monetary policy, while a larger oil bill or government support would put further pressure on public finances.

New Delhi balances supply, prices and financial access

Indian officials say procurement decisions should secure affordable energy while avoiding disruption to banking and shipping. India has not endorsed unilateral sanctions, yet its refiners generally avoid violating US measures because secondary sanctions can restrict access to finance and insurance.

Secondary sanctions extend pressure beyond the directly targeted company to businesses dealing with it. For refiners, maintaining access to banks and insurers is part of keeping oil moving, alongside finding a supplier and chartering a tanker.

Diplomatic engagement with Washington continues, including discussions about trade. Recent US tariffs on Indian goods have added tension, while both governments are exploring ways to steady commercial ties as India diversifies its energy sources.

At home, policymakers could allow limited retail price increases, adjust fuel taxes to cushion consumers, or direct support toward vulnerable sectors if inflation conditions require it. Each option has a cost, either for consumers, companies or the government budget.

Other tools include more active use of strategic petroleum reserves, incremental increases in domestic oil output, and scheduling refined product exports to balance domestic demand against international cracks. Cracks are the price differences between crude oil and the fuels made from it, used to judge the potential return from refining.

The immediate strategy is to maintain a flexible mixture of crude supplies and strict compliance while keeping refineries supplied. Its goals are to preserve growth momentum, contain inflation and maintain access to global finance as dependence on Russian barrels declines.

The Bottom Line

• US sanctions on Rosneft and Lukoil are pushing Indian refiners toward more expensive alternative crude supplies.
• Companies face a November 21 deadline to wind down transactions with the two producers.
• India imports about 86 percent of the crude it processes; Russia's share has slipped to roughly 34 percent from about 36 percent in the previous two years.
• Russian discounts once reached $8 to $12 per barrel against Middle East benchmarks, but many have narrowed or disappeared after delivery costs.
• Reliance is buying replacement grades from the Gulf, the United States and Brazil.
• IOC has bought five compliant Russian cargoes for December and is seeking up to 24 million barrels from the Americas for early 2026.
• MRPL bought 2 million barrels of Murban; Bharat Petroleum and HPCL Mittal Energy are also reducing Russian exposure.
• Nayara faces more limited replacement options because of Rosneft's influence in its shareholding structure.
• Restrictions on more than 180 ships are reducing tanker availability and increasing freight costs.
• US crude shipments to India reached about 575,000 barrels per day in October, the highest since 2022.
• Replacement supplies could raise India's annual crude import bill by less than 2 percent if alternative flows stabilize.
• Retail fuel prices remain unchanged for now, while higher supply costs put pressure on company margins.