India’s Oil Dilemma: Between Washington and Moscow

By Sanjeev Oak

India’s decision to resume large-scale Russian oil imports underscores a stark reality: energy security trumps geopolitical pressure. With Russian crude meeting nearly 35% of India’s needs, the move signals an economic necessity and a national interest priority over U.S. warnings.

Indian refiners resuming Russian crude imports in September, despite a fresh U.S. warning, reflects not just a tactical energy choice but a hard national-interest decision. Oil is the oxygen of India’s economy, and any disruption risks fuelling inflation, widening the current account deficit, and slowing growth.

The Numbers Behind the Choice

India is the world’s third-largest crude importer, bringing in nearly 87% of its oil needs. In FY24, crude imports averaged 4.7 million barrels per day (bpd), with the oil import bill crossing $132 billion. Since the Ukraine war, Russia has emerged as a pivotal supplier, accounting for over 35% of India’s crude imports in 2023–24, up from barely 2% before 2022.

Russian crude has been trading at a discount of $6–8 per barrel compared to Brent, saving India an estimated $10 billion annually. For a price-sensitive consumer economy, this is no small relief.

“Cheap Russian oil has been a shock absorber against imported inflation for India.”

Contrast this with Middle Eastern suppliers like Iraq and Saudi Arabia, which still provide around 45% of India’s crude basket but at higher costs and with less flexible payment terms. U.S. crude, meanwhile, accounts for under 7%, constrained by freight costs and shipping time.

Washington’s Warning

The U.S. has reiterated that buying Russian oil—especially above the G7-imposed $60 per barrel price cap—risks secondary sanctions. Washington’s message is clear: trading with Moscow may complicate New Delhi’s strategic partnership with the West.

Yet the reality is more nuanced. Indian refiners have largely complied with insurance and shipping rules to avoid direct sanction breaches. Moreover, global oil market dynamics themselves have changed. With Russia diverting supplies to Asia and China absorbing a large share, India has leveraged this to secure long-term discounted contracts.

Why Russian Oil Matters

Without Russian barrels, India would face an immediate surge in energy costs. Brent crude has been hovering near $82–85 per barrel in recent months. If Indian refiners were forced to replace Russian supplies with Middle Eastern alternatives, the import bill could jump by $8–12 billion annually.

That increase would ripple across the economy:

• Retail inflation (currently at 4.9%) could spike by 0.5–0.7 percentage points.
• Current account deficit (now at 1.5% of GDP) could widen past 2.2%.
• Fiscal deficit targets would be pressured as subsidies on LPG and kerosene rise.

For a government balancing growth with fiscal prudence, cheap Russian oil is not indulgence—it is necessity.

The Geopolitical Balancing Act

This is not India’s first encounter with energy geopolitics. In the early 2000s, India diversified into African suppliers like Nigeria and Angola. After the U.S.-Iran standoff, New Delhi had to reduce Iranian imports under pressure. Each time, India adjusted—but at significant cost.

The Russian case is different. Moscow has become India’s largest single supplier of crude, and unlike Iran, it is not a marginal player. Cutting off Russian supplies overnight would risk destabilising India’s energy security.

“Energy security is not a luxury for India; it is a non-negotiable national interest.”

Washington recognises India’s compulsions but expects New Delhi to gradually pare down Russian dependence. India, however, is signalling that choices will be made on its own terms, not dictated timelines.

The Broader Economic Stakes

Energy stability underpins India’s growth story. The government aims to sustain GDP growth at 7%+ through the decade, targeting a $5 trillion economy by 2027–28. But growth is energy-intensive. Oil accounts for 28% of India’s primary energy demand, with transport and industry most vulnerable to price shocks.

A sudden spike in oil costs could derail manufacturing competitiveness under the PLI scheme, push logistics inflation, and blunt India’s bid to emerge as a global production hub.

The Reserve Bank of India, too, has flagged imported oil price volatility as a key risk to monetary stability. Every $10 increase in crude raises India’s inflation by 30 basis points and worsens the current account deficit by 0.4% of GDP. These are hard economic calculations, not just diplomatic equations.

The Road Ahead

India’s strategy appears to be one of calibrated hedging. Refiners will continue buying Russian barrels as long as discounts remain substantial, while simultaneously investing in energy diversification:

• Expanding long-term LNG contracts with Qatar.
• Increasing crude purchases from Brazil and Guyana.
• Scaling up renewable energy capacity towards the 2030 target of 500 GW.

But oil will remain central for at least the next two decades. Until then, discount Russian crude is too valuable to forgo.

A Test of Strategic Autonomy

India’s decision on Russian oil epitomises its doctrine of strategic autonomy—a willingness to engage deeply with the U.S. and Europe while not severing ties with Russia. This balancing act has precedent in India’s Cold War foreign policy. Today, it is economic necessity, not just ideology, driving the calculus.

“Between Washington’s warnings and Moscow’s discounts, New Delhi has chosen the national interest.”

The U.S. may continue to pressure India, but New Delhi’s message is clear: oil choices will not be dictated from abroad. For a nation of 1.4 billion, securing affordable energy is not just policy—it is survival.