India’s Oil Supply From Russia Threatened by New US Sanctions

By Tsvetana Paraskova of OilPrice.com

Indian refiners are concerned that the latest U.S. sanctions against Russia could further impact their ability to import cheap Russian crude as freight rates are set to rise and dent refining margins, industry sources in India have told Reuters.

The U.S. levied new sanctions against Russia last week, on the second anniversary of the Russian invasion of Ukraine and in response to the death of opposition politician and anticorruption activist Alexey Navalny.

Among the 500 targets of the new sanctions, the U.S. Treasury and State are targeting Russia’s tanker operator Sovcomflot and more than a dozen crude oil tankers linked to the Russian state firm.

Refiners in India are now concerned that the new sanctions would make it more difficult to have oil shipped from Russia on non-sanctioned vessels, which would raise shipping costs and eat into the refining margins, according to Reuters’ sources.

India will still buy crude from Russia but only if it is sold below the G7 price cap of $60 per barrel and is shipped on non-sanctioned vessels, an Indian government source told Reuters.

Even before the latest U.S. sanctions, Refining margins for India’s biggest state-owned refiners had dropped amid more difficult access to Russian crude and soaring freight rates due to the Red Sea disruption to shipments, analysts and traders told Bloomberg last week.

For most of 2023, Indian refiners enjoyed high refining margins and profits as they imported cheap Russian crude at $20 a barrel and more below international benchmarks.   

The decline in refining margins is due to higher costs for Indian refiners because of higher competition for Russian supply in Asia, increased freight costs, and tougher U.S. sanctions enforcement, which has limited India’s access to very low-priced crudes from Russia.

The tougher enforcement of the G7 sanctions and related payment issues have been holding up Indian purchases of some cargoes of Russian crude oil, with tankers previously headed to India turning back eastwards, tanker-tracking data monitored by Bloomberg showed early this year.