Since Russia's full-scale invasion of Ukraine in 2022, India’s reliance on Russian crude oil has increased tenfold. The proportion has risen from as little as 2% of total crude imports in 2021/2022, to 20% in June 2023. Recent estimates suggest that this percentage may reach as high as 30% by the end of the year.

In the wake of the invasion, there has been a largely concerted effort to sanction Russia’s economy and prevent it from further funding their war of aggression. A key component of the sanctions have been directed at Russia’s oil industry, Russia being the world's third largest producer and second largest crude oil exporter.

In December 2022, the EU’s sixth sanctions package came into effect, banning seaborne crude oil and petroleum products from Russia (90% of total oil imports from Russia). This move complimented similar bans enforced in the USA and the UK. Yet an additional component of the combined sanctions effort has been a price cap on Russian crude oil, which set the maximum  price at $60 per barrel of crude. Despite the fact that the G7 countries (USA, UK, France, Germany, Italy, Japan, Canada and the EU) have already agreed to ban or phase out Russian crude imports, the cap has given leverage to uninvolved countries, including India, when negotiating prices with Russia.

The rapid increase in Indian imports from Russia suggests that India has been able to harness Russia’s weakened bargaining position. At the same time this new arrangement has put downward pressure on the oil prices charged India’s former suppliers in OPEC, primarily, Iraq and Saudi Arabia

The price differential between Russian and OPEC sourced crude, provides a clear basis in explaining India’s shift. Taking the April 2023 price as a point of comparison, India was able to pay as little as $68 per barrel for Russian imported oil, while oil from Iraq (traditionally India’s largest supplier) was priced at $77 per barrel and oil from Saudi Arabia cost as much as $86 per barrel. During the month of April, the overall OPEC basket price ranged from $79 to $86 per barrel. The price gap between OPEC suppliers and Russia makes a clear case for India’s growing imports from Russia, while the significantly lower price of Russian crude demonstrates the impact of the $60 price cap.

The challenges posed by India’s growing taste for Russian oil are twofold. In the first instance, while the price of Russian oil is considerably lower than OPEC in this case, the $68 per barrel price tag is still well over the imposed price cap, revealing the limitations of the price cap regime. In the second instance, India has become a rapidly growing market for Russian oil and as such a prop for the Russian war economy. While EU oil imports declined, figure 2 shows the relative increase of Indian oil imports, partially offsetting the impact of oil sanctions. India’s growing reliance on imported Russian oil has already become a point of contention with Western leaders. With the forecasted increase of India’s Russian oil imports, it is likely to remain so.

Image credit: President of Russia via Wikimedia Commons