India's reduction in reliance on Russian crude

Tuesday 27 January 2026

India’s experiment with discounted Russian crude was never meant to be eternal. It was, rather, a calculated bargain with circumstance: a large, fast-growing economy with an enormous refining sector exploiting a sudden reshaping of global oil trade after Russia’s full-scale invasion of Ukraine. When European buyers stepped back under sanctions and self-sanctioning, Russian barrels needed new homes. India, as the world’s third-largest oil importer, was well positioned to take them, refine them, and sell products into domestic and export markets.

That bargain is now being revised. India is reducing her reliance on Russian crude, or at least curbing the rate at which she depends upon it, and turning to a broader range of suppliers. This shift is not a moral epiphany. It is a mixture of price, risk management and politics. It is also a reminder that energy trade is never simply a matter of cargoes and contracts. It is a form of diplomacy conducted by tanker.

The immediate trigger is the rising “transaction cost” of buying Russian oil. Even when the headline price looks attractive, the hidden expenses can accumulate: shipping constraints, longer routes, changing availability of vessels, difficulties with insurance and finance, and the reputational and legal risks for banks, traders and state-owned companies. In late January 2026, trade reporting indicated that Russian Urals crude for Indian delivery was trading at roughly a $10 per barrel discount to dated Brent for February cargoes, close to the widest discount seen since 2022. A discount of that size is not merely an invitation. It is also a signal: sellers are compensating buyers for growing uncertainty.

At the same time, India’s refiners have begun sourcing more actively from elsewhere. Indian Oil Corporation, India’s largest refiner, reportedly recently bought around 7 million barrels for March loading from suppliers in Angola, Brazil and the United Arab Emirates, explicitly to replace Russian barrels, while also widening her optional supply arrangements to include new origins. This is diversification by design, not a one-off opportunistic purchase.

To understand the likely economic consequences, it is useful to separate three questions that are often blurred together: what happens to India’s import bill and refining margins, what happens to Russia’s export revenues and bargaining position, and what happens to global oil markets when a major buyer changes her preferences.

India’s economics: from cheap barrels to predictable barrels

For India, the principal attraction of Russian crude since 2022 has been price. India does not have abundant domestic oil reserves relative to her consumption. She must import most of what she refines. When Russian exporters began offering deeper discounts to keep volumes moving, Indian refiners were able to protect margins even as global prices rose. In practical terms, discounted feedstock can make the difference between profitable refining and political pain at the petrol pump.

Reducing reliance on Russia therefore carries a simple, immediate risk: the average cost of crude could rise. Middle Eastern grades often carry different pricing dynamics and, at times, stronger pricing power because of OPEC’s ability to manage supply. Atlantic Basin crudes, such as Brazil’s, can be competitive, but freight and voyage times vary. India can, of course, shop widely, but diversification is not always cheaper than concentration.

Yet there is a second, less visible economic benefit: predictability. A refiner does not simply want the cheapest barrel. It wants a barrel that arrives, can be paid for without drama, and can be insured and financed. When sanctions tighten, the cost of compliance departments rises; banks become nervous; traders demand more protective clauses; shipping becomes more complicated. That friction erodes the value of the discount. The more Russia’s oil trade becomes dependent on opaque arrangements, the more a large, systemically important buyer such as India is incentivised to reduce exposure, particularly for state-owned firms that are sensitive to international pressure and reputational risk.

There is also a refinery-configuration angle. Indian refineries are sophisticated and can process a range of crudes, but each refinery has an optimum slate. Switching from Urals to a basket of Middle Eastern, West African and Brazilian grades requires blending decisions, adjustments in yield expectations, and sometimes changes in catalyst use and maintenance schedules. These are manageable, but they are not costless. Over time, however, a broader supplier portfolio can reduce the vulnerability that comes from over-optimising around one discounted grade that may suddenly become hard to source.

A further consideration is India’s wider trade diplomacy. Recent reporting suggests that Western pressure is again being applied to India’s Russian oil purchases, with tariff threats used as leverage. Even if such measures are temporary or contested, the economic message is obvious: cheap crude is less attractive if it increases the cost of exporting Indian goods. India’s government must weigh refinery margins against the health of her broader export economy, as well as the stability of her financial links with the West. In that sense, buying non-Russian crude can function as an insurance premium paid to preserve market access elsewhere.

The likely outcome is not a clean break, but a more cautious posture. India may still buy Russian crude when the discount compensates for the risk, but she will want the flexibility to pivot quickly. That flexibility itself has value, and it is achieved by maintaining active commercial relationships with a wider range of producers.

Russia’s economics: deeper discounts, fewer choices

For Russia, the consequences are sharper. Oil export revenues remain central to the Russian state’s fiscal resilience and its capacity to sustain a long war. If India, one of Russia’s most important post-2022 customers, buys fewer barrels, Russia’s negotiating leverage falls. The immediate response is usually to widen discounts, as the January 2026 Urals pricing illustrates. 

