U.S. Tariffs and Sanctions Could Undermine India’s Energy Strategy, Amplify Fiscal and Inflationary Pressures
India oil import surge annual crude oil import bill could rise by $9–11 billion if it is forced to scale back or abandon Russian crude purchases due to mounting pressure from the United States, analysts have warned. The world’s third-largest oil importer has significantly increased reliance on discounted Russian crude since Western sanctions on Moscow following its 2022 invasion of Ukraine. Russian oil, which made up less than 0.2% of India’s crude imports before the war, now accounts for 35–40% of the country’s total intake.
The cost advantage has enabled India oil import surge to keep retail fuel prices in check, contain inflation, and reduce its overall energy import burden. Moreover, Indian refiners have turned Russian oil into an export opportunity by refining and selling petroleum products to markets — including some Western countries — that have imposed direct import bans on Russian-origin crude.
Inflationary Pressures
However, this strategy now faces disruption. U.S. President Donald Trump has announced a 25% tariff on Indian goods and an unspecified penalty related to India’s purchases of Russian oil and weapons. While the tariff has already been notified, the nature and extent of the penalties remain unclear. These developments come close on the heels of the European Union’s decision to ban imports of refined products made from Russian-origin crude starting January 2026.
This dual pressure — direct U.S. trade actions and future EU sanctions — presents a significant challenge for Indian refiners.
Impact
Analysts caution that U.S. secondary sanctions could severely impact the shipping, insurance, and financial services that support India’s Russian oil trade, potentially forcing a rapid restructuring of supply chains.
India oil import surge spent over $137 billion on crude oil imports in the last fiscal year. A disruption in Russian crude access, which currently provides discounts of around $5 per barrel compared to market rates, could sharply escalate the overall import bill.
At an average intake of 1.8 million barrels per day (bpd) of Russian oil, the loss of these discounts could translate into a $9–11 billion annual increase in costs. If global oil prices rise in response to reduced Russian availability, the financial hit could be even larger.
Reliance and Nayara Face Elevated Risk as Key Users of Russian Oil
Private refiners, notably Reliance Industries Ltd and Nayara Energy, are particularly exposed. Together, they account for more than 50% of India’s Russian oil intake in 2025. Nayara, backed by Russian state oil firm Rosneft, was recently sanctioned by the EU, while Reliance has been a significant exporter of refined fuels to Europe.
Reliance’s refining complex offers some strategic insulation. The company operates a dual-structure refinery — with one unit serving domestic demand and the other focused on exports. This allows Reliance to reallocate non-Russian crude to its export facility to maintain EU compliance, while continuing to process Russian barrels at its domestic unit.
Recent data from Kpler highlights a notable drop in India’s Russian crude imports — down to 1.8 million bpd in July from 2.1 million bpd in June. While seasonal maintenance and monsoon-related demand played a role, state-run refiners appear to be reducing exposure due to rising compliance risks. Private refiners, too, have started diversifying supply sources this week amid escalating concerns over U.S. sanctions.
Replacing Russian Crude Not Easy Due to Middle East Constraints and Refinery Configuration
Replacing Russian oil, however, is far from straightforward. The Middle East is the most viable alternative, but challenges abound — from long-term contractual obligations and rigid pricing structures to differences in crude quality that impact refinery performance and product yield. According to analysts, while theoretical substitution may appear feasible, practical implementation is both logistically complex and economically burdensome.
The broader economic implications are significant. A rise in the oil import bill could increase fiscal pressure, particularly if the government intervenes to stabilize domestic fuel prices. The ripple effects — through inflation, currency depreciation, and monetary policy — would be hard to contain, posing fresh challenges for India oil import surge economic stability.
