The largest state-owned refiners in India have become increasingly cautious about committing to contracted Russian oil supply. They are wary of potentially violating the stricter enforcement of the U.S. sanctions on Russian oil exports. Multiple sources with knowledge of the matter have confirmed this, telling Bloomberg. 

The U.S. levied new sanctions against Russia last month on the second anniversary of the Russian invasion of Ukraine. Also, in response to the death of opposition politician and anticorruption activist Alexey Navalny.

Among the 500 targets of the new sanctions, the U.S. Treasury and State are targeting Russia’s tanker operator Sovcomflot. In addition, more than a dozen crude oil tankers were linked to the Russian state firm.

Refiners in India are now concerned that the new sanctions would make it more difficult to have oil shipped from Russia on non-sanctioned vessels. This would raise shipping costs and eat into the refining margins, industry sources in India told Reuters in February. 

Indian oil giant’s future plans

Two other major state refiners, Bharat Petroleum Corporation Limited (BPCL). Also, Hindustan Petroleum Corporation Limited (HPCL), have decided that as of now they won’t be making firm commitments to buy contracted crude supply from Russia during the next financial year,. This is according to Bloomberg’s sources.

Still, Indian refiners are expected to take substantial volumes of Russian oil supply on the spot market in the next financial year. This comes as state refiners are likely to procure 40% of their crude supply on the global spot markets.

For most of 2023, Indian refiners enjoyed high refining margins and profits as they imported cheap Russian crude at $20 a barrel. This is more below international benchmarks.   

But higher competition for Russian supply in Asia increased freight costs, and tougher U.S. sanctions enforcement has eroded the refining margins, while Indian refiners are now on the lookout for more non-Russian supply.