Trading Barrels for Balance: India's Russian Oil Bet Faces Diminishing Return

India saved billions buying Russian oil—but at what cost? US tariffs & EU heat raise the stakes in this crude game.

India’s oil pivot to Russia slashed import bills—but now it’s caught in a geopolitical storm. With US tariffs, EU crackdowns, and vanishing discounts, the crude deal that once bought time may be running out of it. What’s the real cost of cheap oil?

(Photo: The Quint/Arnica Kala)

In international diplomacy, as in household budgeting, sometimes you pick the cheaper grain. Since early 2022, India’s energy choices have mirrored this analogy.

Faced with rising oil prices, Western sanctions on Russia, and domestic inflation concerns, India turned to Russian crude, drawn by deep discounts. What began as a cost-saving measure has now reshaped the country’s energy diplomacy.

India’s oil imports from Russia have surged from two percent in early 2022 to nearly 40 percent by mid-2025, reflecting a strategic realignment. This shift, driven by sanctions-fueled discounts, yielded savings of approximately $7.9 billion in FY24 alone. But with import dependency rising (87.7 percent in FY25), Western scrutiny intensifying, and price advantages shrinking, India now faces mounting economic, geopolitical, and political risks.

The government continues to frame its approach as energy pragmatism rooted in strategic autonomy, though questions persist about its long-term viability and compatibility with global decarbonisation goals.

Russia’s Ascent in India’s Oil Basket

Before the Russia-Ukraine war, Russia accounted for under two percent of India’s oil imports.

Following Western sanctions, it offered Urals crude at $18–20/bbl discounts to Brent. India ramped up purchases.

By May 2023, Russia became India’s largest oil supplier at 1.96 million barrels per day (bpd), making up over 42 percent of India’s total oil imports. In FY24, Russian crude formed 33 percent of India’s oil basket, rising to 39 percent in the first eight months of FY25, ahead of Iraq (19 percent) and Saudi Arabia (13 percent).

According to the Centre for Research on Energy and Clean Air (CREA), India spent Rs 1.5 lakh crore (€112.5 billion) on Russian oil between 2022 and 2025. Despite shrinking discounts, averaging $76.4/bbl for Russian crude in FY24 vs $85.3 for others, Indian refiners still saved an estimated $7.9 billion last fiscal year.

Rising US Pressure and the Risk of Secondary Tariffs

But the geopolitical context is hardening. In mid-2025, the Trump administration signalled the imposition of “secondary tariffs” on countries persisting in Russian oil trade. US Ambassador to NATO, Matt Whitaker, publicly named India and China as potential targets, while NATO Secretary-General Mark Rutte issued a blunt warning to Brazil, China, and India, citing 100 percent tariffs. By mid-July, the US escalated its stance, threatening 500 percent penal tariffs.

This soon translated into action, as the administration announced a 25 percent tariff on Indian goods effective 1 August. The move could significantly sour India’s broader engagement with the US.

Domestically, the government has projected this pivot as a strategic masterstroke. External Affairs Minister S Jaishankar has repeatedly invoked “strategic autonomy,” arguing that Indian citizens should not bear the brunt of global geopolitical conflicts.

Petroleum Minister Hardeep Puri claimed India’s decisions helped avert global oil prices breaching $120–130 per barrel, positioning India as a stabilising force.

Waning Discounts and EU Sanctions

Importing discounted Russian crude has undoubtedly strengthened India’s macroeconomic position. Between FY23 and FY24, Urals crude discounts ranged from $8–23 per barrel, enabling Indian refiners to lower the landed cost of oil and generate substantial savings, estimated at $5.1 billion in FY23 and $7.9 billion in FY24. By early FY25, however, the discount had narrowed to just $3–4 per barrel. Though some margin remains ($1.5–2.5/bbl), the steepest arbitrage gains have already faded.

Refiners also benefited from re-exporting products refined from Russian crude, especially diesel and jet fuel to Western markets. But this window may close.

Upcoming EU sanctions on refined fuel exports derived from Russian feedstock could shrink India’s fuel export profits by $19–30 billion, down from a current annual value of $63 billion, tightening the fiscal cushion used to absorb energy shocks and fund domestic spending.

Adding to this pressure, the EU’s proposed secondary sanctions are poised to reshape the global floor price for Russian oil. Analysts estimate Urals crude could drop to around $47 per barrel, placing it permanently 15–20 percent below market benchmarks. For Russia, that means lower revenue.

For India, it means the arbitrage advantage may persist but with diminishing strategic cover and growing diplomatic fallout.

Why India Still Buys Russian Oil

Despite intensifying global headwinds, India continues to source Russian crude due to a combination of structural and strategic factors. First, re-exporting refined products, especially diesel and jet fuel has generated substantial value. Second, escalating instability in the Middle East, particularly near the Strait of Hormuz, has underscored the urgency of diversifying energy supply lines. Third, production cuts by OPEC+ members like Saudi Arabia and Iraq have made alternative sourcing routes not just desirable, but necessary.

Beyond these, Russian crude continues to make economic sense for India, not necessarily for re-export, but for domestic consumption. The real concern, then, is not just the optics of re-exporting Russian barrels, but the broader fiscal implications.

A significant portion of India’s government revenue is tied to taxes on petroleum products. A lower global price cap, such as the proposed $47 per barrel for Urals crude, compresses the taxable base, tightening revenue streams at a time when fiscal pressures are already mounting. In that context, the evolving price cap isn't just a foreign policy challenge, it's a domestic economic concern of national interest.

Buying Time with Barrels

However, should Russian oil become inaccessible due to sanctions, tariffs, or stricter compliance, Indian refiners may reallocate toward the U.S. West Texas Intermediate (WTI), Brazilian pre-salt barrels, and Middle Eastern term supplies. But these replacements could raise India’s import bill by $3–6 per barrel.

Amid US sanctions on Venezuela and uncertainty over Russian flows, India is likely to deepen ties with the US, Brazil, West Africa, and West Asia but with fewer discounts, less fiscal headroom, and far more diplomatic calculation.

India’s Russian oil pivot was never just about barrels or bargains, it was about buying time.

Time to stabilise the economy, contain inflation, and assert strategic autonomy. But time, like cheap oil, doesn’t stay cheap forever.

As discounts erode and scrutiny sharpens, the trade-offs are becoming harder to ignore. The next chapter in India’s energy story will demand more foresight than firefighting, a necessary evolution in an increasingly polarised global order.

(The author is Legislative Assistants to Members of Parliament (LAMP) Fellow 2025 - PRS Legislative. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)