Iraq Resurges as Key Oil Supplier to India Amid Geopolitical Shifts
India's crude oil import landscape is undergoing a significant transformation as geopolitical pressures and economic considerations drive a strategic rebalancing. With US sanctions impacting Russian oil supplies, traditional West Asian partners are reclaiming their prominence in the Indian market.
The Changing Dynamics of India's Crude Basket
Recent data reveals a compelling narrative of shifting alliances in global energy trade. In the first month of 2026, Iraq supplied 1.06 million barrels per day to India, closely trailing Russia's 1.10 million barrels per day. This narrow gap represents a dramatic recovery for Iraq, which had dominated India's crude imports from fiscal 2018 until the Ukraine war disrupted established patterns.
The resurgence comes against the backdrop of US sanctions imposed in October 2025 on Russian energy giants Rosneft and Lukoil. Despite attractive discounts of up to $8 per barrel, Indian refiners have been reducing their Russian oil purchases, signaling a cautious approach to compliance and supply chain stability.
Historical Context and Current Realities
The statistics paint a vivid picture of how dramatically India's sourcing patterns have evolved:
- In FY25, Russian oil accounted for approximately 35% of India's crude imports, a remarkable increase from just 2.5% before the Ukraine conflict
- During FY22, Iraq maintained about 26% share of India's oil imports before being displaced by Russia as the top supplier
- The gap between Russian and Iraqi supplies has narrowed from 884,000 barrels per day in November to just 40,000 barrels per day in January 2026
Strategic Advantages of West Asian Suppliers
Industry experts highlight several factors driving India's pivot back to West Asian sources:
- Supply Reliability: Major West Asian producers including Saudi Arabia, UAE, and Iraq maintain significant spare capacity, enabling rapid supply adjustments
- Economic Terms: Iraq offers competitive official selling prices compared to other Gulf countries, along with favorable credit periods of 60-90 days
- Operational Compatibility: Indian refiners have optimized operations for processing Basra Light crude from southern Iraq, which is particularly suitable for diesel production
"The result is a clear rebalancing of India's crude slate, with Middle East inflows rising as refiners prioritize supply reliability, flexibility, and smoother cargo execution," noted Sumit Ritolia, lead research analyst at Kpler.
India's Growing Energy Appetite
This strategic shift occurs as India's energy consumption continues its upward trajectory. The Petroleum Planning & Analysis Cell projects record consumption of 252.9 million metric tonnes in FY26, representing a 4.65% increase from the previous fiscal year. With nearly 90% of oil requirements imported at a cost of approximately $161 billion last fiscal, supply security remains paramount.
India's refining capacity, currently at 258.1 million tonnes per annum, is expected to expand to 310 MTPA by 2029. This expansion, including new facilities by Bharat Petroleum and Hindustan Petroleum, will further increase the nation's crude oil requirements.
Beyond Simple Replacement: A De-risking Strategy
Industry observers emphasize that India's approach represents strategic de-risking rather than simple replacement of suppliers. While Russian imports have declined by 29% month-on-month in December to their lowest levels since price cap implementation, Russia remains part of India's diversified energy portfolio.
"Energy security and diversification are shaping the narrative, but refinery economics still drives the decision-making. India's January 2026 crude purchasing strategy is best described as de-risking, rather than replacing," explained Ritolia.
Global Context and Future Prospects
The global oil market continues to evolve with multiple variables in play:
- G7 price caps on Russian oil have been reduced to approximately $44.10 per barrel by the European Union
- Potential reopening of Venezuelan oil production could provide additional sourcing options for Indian refiners
- India continues to diversify with supplies from the United States, Nigeria, Guyana, and Brazil, with recent term contracts established for Brazilian crude
As geopolitical tensions reshape global energy flows, India's calibrated approach to oil sourcing demonstrates the complex interplay between economic pragmatism, supply chain security, and international compliance requirements. The narrowing gap between Russian and Iraqi supplies signals not just changing trade patterns, but a fundamental rethinking of energy security in an uncertain world.
