India’s energy policy continues to walk a geopolitical tightrope, balancing its critical need for affordable energy with mounting international pressure. Recent developments highlight the nation’s increasing reliance on discounted Russian oil, despite calls from the US to reconsider, alongside complex challenges in payment mechanisms and an ongoing commitment to diversifying its crude supply for long-term energy security.
In the intricate landscape of global energy markets, India has emerged as a pivotal player, skillfully navigating supply chain disruptions and geopolitical tensions to secure its burgeoning energy demands. The nation’s strategy, particularly concerning its relationship with Russian oil, reflects a pragmatic approach aimed at ensuring affordability and stability for its 1.4 billion citizens. This approach, however, has not been without its challenges, notably from persistent pressure by Western nations.
The Resurgence of Russian Crude: A Price-Driven Imperative
Following Western trade restrictions imposed on Russia, India significantly ramped up its imports of Russian oil, leveraging substantial discounts to bolster its energy reserves. This strategic shift saw Russia’s share in India’s overall oil market dramatically increase, displacing traditional suppliers like Iraq and Saudi Arabia.
In April of the fiscal year 2024/25, India’s imports of Russian oil soared to a nine-month high, reaching almost 1.8 million barrels per day, an increase of approximately 8.2% compared to the previous month, as reported by Reuters. This surge was partly attributed to the resumption of shipments from non-sanctioned tankers belonging to the Russian Sovcomflot company, after a brief halt earlier in the year due to US sanctions.
The appeal of Russian Urals crude continued into mid-2024. Prices for June-loading barrels firmed slightly in Indian ports, indicating strong demand for the grade. Cargoes loading in the first half of June 2024 were sold at a discount of $3.50 per barrel against dated Brent, a firmer position compared to May cargoes which traded at a discount of $3.50-$4 per barrel on a Delivered Ex Ship (DES) basis in Indian ports.
Several factors contributed to these market dynamics:
- Limited Supply: Russia’s pledged output cuts and high domestic refinery runs constrained the availability of Urals crude for export.
- Reduced Offline Capacity: A decline in Russian offline primary refining capacity was expected to further limit Urals supply.
- Easing Freight Rates: Freight rates for Russian oil from Baltic ports to India eased due to good vessel availability and lower overall exports.
These conditions solidified Russia’s position as a dominant supplier, with reports from late 2022 by S&P Global Commodity Insights showing Russia becoming India’s top crude supplier in November 2022, receiving around 1 million barrels per day, projected to rise to 1.24 million barrels per day in December of that year. The average discount of $15 per barrel on Russian crude during April-October 2022 resulted in estimated savings of about $3 billion for India, according to Kotak Securities Ltd.
Geopolitical Crosscurrents: US Pressure and India’s Stance
India’s robust economic partnership with Moscow, maintained amidst the conflict in Ukraine, has frequently drawn criticism and direct calls from Western countries to cease its Russian oil imports. This geopolitical tension escalated significantly by late 2025.
In September 2025, US Energy Secretary Chris Wright explicitly urged India to reconsider its oil imports from Russia. Wright stated, “You can buy oil from every nation on earth, except Russian oil,” emphasizing that India’s decision to purchase cheaper Russian oil effectively provided funds to Russia. He clarified that while the US did not wish to punish India, its primary goal was to end the war in Ukraine and strengthen relations with India, as reported by ANI. This followed a request from the Indian government in May 2024 for its oil refiners and private processor Reliance Industries Ltd. to secure at least a third of their contracted supply from Russia under long-term deals, a move aimed at enhancing energy stability.
The pressure intensified in August 2025, when the Trump administration reportedly imposed a 25% tariff on Indian goods, bringing the total tariff burden to 50% due to India’s continued oil imports from Russia. The Ministry of External Affairs (MEA) criticized this move as “unfair, unjustified, and unreasonable,” reaffirming that India’s energy policy is driven by market dynamics and the imperative to ensure affordable energy access for its vast population.
Adding to the complexity, the British government, in October 2025, announced new sanctions directly targeting major Russian energy companies like Rosneft and Lukoil. These sanctions also included four oil terminals, China’s Shandong Yulong Petrochemical, 44 tankers in the “shadow fleet” transporting Russian oil, and Nayara Energy Limited, a Russian-owned refinery in India. Such measures indicate a widening net of restrictions impacting entities facilitating Russian oil trade.
