$11 billion warning: Can India afford to walk away from Russian oil?

India could face an additional $9-11 billion in annual oil import costs if forced to reduce or abandon its reliance on Russian crude due to US tariff threats and potential penalties, analysts at Kpler have warned.

The estimate comes as President Donald Trump has announced a 25% tariff on Indian goods, coupled with an unspecified penalty for India’s continued purchases of Russian oil and weapons.

India, the world’s third-largest oil importer, has sharply increased its intake of discounted Russian crude since 2022, bringing the share from less than 0.2% pre-war to 35-40% today. This strategy has lowered procurement costs, contained inflation, and enabled refiners to post record profits while exporting petroleum products - including to markets that restrict direct imports from Russia.

That model, however, now faces twin pressures. The first is the US penalty threat, and the second is an EU ban from January 2026 on refined products originating from Russian crude. "This is a squeeze from both ends," said Sumit Ritolia, Lead Research Analyst (Refining & Modeling) at Kpler. "Together, these measures sharply curtail India's crude procurement flexibility, raise compliance risk, and introduce significant cost uncertainty."

India spent $137 billion on crude imports in FY24. Replacing Russian barrels with alternatives from the Middle East, West Africa, or Latin America could raise that bill sharply. "Assuming a $5 per barrel discount lost across 1.8 million bpd, India could see its import bill swell by USD 9–11 billion annually," Ritolia said.

If global flat prices rise further due to tightening supply, the cost impact could be higher.

Private refiners, who account for over 50% of India’s Russian crude intake, are already reducing exposure. In July, Russian oil imports declined to 1.8 million bpd, down from 2.1 million bpd in June, reflecting both refinery maintenance and heightened compliance sensitivity amid rising geopolitical risk. According to Kpler, state-run refiners are leading the pullback.

For firms like Reliance Industries Ltd and Nayara Energy, the challenge is significant. Nayara, backed by Russia’s Rosneft, has already been sanctioned by the EU. Reliance, one of the world’s largest diesel exporters, has heavily relied on Russian barrels for high-margin refining.

"The introduction of strict origin-tracking requirements now compels Reliance to either curtail its intake of Russian feedstock, potentially affecting cost competitiveness, or reroute Russian-linked products to non-EU markets," Ritolia said. However, Reliance’s dual-refinery structure gives it room to adjust: the export unit can switch to non-Russian crude while Russian supplies are processed domestically.

Even so, diverting diesel exports to Southeast Asia, Africa, or Latin America involves longer voyages, reduced margins, and higher commercial risk. "Replacing Russian crude isn’t plug-and-play," Ritolia cautioned.

Middle Eastern suppliers are the most viable fallback, but present their own constraints - rigid contracts, pricing inflexibility, and a mismatch in crude quality that can hurt refinery yield.

Beyond individual refiners, the broader macroeconomic risk is also rising. A steeper import bill could strain the fiscal balance if the government moves to absorb fuel price shocks. “The cascading impact on inflation, currency, and monetary policy would be difficult to ignore,” Kpler said.

(With inputs from PTI)