Indian Refiners Increase Russian Oil Purchases Amid Middle East Tensions

Rising Demand for Russian Crude

On March 6, reports emerged that Indian refiners have started acquiring a portion of over 15 million barrels of Russian crude oil currently stranded on tankers near India. This move aims to mitigate potential supply interruptions due to the escalating conflict in the Middle East.

As the conflict in West Asia intensifies, shipments through the Strait of Hormuz are being obstructed, raising alarms about oil and LNG supplies from the region. To ensure a steady domestic fuel supply, Indian refiners are now balancing their purchases between Russian cargoes at sea and other sources.

Sources indicate that refiners have increased their purchases following a 30-day license issued by the US Treasury Department, permitting India to buy Russian oil cargoes that are currently stranded.

US Treasury Secretary Scott Bessent noted, "The energy agenda under President Trump has led to unprecedented levels of oil and gas production. To maintain oil flow into the global market, we are granting a temporary waiver for Indian refiners to acquire Russian oil."

He described this action as a temporary solution, expressing expectations that India will eventually increase its purchases of US oil.

"India is a crucial partner for the United States, and we anticipate that New Delhi will enhance its US oil purchases. This interim measure will help alleviate the pressure caused by Iran's attempts to manipulate global energy supplies," Bessent stated on a microblogging platform.

However, he added that this short-term measure is unlikely to yield significant financial benefits for the Russian government, as it only permits transactions involving oil already stranded at sea.

India currently has enough inventories to meet 25 days of crude demand, sourcing 40-50% of its crude oil from the Middle East via the Strait of Hormuz, which is now effectively closed due to the ongoing conflict.

Indian refiners are now purchasing Russian oil to bolster their inventories. Reports suggest that over a dozen tankers carrying Russian oil are located in the Arabian Sea and the Bay of Bengal, with an additional eight vessels idling off Singapore, expected to reach India shortly. Furthermore, ships laden with Russian oil are also present in the Mediterranean Sea and the Suez Canal, likely to arrive in India within a month.

"With nearly half of India's crude imports passing through the Strait of Hormuz, the country is highly vulnerable to potential supply disruptions," stated Sumit Ritolia, an analyst at Kpler. "The US waiver allowing additional purchases of Russian crude offers short-term relief, although competition from Chinese buyers for the same barrels may limit India's advantages."

In recent months, Indian refiners have been importing approximately 1 million barrels of Russian crude daily, meaning the waiver effectively allows them to increase volumes beyond this baseline.

"As of early March, around 130 million barrels of Russian crude remain at sea, including significant quantities in the Indian Ocean, Red Sea/Suez routes, and near Singapore, which could be redirected to Indian ports if commercial agreements are reached," he added.

"With the waiver now in effect, refiners could quickly resume purchases, potentially increasing Russian inflows to around 1.6 to 2 million barrels per day in the near future," he noted.

While this provides a temporary logistical buffer, it cannot fully compensate for India's exposure of 2.6 million barrels per day to Middle Eastern crude, and competition from Chinese buyers for the same Russian barrels will limit the potential benefits.

In a political response, the Congress party criticized the Modi government after the US announced a temporary waiver for Indian refiners to purchase Russian oil, questioning how long this "American blackmail" would persist.

Congress general secretary Jairam Ramesh expressed his concerns in a Hindi rhyme on a microblogging platform, questioning the implications of US influence on India's oil purchases.

India, previously one of the largest buyers of Russian oil, had reduced its purchases following US pressure to limit transactions with Russia to decrease funding for Moscow's military actions in Ukraine.

In February, India's imports of Russian crude dropped to 1.04 million barrels per day, the lowest level since November 2022, as the US linked tariff reductions on Indian goods to a decrease in Russian oil purchases.

This situation has left several shipments of Russian oil stranded at sea, as India adjusts its buying strategy amid disruptions in Middle Eastern supplies.

India had previously turned to discounted Russian crude following Western sanctions in February 2022, but is now recalibrating its purchases in light of the current geopolitical climate. The country had recorded peak imports of Russian oil at 2.15 million barrels in May 2023.