India Adjusts Crude Oil Sourcing Strategy Amid US Sanctions on Russian Producers

Key Highlights

1. Oil Price Surge: Brent crude hit $80 per barrel, its highest since August, driven by tightened global supply and US sanctions on Russian oil producers and vessels.
2. Sanctions Impact: The sanctions target Gazprom Neft, Surgutneftegas, and 183 tankers transporting Russian oil, affecting an estimated 1.7 million bpd of exports.
3. Indian Refiners Adapt: Indian oil refiners are shifting sourcing strategies to Middle Eastern, African, and Latin American suppliers, anticipating tighter competition from China.
4. Economic Implications: Rising crude prices could widen India’s current account deficit and retail inflation, adding pressure on foreign reserves, the rupee, and corporate costs.

Global Oil Market Update: Rising Prices and Fresh Sanctions

• Oil prices have been on a tear since the start of the year, with Brent crude hitting $80 a barrel on Monday. 
• And West Texas Intermediate (WTI) crude oil, the benchmark for the U.S. market, was up 2%—over $78 a barrel. MCX crude oil prices opened at 6781 with a fall of 1.18%.

Brent Crude Hits $80 Amid Tightening Global Supply

• India’s oil refiners scrambled to alter their crude oil sourcing strategy after the US slapped fresh sanctions against Russian producers.
• Last Friday, the US Treasury Department slapped sanctions against Russian oil producers Gazprom Neft and Surgutneftegas and 183 vessels involved in transporting cheap Russian oil, principally to China and India.
• The measures are designed to tighten revenue channels supporting Moscow’s war in Ukraine, and are expected to disrupt global oil markets, industry officials and analysts said on Monday.
• In 2022, the Group of Seven (G7) nations had slapped a $60 per barrel price cap to halt Russian crude flows to major markets, including India.
• On Monday, Brent crude futures rose $1.35, or 1.69 percent, to $81.11 per barrel, hitting their highest level since August. 
• The price hike reflects market fears over tightened supplies as sanctioned vessels accounted for an estimated 1.7 million barrels per day (bpd) of Russian oil exports in 2024, according to Goldman Sachs. The bank noted that this volume represented approximately 25 percent of Russia’s total crude exports.

Petroleum News: India's Oil Strategy Faces New Challenges as US Sanctions Bite

• India, the world’s third-largest crude importer, relies on imports to meet 85 percent of its oil demand. Analysts warn that rising crude prices could widen India’s current account deficit by 0.55 percent for every $10 increase per barrel, while retail inflation may climb by 0.3 percent. Such pressures could deplete foreign reserves, weaken the rupee, and escalate corporate costs.
• Indian refiners, including Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL), are now exploring alternative sources in the Middle East, Africa, and Latin America to mitigate potential shortfalls in Russian supplies. However, competition from other major buyers, particularly China, is expected to tighten global supply and drive up costs.
• The sanctions on Russia’s “shadow fleet”—tankers reflagged or insured domestically to bypass Western restrictions—add another layer of complexity.
• A senior government official said Monday that a wind-down period until March 12 will allow for existing contracts to be honored. However, sanctioned vessels will not be permitted to dock at Indian ports after that date unless specific exemptions apply.
• Despite the sanctions, Indian refiners do not anticipate significant disruptions in the next two months, as vessels already en route will fulfill current contracts.
• Russia became India’s largest crude supplier in 2023, accounting for nearly 40 percent of its imports, a sharp rise from less than 1 percent before the Ukraine conflict.

Expert Opinion: Price Surge and Geopolitical Tensions

• The US imposed sanctions on Russian oil producers Gazprom Neft and Surgutneftegas on Friday, along with 183 vessels. The purpose of the sanction is to disrupt the revenue stream Moscow uses to fund its war with Ukraine. Many of these tankers have been used to ship oil to India and China, as Western sanctions and the price cap imposed by the Group of Seven (G7) countries in 2022 shifted the flow of Russian oil from Europe to Asia. 
• The recent sanctions imposed by the US on the Russian oil are unlikely to have an immediate or direct impact on India’s oil supply. Any major effects are expected to be felt in next two months, as per a senior official in the petroleum ministry.