Will India’s Oil Trade with Russia Faces Uncertainty Amid New U.S. Sanctions?

The outgoing U.S. administration recently announced sweeping sanctions against Russia’s oil trade, targeting 183 tankers, the majority of the so-called “shadow fleet” that has kept Russian oil flowing to global consumers, including India and China.

The sanctions also affected Russian oil giants Gazprom Neft and Surgutneftegas, as well as insurance companies and other entities involved in Russia’s oil sector. This marks the largest set of sanctions imposed on Russia’s oil shipping industry since the invasion of Ukraine in February 2022. These sanctions are expected to have a significant impact on India, which has become heavily reliant on Russian oil following the war in Ukraine.

Potential Fallout for India’s Oil Trade

The U.S. sanctions are likely to disrupt the trade of Russian oil to India, which is currently the biggest consumer of Russian crude oil. Indian refiners will be allowed to accept oil cargoes on the sanctioned tankers that were booked before January 10, 2025—when the U.S. sanctions were imposed—with deliveries permitted until March 12.

This wind-down period will enable India to fulfil existing contracts for Russian oil. However, beyond this period, experts predict that the oil trade will be impacted, though overall oil imports are unlikely to be disrupted, as sufficient supply remains available from other oil-exporting nations.

The Kremlin has warned that U.S. sanctions could destabilise global oil markets, and Moscow has pledged to take measures to minimise their impact. The true impact of the sanctions will depend on Russia’s response in terms of pricing, delivery, and whether the incoming Donald Trump administration maintains the current sanctions regime.

Impact on Global Oil Market and Freight Costs

The sanctions have further strained Russia’s oil exports, with several long-standing buyers, including India, already looking to alternative sources. According to ship tracking data from Kpler, 102 of the 183 sanctioned tankers were used to transport Russian crude to India and China at least once in 2024. These tankers together carried over 530 million barrels of Russian crude, with the majority of the remaining exports directed to India.

As Russia faces a shortage of non-sanctioned tankers, freight costs are expected to rise, which will reduce the value of discounts that Russia has been offering to India. With fewer available tankers, Russia will likely face difficulty meeting its global oil commitments, making oil from traditional suppliers like Iraq, Saudi Arabia, and the United Arab Emirates more competitive in the short term.

India Increases Imports from West Asia

While Russia remains India’s biggest supplier of crude oil after the war, with Russian oil accounting for nearly 38% of India’s total oil imports in 2024, India has already been increasing its imports from other West Asian countries.

Iraq, Saudi Arabia, and the UAE have resumed their positions as major oil suppliers to India, as Russian exports faced seasonal demand pressures. The trend of increased imports from these countries is expected to continue, especially as Russian oil exports slow down due to sanctions.

Oil Prices Surge Amid Sanctions and Global Supply Risks

Global oil prices have surged, with West Texas Intermediate (WTI) crude oil rising above $80 per barrel, reaching its highest level since July 2024. Brent crude closed near $82. This surge has been driven by a variety of factors, including the U.S. sanctions against Russia’s energy industry, a cold winter in the Northern Hemisphere increasing demand, and a steady decline in U.S. oil inventories.

Concerns over the Trump administration potentially tightening sanctions on Iran and implementing trade levies on oil exports have also contributed to the upward pressure on oil prices. According to the International Energy Agency (IEA), the 160 tankers sanctioned by the U.S. last week accounted for more than 1.6 million barrels per day of Russian oil in 2024—around 22% of Russia’s seaborne exports. Previous sanctions have already been highly effective, reducing the activity of sanctioned tankers by up to 90%.

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