India's Russian Oil Imports Seen Falling By A Third In December Amid Sanctions

India's appetite for Russian crude seems to have subdued sharply in December amid factors like US sanctions on Rosneft, Lukoil and their majority-owned subsidiaries along with EU sanctions on Russian-linked product flows.

According to real-time data analytics company Kpler, Russian crude imports into India are expected to fall to around 1.2 million barrels per day in December, down from 1.84 million bpd in November, marking the lowest level since December 2022.

Even though oil imports are projected to register a sharp pullback in December, the decline analysts say that this reflects short-term disruptions rather than a structural shift in sourcing patterns. Indian refiners continue to buy Russian crude from non-sanctioned entities.

The drop driven by US sanctions on top Russian exporters and additional EU sanctions on Russian-linked product flows was flagged by analysts as early as October.

"This appears to be a near-term adjustment, with Russian crude imports into India expected to recover gradually from January as new intermediaries step in and supply chains re-establish," said Sumit Ritolia, lead research analyst, refining & modeling, Kpler.

India's oil imports from Russia have only grown in recent years, making it the world's third-largest oil importer because of Moscow's steep discounts on its main oil exports which reportedly went up to $35 a barrel sometimes.

Traditionally reliant on west Asian oil, India sharply ramped up Russian imports as sanctions and reduced European demand made barrels available at discounted prices pushing its share from under 1% to nearly 40% of total crude imports.

India eventually became the largest buyer of discounted Russian crude after Western countries shunned Moscow following its February 2022 invasion of Ukraine.

In December, Russia remained the country's top supplier but its share fell to less than a quarter of all oil imports from about a third in November.

Following US sanctions on Rosneft, Lukoil and their majority-owned subsidiaries taking effect on November 21, refiners including Reliance Industries, Hindustan Petroleum, HPCL-Mittal Energy and Mangalore Refinery and Petrochemicals temporarily halted Russian imports. The only exception is Rosneft-backed Nayara Energy, which continues to rely heavily on Russian crude after EU sanctions curtailed alternative supplies.

"Russian crude oil imports to India are retreating sharply in December, with volumes forecast to fall to around 1.2 million bpd (25% of India's total import) - down from 1.84 million bpd in November," Ritolia said.

"The decline is largely driven by reduced intake from major buyers, particularly Reliance Industries (RIL) and the New Mangalore refinery, both of which have significantly scaled back Russian crude purchases during the month."

In December, Indian refiners pivoted to non-designated Russian entities, opaque trading channels, and alternative suppliers across the Middle East, West Africa, and the Americas.

"However, December’s headline drop only tells part of the story. Beneath the surface, Russian crude flows into India are increasingly being rerouted through a growing web of intermediaries, traders, and logistical workarounds. While direct purchases have softened, the underlying demand signal remains intact, and Russian barrels are expected to retain a structural presence in India's crude slate given pricing economics, refinery compatibility, and limited near-term alternatives," he said.

As alternative sellers such as Tatneft, Redwood global supply, Rusexport, Morexport, and Alghaf Marine expand their trading footprint and take over the commercial role previously played by Rosneft and Lukoil, Russia's exports should largely re-normalise, with volumes gradually reappearing through these new channels.

The structure will become more intermediated, but the barrels will still find their way to market, he said.

Stating that prices have been adapting to this new normal too, he said the discounts on Russian Urals grade of crude oil have stabilised at $ 6.50 per barrel since the beginning of the month. This represents a drop of $4.50 compared to the period preceding the announcement of US sanctions on Rosneft and Lukoil.

However, the price drop is also reflective of a weaker medium sour market in Asia, with the delivered price of competing Middle Eastern grades (Arab Light, Basrah Medium) also shedding $1.50 to $2 a barrel in the same time frame.

"As long as broader secondary sanctions are not enforced, India is expected to continue importing Russian barrels as economics support the case, albeit increasingly through indirect and less transparent channels, keeping these barrels structurally embedded in India's crude basket," he said.

Ritolia said India receives Russian crude from suppliers other than Rosneft and Lukoil, and those flows remain legal, for now.

"The sanctions announced by the US target specific companies (Rosneft, Lukoil, and their majority-owned subsidiaries), not all Russian oil or all Russian producers. This means that crude supplied by non-designated Russian entities or independent traders using non-sanctioned intermediaries can still be legally purchased by Indian refiners, as long as no sanctioned entity, vessel, bank, or service provider is involved.

"Russian oil itself is not sanctioned; the suppliers are. That is why non-designated producers can legally step in to fill part of the gap created by the Rosneft/Lukoil restrictions," he added.

(With inputs from PTI)