But discounts are not simply lost profit. They reshape Russia’s entire export strategy. A seller who must offer larger price concessions is effectively transferring value to the buyer and to intermediaries in the supply chain, including shippers and traders willing to handle higher-risk cargoes. Over time this can drain fiscal capacity, especially if combined with higher logistics costs. When sanctions or operational disruptions slow trade flows, cargoes can sit longer in storage or on the water, tying up working capital and increasing costs. Reporting on Russia’s fuel oil exports in early 2026 pointed to sanctions-related trade frictions and delayed or rerouted cargoes, with some volumes sailing without clear destinations. Crude and products differ, but the underlying lesson is the same: constrained market access raises the cost of doing business.

Russia’s alternative is to push more volumes towards other large consumers, above all China. Yet China is a hard negotiator and, like India, will price in sanctions risk. If India reduces purchases, Russia becomes more dependent on fewer buyers. Dependence creates vulnerability. The buyer can demand more favourable terms. The seller’s “outside options” shrink.

There is a strategic implication too. Russia’s post-2022 oil trade has been a form of geopolitical triangulation: selling to India and China, using discounts to secure demand, and relying on a patchwork of shipping and trading arrangements to keep volumes moving. If India becomes more reluctant, the triangulation weakens. Russia is forced closer to a single dominant customer base, which is rarely where a commodity exporter wants to be.

Global markets: trade flows, freight rates and OPEC’s leverage

Globally, the most visible consequence is a further re-routing of oil flows. If India buys fewer Russian barrels, she buys more from the Middle East, West Africa, Latin America, and potentially the United States. Meanwhile Russian barrels seek other homes, often in Asia. This is not primarily about a shortage of oil; it is about the geography of supply and demand.

Re-routing changes freight markets. Longer voyages mean more “tonne-miles”, which can tighten tanker availability and raise shipping rates. Even if global oil prices remain stable, the delivered cost to refiners can change because freight is embedded in the economics. When cargoes must detour, or when certain vessels are avoided due to compliance concerns, those costs rise further. In a world already prone to shipping disruption, from choke points to conflict-related risk, these shifts matter.

The second global consequence is a potential increase in OPEC’s pricing influence in India’s import basket. If a larger share of India’s crude comes from OPEC-linked producers, then OPEC’s production decisions may carry more direct weight over India’s import bill. That does not mean India becomes powerless. She can diversify across OPEC members and non-OPEC producers. But it does mean that Russia’s role as a discounted alternative becomes less central, particularly for state-owned refiners that prioritise security of supply.

The third consequence is political: the credibility and effectiveness of sanctions. One reason Russian crude found willing buyers was that the market can absorb oil if it is sufficiently discounted, and if buyers believe they can manage the legal and financial risks. If India, a major buyer, becomes less willing to bear those risks, it increases the pressure on Russia’s export model. That does not automatically translate into a collapse of revenues, since oil is fungible and buyers can be found. But it can force deeper discounts, higher transaction costs, and greater dependence on a smaller circle of customers, all of which reduce Russia’s net income per barrel and increase her vulnerability to future disruptions. 

A likely equilibrium: partial retreat rather than rupture

It would be a mistake to interpret India’s reduced reliance as a complete pivot away from Russia. India’s overriding objective is energy security at a manageable price. If Russian sellers offer sufficiently attractive terms, some Indian buyers will still take them, particularly private refiners that can move quickly and are accustomed to complex trading environments. But the direction of travel matters: a shift from heavy reliance to optionality.

In the near term, India will likely pay a modest premium for that optionality, measured in a slightly higher average crude cost and some operational friction in adjusting refinery slates. In return she reduces the risk of sudden disruption, protects wider trade relationships, and improves her bargaining position by demonstrating that she has alternatives. 

For Russia, the burden is heavier. Fewer dependable outlets mean more discounting, more complicated logistics, and a weaker hand in negotiations. That is not merely an oil story. It is a war-finance story. A state can endure many pressures when it can sell commodities at scale. It struggles more when each barrel yields less net revenue and requires greater effort to monetise.

For the global market, the principal effect is not a dramatic change in the absolute availability of oil, but a continued fragmentation of trade into “cleaner” and “riskier” channels, with higher costs for the latter. That fragmentation acts like sand in the gears of globalisation. It does not stop the machine, but it makes it less efficient.

In that sense, India’s turn towards a wider set of crude suppliers is an exercise in prudence. She is choosing not only an oil price, but a level of political and financial exposure. For countries watching from Europe, including Ukraine’s friends and partners, the lesson is sobering: market incentives matter, but so does the cost of risk. When the risk price rises, even a generous discount can lose its charm.