The Intricacies of Payment: Rupee, Dirham, and the Quest for Stability
The geopolitical shifts have also brought to the forefront challenges in establishing stable payment mechanisms for the India-Russia oil trade. While the Reserve Bank of India (RBI) allowed domestic entities to settle trade in rupees, the adoption of this facility has faced significant hurdles.
By July 2023, Russia began seeking payments from some Indian importers in United Arab Emirates (UAE) dirhams for its oil trade. Invoices revealed that such payments were to be made to Gazprombank via its correspondent bank, Mashreq Bank in Dubai, as reported by Reuters. This preference highlights the practical difficulties in internationalizing the rupee.
The primary hiccups in rupee settlement include:
- Limited International Usage: The rupee is not widely used in the foreign exchange market for international transactions.
- Conversion Challenges: The conversion of rupee funds in special vostro accounts into the currency of a foreign entity’s country of domicile remains a sticking point.
- Return on Investment: Investing in Indian government bonds or other securities for foreign entities may not be as attractive as alternative asset classes, such as Russian bonds, which could offer higher returns.
Historical precedents, such as India’s oil imports from Iran using a rupee settlement system in 2018, also revealed challenges. A significant trade imbalance, where India’s exports to Russia ($245 million) were dwarfed by imports ($5.03 billion) in the first two months of the fiscal year 2023, meant rupee funds could sit idle in Russian accounts. The UAE dirham, pegged to the US dollar and known for its stability, has emerged as a preferred alternative, especially given the UAE’s neutral stance on Russia and Dubai’s role as a financial hub.
India’s Diversification Drive: Beyond the East-West Divide
Despite the attractive discounts on Russian crude, India’s long-term energy strategy emphasizes diversification to mitigate supply shocks and optimize costs. This forward-looking policy aims for robust inflows from both the US and Russia, alongside a broader expansion of its crude basket.
Prior to the Russia-Ukraine conflict, India’s crude basket was heavily skewed towards Middle Eastern crudes (over 60%). Since then, while Russian grades have surged, the market share of the US has also continued to grow. In the last quarter of 2022, the US displaced Kuwait to become India’s fifth-largest oil supplier. Indian Petroleum Minister Hardeep Singh Puri affirmed India’s commitment to strengthening relationships with both the US and Russia.
Key aspects of India’s diversification strategy include:
- Expanding Supplier Base: India increased its number of crude oil suppliers from 27 countries in 2006-07 to 39 in 2021-22, adding new sources like Columbia, Libya, Gabon, and Equatorial Guinea.
- Optimizing Russian Grades: Beyond Urals, India has diversified its Russian crude oil basket by importing Arctic-grade Varandey blend, further strengthening its Russian import volumes.
- North American Appeal: Strategic petroleum reserve releases from the US widened the WTI-Brent spread, making North American crudes more appealing to Indian refiners.
With India’s oil demand rebounding after the pandemic, crude imports are expected to rise further. Policymakers face ongoing challenges with global oil prices, but India’s strategy, including federal excise tax reductions and the role of state-run refineries, aims to contain domestic oil prices and safeguard consumer interests.
Investment Implications and Future Outlook
For investors monitoring the energy sector, India’s evolving oil strategy presents both opportunities and complexities. The nation’s steadfast pursuit of energy security, even in the face of escalating geopolitical pressure, underscores the resilience of its demand profile.
Indian refiners stand to benefit from their agile sourcing strategies, securing discounted crude while diversifying long-term supply agreements. However, they must also navigate potential trade tariffs and sanctions, as evidenced by the 2025 US and UK actions. The shift in payment mechanisms, favoring more stable currencies like the UAE dirham, could influence banking and trade finance sectors involved in India-Russia commerce.
Long-term investors should consider:
- Energy Security as a Pillar: India’s commitment to affordable energy for its population will likely remain a paramount policy driver, influencing trade decisions regardless of external pressure.
- Diversification Pays Off: Companies involved in diversifying India’s energy sources, including those facilitating imports from the US and other non-traditional suppliers, may see sustained growth.
- Geopolitical Risk Premium: The constant tension between India’s energy needs and Western sanctions means a geopolitical risk premium will likely remain embedded in valuations for companies heavily involved in the India-Russia trade corridor.
The ongoing balancing act reflects a sovereign nation prioritizing its economic stability and growth. While global oil markets remain volatile, India’s strategic moves position it as a critical barometer for understanding the future of international energy trade in a multipolar world.
