Indian refiners are likely to start cutting back on Russian crude oil imports once the current purchase orders are fulfilled, in order to align with the joint India-United States interim trade agreement announced last week, PTI reported citing sources.
US President Donald Trump announced that he would reduce reciprocal tariffs on India from 25% to 18% and removed the additional 25% “punishment” tariff imposed for buying Russian oil, based on India’s commitment to stop buying the barrels. Since August last year, the US imposed 50% total tariffs on Indian imports.
Refiners process crude oil into fuels such as petrol and diesel for commercial use.
The Oil Ministry refused to respond to queries, and the Commerce Ministry and the Ministry of External Affairs have not directly commented on commitments made by India with regard to Russian oil purchases, the report added.
Notably, Union Commerce Minister Piyush Goyal on 7 February told reporters that the MEA would provide clarity regarding India’s acquisition of Russian crude. The US White House claims that India’s commitments include “to stop directly or indirectly importing Russian Federation oil”.
Could Indian refiners cut back on Russian oil imports?
Refiners have been informally advised to begin scaling back Russian oil purchases, three sources told the news agency. But no formal directive has been issued.
They added that most refiners will honour existing commitments (orders are placed 6-8 weeks in advance) but will not place new orders. Sources also however noted that some imposts will also continue, as refiners such as Nayara Energy have limited alternatives.
As per the sources, Hindustan Petroleum Corporation (HPCL), HPCL-Mittal Energy (HMEL) and Mangalore Refinery and Petrochemicals (MRPL) stopped buying Russian oil after the US sanctioned exporters last year. Further, Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOC) will scale back now, they said.
Reliance Industries (RIL) is also expected to stop Russian oil purchases after its 1,50,000 barrels are delivered in the next couple of weeks. It has been among Lukoil and Rosneft’s biggest purchasers.
Why Nayara Energy could be the exception
Unlike other Indian refiners, Nayara Energy may have no choice but to continue buying Russian oil, the PTI report said. This is because Nayara has been sanctioned by the EU and UK for joint ownership by Rosneft (49.13%), it added.
The sanctions mean that no other major supplier is willing to conduct commercial transactions with Nayara, and they may remain dependent on Russian oil from non-sanctioned entities for the near future, the sources added.
They added that thus unique situation was explained to US trade officials during talks in December, and Nayara may have to be given an exemption from the ‘no-Russian oil-buy’ policy or a special dispensation be created.
Advantage from Venezuelan oil imports?
Prashant Vasisht of Icra told PTI that instead of Russian oil, Venezuelan crudes could be of interest to Indian refiners. The oil is heavy and sour and therefore, cheaper and many of our refiners can process these types of crudes, he added.
A similar sentiment was expressed by NSE CEO and MD Ashish Chauhan earlier this month. Noting that Venezuelan oil is among the heaviest or “un-processable crude” in the world, Chauhan said that most old and small refineries across the world are not able to process it.
“Indian refineries have been designed to process any crude because of dependence on imported crude — almost 85% of our needs comes from imports. Venezuelan crude will come with some discounts, because it not going to be able to be processed (by all) and India’s role and technology for the refining comes into play. So, India has some specific advantages,” he added.
Key Takeaways
- Indian refiners are likely to adjust their oil import strategy following a US trade agreement.
- Existing orders will be honored, but new Russian oil purchases may be paused, as per sources.
- Refiners like Nayara Energy may face challenges due to sanctions, leading to potential exemptions.