In a significant development for India's energy sector, discounts on Russian crude oil for Indian refiners have surged to as high as $8 per barrel in January, a sharp increase from the approximately $2 per barrel level seen in October. This jump follows the imposition of US sanctions on major Russian oil suppliers Rosneft and Lukoil in late October.
Discounts Deepen as Sanctions Bite
According to industry sources and data from the Finnish think tank Centre for Research on Energy and Clean Air (CREA), the discount on Russia's Urals crude hovered between $2 and $4 a barrel immediately after the 23 October sanctions announcement. By November, after the sanctions took effect, the average discount had widened to $6.6 per barrel. The current offer of up to $8 represents a near doubling within a quarter.
"Discounts will see a further increase. However, even if the discounts do not surge from here on, there may be an increase in purchases from Russia," said one of three people familiar with the matter, all of whom spoke on condition of anonymity. They highlighted that while India has diversified its oil sourcing, no other supplier can immediately fill the gap that Russia has been covering.
Impact on India's Economy and Refiners
The timing of the deeper discount is fortuitous for India, which meets about 88% of its crude demand through imports. Global oil prices have fallen about 20% over the past year to around $60 a barrel. The combination of lower benchmark prices and steeper discounts on Russian oil is poised to substantially reduce the nation's import bill.
Prashant Vashisht, a petroleum sector expert and senior vice president at ICRA Ltd, confirmed the significant jump in discounts. Economists note that every dollar decline in the oil price reduces India’s annualised oil import expenditure by roughly ₹13,000 crore.
"Higher discounts are good for Indian refiners, more so at a time when crude prices are already around $60 per barrel," said Madan Sabnavis, chief economist at Bank of Baroda. He explained that since Indian refiners sell products internationally at market prices and domestic retail prices are stable, the dual benefit of lower prices and higher discounts augurs well for their margins.
Navigating Sanctions and Future Supply
Despite the attractive pricing, challenges remain. Imports from Russia actually declined to 1.2 million barrels per day (mbpd) in December from 1.8 mbpd in November, according to Kpler data. This drop is attributed to the sanctions on Rosneft and Lukoil, which together accounted for about 60% of Russia's $56.8 billion crude oil exports to India in FY25.
However, experts anticipate a rebound. "Russian crude imports into India are expected to recover gradually from January as new intermediaries step in and supply chains re-establish," said Sumit Ritolia, lead research analyst for refining and modelling at Kpler. He described the December dip as a "near-term adjustment."
Supplies are now expected to come from Russian entities not under sanctions, such as Tatneft, Redwood Global Supply, Rusexport, Morexport, and Alghaf Marine. "Russia is expected to use supplies from the sanctioned entities for its captive consumption, while the non-sanctioned suppliers would sell more and more to global buyers like India," Vashisht added.
An official from a state-run refiner noted that the recent import fall is not a major concern, as purchases from non-sanctioned entities via clean fleets will continue based on refinery needs and economic viability.
Broader Energy Context for India
India, the world's fourth-largest refiner with a capacity of 258.1 million tonnes per annum (mtpa), is expanding its capacity to 310 mtpa by 2030. This growth necessitates securing reliable and cost-effective crude supplies. Indian refiners have been proactively diversifying sources, increasing purchases from West Asia, the United States, Brazil, and West Africa. In December, Iraq was India's second-largest supplier, followed by Saudi Arabia and the UAE.
The current fiscal year has already seen benefits from the favourable oil market. India's oil import bill stood at $80.9 billion up to November, lower than the $92 billion recorded a year earlier. As Sabnavis pointed out, with export growth facing uncertainty, lower oil prices and discounts could help narrow India's current account deficit.
The deep discounts on Russian oil, which began after its invasion of Ukraine in 2022 and peaked at around $30 per barrel, have fundamentally reshaped India's import basket. Prior to FY23, Russia supplied just 2.5% of India's oil imports. In FY25, it became the top supplier, accounting for 35% of imports, averaging 1.8 mbpd.
