India's gains from Russian oil imports exaggerated

New Delhi: India’s gains from importing discounted Russian oil are estimated to be just USD 2.5 billion per annum, significantly lower than the previously speculated range of USD 10-25 billion, a research report said on Thursday.

Stopping Russian oil imports would force India, the world’s third-largest oil importer and consumer, to rely on limited alternatives, potentially driving global crude prices up to USD 100 per barrel amid rising demand and tight supply.

“Benefit from Russian oil imports is way less than exaggerated media numbers,” brokerage CLSA said in a report.

While “some media outlets have estimated the benefit in the range of USD 10 billion to USD 25 billion for India from Russian crude imports, we calculate the net annual benefit to India from Russian crude imports to be much smaller at just USD 2.5 billion or a small 0.6 bpc of India’s GDP,” it said.

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India’s import of Russian oil surged dramatically following the Ukraine war, rising from less than 1 per cent of its total crude oil imports to nearly 40 per cent.

This sharp increase was driven by steep discounts offered by Russia after some Western countries’ purchases to punish Moscow for its invasion of Ukraine.

While the shift helped India secure affordable energy supplies, the Trump administration criticised the purchases, accusing New Delhi of profiteering by buying discounted Russian oil and exporting refined fuel to regions including Europe.

India has maintained that its actions do not violate any international laws, as there are no sanctions on purchasing Russian crude. The European Union only recently imposed a ban on importing fuel derived from Russian crude. Additionally, the US has not sanctioned the purchase of Russian crude oil or its refined products.

At present, India imports 36 per cent of its oil needs from Russia. Of the 5.4 million barrels per day (mbpd) of imports, 36 per cent (1.8 mbpd) of crude oil came from its top supplier, Russia, in 2024-25. Other key suppliers of crude oil to India are Saudi Arabia (14 per cent), Iraq (20 per cent), the UAE (9 per cent) and the USA (4 per cent).

While many EU countries have banned imports of Russian oil, a price cap was introduced for other countries purchasing Russian crude oil. Indian imports have adhered to this price cap.

Russia exports about 4.3-4.8 mbpd (total output of 9.2 mbpd), which is about 5 per cent of the overall crude oil supply. Besides India, China is the other big importer of Russian crude oil, with an estimated 2 mbpd of oil imported from the country over the past year.

Stating that the net benefit from discounted Russian crude is much lower than media reports, CLSA said the headline price discount for Russian crude versus Dubai crude appears large due to its USD 60 price cap, particularly at times when the Brent crude price rises above USD 75 per barrel.

“However, the net gain to Indian importers is far smaller than this visible discount, as there are several shipping, insurance and reinsurance-related restrictions for Russian crude. Therefore, Indian refiners import Russian crude on a cost, insurance and freight (CIF) basis, landed in India. Thus, the landed price of Russian crude is at a far lower discount,” it said.

Indian oil marketing companies (OMCs) have highlighted that the discount of Russian crude averaged around USD 8.5 per barrel in FY24, but this discount fell to USD 3-5 in FY25 and has declined to about USD 1.5 per barrel in the recent months.

“Using an average discount of USD 4 per barrel would imply a total annual advantage of just USD 2.5 billion captured by Indian importers in FY25, ie, equal to 0.6 bps of India’s GDP. However, current discounts would take down the annualised gains from this import to just USD 1 billion,” the report said.

Although it is simplistic to look at Russian crude oil imports in isolation, refining is a business where one would need to keep a balanced slate of input crude. So, a higher share of the inferior quality Russian crude would require refineries to also buy a bigger share of better quality, more expensive crude oil. Therefore, to know the real gains of Russian oil imports, one needs to check if there are gains in the average price of crude imported by India.

“To our surprise, the import data of the government reveals no clear gains from Russian oil imports, as the unit price of Indian crude oil imports has moved from a discount versus Dubai pre-FY22 to a premium over the past couple of years. So, any such large gain is not discernible from the Indian oil import data,” it said.

It went on to state that the price of crude oil, which is converted into fuels such as petrol and diesel, could rise to USD 90-100 per barrel if India stops importing Russian oil. “With only a few buyers purchasing Russian crude, any stoppage from India may make it difficult for Russia to find buyers for possibly 1 million bpd or 1 per cent of global supply in the near term. Although India should be able to easily secure supply from other sellers, such a supply disruption could drive a spike in crude oil price to USD 90-100 per barrel and would drive up inflation across the world, in our view.”

CLSA argued that Indian imports of Russian oil provide a much-needed check on crude oil prices, as well as curbing the risk of global inflation. “Economics aside, we believe the issue of Russian crude oil imports has now become a political one with India reiterating its freedom to choose its trade partners within the purview of global trade rules.”

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