How US Sanctions On Russia Will Hit The Margins Of IOCL, BPCL, Other Indian Refiners

Global crude market has turned volatile once again following fresh US sanctions on two of Russia’s largest oil producers, Rosneft and Lukoil. The move, aimed at tightening restrictions on Russian energy revenues, threatens to disrupt a significant share of global oil exports and push prices higher — a development that could weigh heavily on Indian oil marketing companies (OMCs).

Rosneft and Lukoil together account for an estimated 3.1 million barrels per day (mbpd) of exports, nearly 80% of Russia’s total crude shipments of 3.8–3.9 mbpd. The sanctions have sparked supply concerns, resulting in an immediate 5% jump in crude prices to $65.6 per barrel.

While the intent of the sanctions is to curb Russian revenue flows, it could be a potential glut in the global market as trade routes get disrupted and refiners scramble to find alternative sources. For India, the world’s third-largest crude importer, this development carries significant implications.

Indian refiners such as Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL) could be among those affected, as they rely heavily on imported crude to produce petrol, diesel, and other fuels.

Every $1 per barrel increase in crude prices is expected to reduce Ebitda by 10% for IOCL, 9% for BPCL, and 7% for HPCL.

Private refiners like Reliance Industries (RIL), which import 34% of their crude from Russia, could also face pressure. For RIL, each $1 per barrel rise in crude prices could dent Ebitda by 2–2.5%.

Notably, Reliance Industries' 34% oil imports are from Russia, followed by IOCL with 16% imports and Nayara Energy with 15% imports, according to the data collated by NDTV Profit. BPCL and HPCL import 12% and 5% oil from Russia, respectively.

Since the Ukraine conflict began, India has emerged as a major buyer of discounted Russian crude. Russia now accounts for 32% of India’s total crude imports in the first quarter of this financial year, compared to just 2% in fiscal 2022. This shift has helped Indian refiners keep input costs low and retail fuel prices relatively stable.

However, any sanctions-driven disruption to Russian supplies will likely raise procurement costs and reduce access to discounted barrels. On a weighted average basis, Indian refiners could lose discounts worth around $1 per barrel, directly eroding their margins.

While the immediate risk lies in higher crude costs, there is a potential silver lining. Should the sanctions force Russia to re-evaluate its war strategy and eventually move toward peace with Ukraine, global crude prices could ease further. In such a scenario, Indian refiners could regain margin stability and benefit from lower feedstock costs.