The latest U.S. sanctions on Russia's top energy producers Rosneft and Lukoil have put Indian refiners in a bind.
For the past three years, India's oil processors have thrived on discounted Russian barrels that boosted their refining margins, profits, and share prices. Now, as the U.S. and Europe tighten curbs on Moscow's exports, those windfall gains may fade.
New Delhi has so far publicly resisted U.S. pressure to halt buying Russian oil, arguing that it was vital to its energy security. But it is now weighing whether trimming Moscow's barrels could buy relief from President Donald Trump's 50% tariffs on India's goods exported to the U.S.
That has left the refiners exposed, but at least for now, they are putting up a brave front.
Reliance, India's largest refiner, said it will "address these conditions while maintaining relationships with its suppliers".
The company, which has a long-term deal to buy nearly 500,000 barrels per day from Rosneft, is reassessing those arrangements after Washington's move. The U.S. has given companies until November 21 to wind down transactions with Rosneft and Lukoil.
Reliance plans to stop importing oil from Rosneft and is scouting for alternative supplies from the Middle East and Brazil.
State-run refiners, including Indian Oil, Bharat Petroleum and Hindustan Petroleum, are poised to sharply cut Russian oil supplies.
With discounts on Russian barrels already shrinking from as much as $25 to barely $2-$2.50 a barrel due to Ukraine's attacks on Russia's oil infrastructure, India's refiners face a squeeze on the margins that powered their robust profits. Costlier Middle Eastern or Brazilian supplies will lift input costs, especially for private players such as Reliance whose pricing is aligned to global benchmarks.
Reliance's imports from Rosneft account for a major portion of India's Russian oil purchases, and its Jamnagar complex is one of the few capable of processing a wide range of crude grades.
"Any hit to Russian supplies will increase its participation (in the spot market) and that would tighten the spot market and raise prices. They are a giant player," said Tushar Tarun Bansal, senior director at oil consultancy Alvarez and Marsal.
The ripple effect could raise India's import bill, tighten competition for similar grades in Asia, and strain fuel pricing at home.
"While India can substitute purchases from Russia with suppliers from the Middle East and other regions, the import bill for crude oil would increase," said Prashant Vashisth, vice president at Moody's affiliate ICRA Ltd.
Read this commentary by Reuters' Ron Bousso on how Trump's India squeeze will push Russian oil further into the shadows.
