Editor’s Note
The U.S. has imposed new sanctions on major Russian oil exporters, potentially disrupting global supply and impacting key importers like India. This analysis examines the potential market consequences.
The United States has stirred up the global oil market by imposing strict sanctions on Russia’s largest oil exporters, Rosneft and Lukoil. The impact of these restrictions will directly affect countries like India, which import large quantities of crude oil from Russia. According to experts, if these sanctions are fully implemented, Russia’s supply of 3.1 million barrels per day could be withdrawn from the international market, of which about one-third goes to India. This could lead to both a surge in oil prices and a supply crisis.
Due to these restrictions, Indian oil companies are now preparing to cancel their Russian oil orders for December. Under the sanctions, all companies worldwide must settle their deliveries and payments by November 21. Since it takes about a month for oil to reach India from Russia, placing new orders has now become nearly impossible.
Refiners are now looking for alternative sources. Some companies are trying to secure additional supply from West Asia, the US, and Brazil. However, these options will be more expensive because they used to receive a discount of about two dollars per barrel on crude oil from Russia. Now they will have to buy the same oil at a higher price.
These sanctions on Russia will not only affect imports but have also left funds previously stuck for Indian public sector companies in limbo. Companies like ONGC, Oil India, BPCL, and Indian Oil have approximately $1 billion (about 8,300 crore rupees) in dividend amounts stuck in Russia, which they are now unable to withdraw.
This situation will have the most significant impact on Reliance Industries and Nayara Energy. Reliance sources nearly half of its oil supply from Russia, while Nayara is entirely dependent on Russian crude oil. On Thursday, Reliance’s shares fell by 1%, while shares of IOC, BPCL, and HPCL recorded declines of 2-3%.
The biggest problem for companies now is the payment process, as banks will avoid approving these transactions. Due to the dominance of the US dollar, the US maintains direct control over oil trade, and even when payments are made in yuan or dirhams, the dollar conversion gives the US an opportunity to monitor it.
Public sector refiners will also not remain untouched. Even if they do not buy oil directly from Russia, if oil sourced from Rosneft or Lukoil comes from a third country, banks may refuse payments for such deals. This has increased uncertainty over the plans of Indian refineries for December and January.
Refinery officials believe that the crude oil received from Russia constitutes about 20% of India’s total imports, so even if the entire supply stops, the impact could be limited.
However, for private companies, this shock could prove severe. Due to the sudden uncertainty in the international market, booking crude oil for December has become difficult. The industry hopes that in the coming days, the US will provide some relief or the situation with Russia will ease so that the energy market can stabilize.