Explained: Why India’s Russian oil imports are surging despite US sanctions

India witnessed a significant surge in its imports of Russian crude oil in April, reaching a nine-month high, despite the imposition of new sanctions by the United States of America (USA) on Russia’s oil shipping syndicate. Vessel tracking data and industry experts attribute this surge to several key factors, shedding light on the complex dynamics influencing India’s energy imports.

Ukrainian Drone Attacks and Russian Refining Capacity

The disruption caused by Ukrainian drone attacks on Russian refining infrastructure in late January-early February played a pivotal role in pushing Russia’s seaborne oil exports to 3.8 million barrels per day (bpd). This surplus, amounting to 300,000 bpd higher than the previous average, prompted Russian oil producers to export more barrels, resulting in increased availability for Indian buyers.

Limited Impact of Sanctions

Despite the latest round of US sanctions targeting Russia’s state-owned shipping major Sovcomflot and related tankers, Indian refiners continued importing Russian crude. While some initially hesitated due to speculation surrounding the sanctions, the impact proved marginal and short-lived. Indian refiners showed resilience by adapting to the evolving sanctions landscape, avoiding explicitly sanctioned tankers while maintaining trade with Sovcomflot tankers.

Alignment of Shipping and Regulatory Services

The alignment between Russia’s shipping practices and India’s maritime regulatory services further facilitated oil imports. Recent approvals by India’s shipping regulator for Russian insurance firms to provide marine insurance cover to tankers alleviated concerns regarding secondary sanction risks. This alignment signals a growing synergy between the two countries’ energy trade mechanisms.

Preference for Discounts and Quality

Indian refiners demonstrated a preference for Russian crude, particularly the medium-sour Urals grade, which accounted for nearly 79% of India’s Russian oil imports in April. The significant price differential between Urals and competing crude grades from traditional suppliers like Saudi Arabia and Iraq drove this preference. Despite shrinking discounts on Russian crude, Indian refiners prioritized cost-effective imports, leading to substantial savings.

Impact on Traditional Suppliers

The surge in Russian oil imports coincided with a decline in India’s imports from traditional suppliers like Saudi Arabia and Iraq. As the West reduced reliance on Russian energy supplies post-Ukraine conflict, Russia’s discounted crude offerings became more attractive to Indian refiners. Consequently, imports from Saudi Arabia fell to a seven-month low, highlighting India’s strategic shift in crude sourcing.