Western Sanctions Force Indian Refiners to Abandon Discounted Russian Crude

Key Points:

• India’s imports of Russian oil fell by 17.8% between January and October 2025 as tighter Western sanctions increased compliance risks for domestic refiners.
• To protect export-oriented operations, Indian refiners are aggressively pivoting toward the U.S. and UAE, with U.S. crude shipments surging by over 83%.
• New secondary sanctions and a lowered EU price cap of $47.60 per barrel have made discounted Russian crude increasingly difficult to manage for major Indian players.

India’s energy security is undergoing a fundamental transformation as the geopolitical ripples of the Ukraine conflict reach a critical inflection point. For nearly three years, India leveraged its neutrality to become a primary outlet for discounted Russian oil.

However, a new report by Rubix Data Sciences titled “The Year That Tested Trade: How India Fared in 2025” reveals that this era of unhindered access to cheap Russian barrels is rapidly closing due to intensifying global trade shifts.

According to the report, India’s crude oil imports from Russia declined by 17.8% during the January–October 2025 period compared to the previous year.

This cooling of the Indo-Russian energy trade is not a result of waning demand, but rather a direct consequence of a more aggressive enforcement phase of Western sanctions, Live Mint reported.

The Enforcement Wall of 2025

The strategy of using discounted Russian crude to fuel India’s massive refining capacity became significantly harder to sustain in mid-2025. As reported by the Bank of Finland, the European Union (EU) implemented its 18th sanctions package in July, which introduced a “floating” price cap.

This mechanism ensures the cap remains 15% below the average market price of Russian Urals. On September 3, 2025, this cap was lowered to $47.60 per barrel, a move designed specifically to squeeze Moscow’s revenue.

This regulatory tightening was coupled with expanded global trade shifts originating from Washington. In October 2025, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) placed sanctions on Russian oil giants Rosneft and Lukoil.

These two companies alone accounted for nearly 60% of Russia’s total oil exports to India in the 2025 fiscal year, totaling approximately 88 million tonnes.

Refiners Prioritize Export “Safety”

The threat of secondary sanctions has fundamentally changed the internal calculus of Indian oil marketing companies. Refiners that process crude for re-export to Western markets face the highest risk.

Under new EU regulations taking effect in January 2026, the import of refined petroleum products into Europe will be prohibited if they are produced from Russian crude, regardless of where they were refined.

“These rising compliance risks forced Indian refiners to scale back Russian barrels, especially for export-linked operations,” the Rubix Data Sciences report noted.

Major private players, including Reliance Industries, have reportedly begun signaling a complete halt to direct procurement from sanctioned Russian entities to safeguard their global market access.

As a result, India is actively seeking “clean” barrels that carry no risk of triggering Western penalties. This has led to a dramatic redirection of energy flows. While Russian imports ebbed, crude shipments from the United States surged by 83.3%, and imports from the UAE rose by 8.7%.

These global trade shifts reflect a strategic move by New Delhi to balance its energy needs with the necessity of remaining integrated into the Western financial and trade ecosystem.

The High Cost of Diversification

While the shift away from Russia ensures compliance, it comes at a financial price. For years, the “Russia discount” provided Indian refiners with a substantial cost advantage, helping to temper domestic inflation and boost refining margins.

The Hindu reported that while Russia still accounts for roughly 32% of India’s total oil imports, the sharp drop in volume during October 2025, down 31% year-on-year, indicates a structural change.

Industry analysts at ICRA suggest that replacing discounted Russian barrels with market-priced crude from the Middle East or North America could increase India’s annual oil import bill by nearly 2%.

This fiscal pressure arrives at a time when India is already grappling with a widening trade deficit, which hit a record $41.7 billion in October 2025.

Navigating a Multi-Polar Energy Market

Despite the downward trend, India is not abandoning its Russian ties entirely. On a month-on-month basis, some refiners still opportunistically purchase Russian barrels when shipping and insurance “shadow” networks allow.

However, the overall trajectory is clear. The systemic global trade shifts of 2025 have forced India to move from a policy of “maximum discount” to one of “maximum compliance.”