Mukesh Ambani’s Reliance Industries is poised to close the tap on Russian crude with the US hitting two of Moscow’s biggest oil producers with sanctions, setting the stage for a dramatic reduction in India’s Russian oil imports.
Public-sector oil refiners such as the Indian Oil Corporation, among others, are also likely to cut back sharply on procurement from Russia although they are placed slightly better than Reliance. They don’t buy oil directly from Russian companies; they reroute it via third parties (traders).
A sharp fall in India’s Russian crude imports will allow New Delhi to willy-nilly meet a key demand from US President Donald Trump, who has accused China and India of funding the Kremlin’s war in Ukraine.
The office building of Rosneft, one of the Russian oil majors on which the US has imposed sanctions and from which Reliance buys crude, in Moscow on Thursday. Reuters
Trump has slapped a 25 per cent tariff on Indian exports as punishment for buying Russian oil, taking the total tariff volume to 50 per cent, one of the highest in the world.
As of October 22, India’s oil imports from Russia have been around 1.7 million barrels per day, with Reliance accounting for almost half the purchase.
After the war in Ukraine began in 2022, India had stepped up its import of Russian oil — to 30-34 per cent of its total crude import — because it was cheaper.
Sources said Reliance would be able to accept the delivery of Russian crude till November 21, according to initial readings of the US treasury department directive that imposed the sanctions on Russian oil firms Rosneft and Lukoil.
“It will be very difficult for the company to continue to purchase Russian crude because of the sanctions imposed by the Office of Foreign Assets Control (OFAC) under the treasury department,” a source said.
Officially, Reliance has not commented on any plan to cut back on Russian oil.
Reliance operates the world’s largest single-site refinery in Jamnagar, Gujarat. A sizable chunk of the company’s output is meant for export. The company is the largest buyer of Russian crude, which it purchases directly from Rosneft. The crude is usually delivered at the Jamnagar refinery, located on the west coast, on a CIF (cost, insurance, freight) basis.
Reliance Industries' Jamnagar refinery
Some observers argued that the treasury department’s blacklisting of the Russian companies reflected Trump’s growing frustration at Putin’s failure to end the Ukraine war.
They said the move marked a significant change in Western policy on oil, which had previously sought to restrict Kremlin’s revenues without affecting the flow of crude, especially to India and China.
The OFAC sanction prohibits entities, American or foreign, from engaging in commercial dealings with the blacklisted firms. Violations can bring civil or criminal penalties.
With this embargo, Russia will be on a par with Venezuela and Iran, who face similar sanctions on oil trade.
Reliance, which has significant business ties with the US, cannot afford to take a chance.
While the sanctions were imposed overnight, “Reliance has begun to recalibrate its purchase of Russian oil over the last 10 days in keeping with a government directive”, the sources said. Last week, Reliance bought West Asian crude and was projected to buy more from the region, suggesting a pivot in strategy.
Trump had on October 15 announced from the White House that Prime Minister Narendra Modi had assured him that India would stop its purchase of Russian crude. The President has repeated the claim several times since then, including Wednesday evening (US time).
“For most Indian OMCs (oil marketing companies) — which largely source crude through third-party traders — the immediate operational impact should remain limited,” Sumit Ritolia, lead research analyst at data and analytics platform Kpler, said.
“However, for RIL, given its direct term arrangements with Rosneft, the development could introduce some near-term friction, especially from a compliance standpoint. As RIL would understandably wish to avoid any exposure to OFAC sanctions, it seems prudent that the company will need to look at its Russian crude strategy.”
Oil jumps
Oil prices jumped 5 per cent in the trade on Thursday following the sanctions, with the industry expecting key buyers like India and China to cut back on Russian imports and look for alternatives. The key benchmark Brent soared to $66 a barrel.
Indian buyers were enjoying a discount of about $2-3 per Russian barrel. “We have been saying all along that oil prices will go up globally if the flow is curtailed and it will impact everyone. It has happened,” an industry source said.
Nayara, partly owned by Rosneft, will be hit hard by the sanctions. The three Indian refineries that have processed and re-exported Russian crude the most are Jamnagar of Reliance, Vadinar of Nayara and New Mangalore of MRPL.