India’s Oil Windfall from Russia: A Strategic Boon or a Risky Dependency?

By Sanjeev Oak

India’s energy diplomacy with Russia has shifted from Cold War solidarity to refinery-led opportunism. As discounted oil keeps the economy afloat, questions loom—are we building resilience or courting overdependence? A deeper look at history, strategy, and future risks.

When Europe turned away from Russian crude in the aftermath of the Ukraine war, few expected India to emerge as the single-largest beneficiary. Yet, in just over two years, India has transformed itself into Moscow’s most important energy partner—buying record volumes of discounted oil, refining it, and often reselling products to the very West that swore off Russian hydrocarbons.

The question now is not whether India has gained—it undeniably has—but whether this windfall is sustainable. As history shows, energy partnerships are never just about barrels and cargoes. They are about geopolitics, strategy, and long-term risks.

I. Historical Ties: From Soviet Oil to Post-Cold War Adjustments

India’s energy ties with Russia did not begin in 2022. They have a lineage stretching back to the Cold War.

• The Soviet Era: Moscow was one of India’s most reliable energy and technology partners in the 1960s–80s. From building oil exploration facilities in ONGC’s early years to supplying crude and petroleum products on concessional terms, the USSR positioned itself as India’s “energy elder brother.”

• Post-1991 Realignment: After the Soviet collapse, Russia’s oil exports gravitated toward Europe, while India diversified—buying more from West Asia. The energy relationship thinned but never disappeared, sustained by defense-linked payments and small cargoes of Russian crude.

• A Strategic Shift in 2022: The Ukraine war, Western sanctions, and Europe’s embargo reopened a dormant channel. Russia, cut off from its biggest buyer, turned eastward. India, with its refining capacity and appetite, filled the vacuum.

“What was once a secondary trade has, within two years, become a pillar of India–Russia relations.”

By 2024, Russia accounted for nearly 40% of India’s crude imports, a staggering leap from under 2% before the war.

II. The Refining Boom: India as Europe’s “Backdoor Refiner”

One of the most underreported aspects of this oil bonanza is India’s refining clout. With over 5 million barrels per day (bpd) of capacity, India is among the world’s top three refiners, second only to the US and China.

• The Discount Game: Russian Urals crude, shunned by Europe, was rerouted to India at discounts of $20–30 per barrel below Brent. Indian refiners—from state-owned IOC and BPCL to private giants like Reliance and Nayara—snapped up these cargoes.

• The Export Pivot: Much of this oil was not consumed domestically. Instead, it was refined into diesel, jet fuel, and gasoline—then exported to markets in Europe, Asia, and Africa. Ironically, the West that banned Russian oil ended up importing Indian petroleum products refined from Russian barrels.

• Europe’s Dependence Reframed: Analysts now describe India as “Europe’s backdoor refiner”—a middleman in global energy flows.

“Every tanker docking in Jamnagar or Paradip is not just carrying crude; it is carrying the geopolitics of a fractured energy order.”

This refining arbitrage has saved India an estimated $10–12 billion annually on its import bill, bolstering foreign exchange reserves and giving policymakers room on inflation management.

III. Strategic Benefits: Cushioning Inflation, Enhancing Autonomy

The timing of this oil shift was fortuitous for India:

• Inflation Control: At a time when global oil prices were volatile, discounted Russian crude softened pump prices at home and curbed imported inflation.

• Geopolitical Autonomy: India could withstand Western pressure by arguing that its purchases were purely “economic, not political.” This autonomy bolstered New Delhi’s broader foreign policy positioning—balancing ties with Washington, Brussels, and Moscow.

• Industrial Competitiveness: Cheaper feedstock improved margins for refiners and exporters, reinforcing India’s role in the global petroleum supply chain.

IV. The Risks: Sanctions, Overdependence, and Climate Headwinds

Yet, beneath the windfall lie structural risks that policymakers cannot ignore.

1. Sanctions Tightening

While India has so far avoided secondary sanctions, the possibility looms large. The US and EU may yet harden measures on shipping, insurance, and financial transactions involving Russian cargoes. A sudden clampdown could leave Indian refiners stranded with supply disruptions.

2. Overdependence on One Supplier

Russia’s share of India’s crude basket has climbed dangerously high. Any geopolitical rupture—say, a sudden truce in Ukraine restoring Europe’s access, or a Moscow pivot toward China—could destabilize India’s import security.

3. Climate and Energy Transition

India’s short-term gains must be weighed against its long-term commitments. As the world accelerates toward decarbonization, India risks over-investing in fossil pathways. Russia itself is lagging in green energy, raising questions about the future of this partnership in a net-zero world.

“Windfalls are intoxicating. But energy security is about resilience, not bargains alone.”

V. The China Comparison: Different Pathways, Similar Goals

A useful lens is China.

• China’s Bargaining Power: Beijing entered the Ukraine war already deeply entwined with Russian energy. Its pipelines, long-term contracts, and financing deals gave it priority access. Unlike India, China negotiated oil and gas supplies insulated from shipping chokepoints.

• India’s Opportunism: India’s strategy has been more transactional—spot purchases, refining, and resale. This opportunism has worked in the short term but lacks the institutional depth of Beijing’s approach.

• Strategic Autonomy vs. Strategic Lock-in: Ironically, China’s deeper lock-in to Russian energy may prove more binding, while India retains flexibility. Yet, without long-term contracts, India risks losing out if Russia decides to favor Beijing in future allocations.

VI. The SCO, BRICS, and Energy Diplomacy

The surge in oil trade has coincided with India’s more active role in forums like the Shanghai Cooperation Organisation (SCO) and BRICS, where energy cooperation is an emerging agenda.

• SCO: Though dominated by China and Russia, SCO gives India a seat in Eurasian energy dialogues, from pipelines to renewables.

• BRICS: With talk of a BRICS energy alliance and even a common currency for trade settlements, discounted Russian oil may be a harbinger of a broader shift in non-dollar energy flows.

For India, this creates both opportunity and exposure: deeper integration in alternative blocs, but also sharper scrutiny from the West.

VII. What Lies Ahead?

Three factors will shape the future of India–Russia oil ties:

1. Western Tolerance: How long will Washington and Brussels accommodate India’s balancing act?

2. Russia’s Internal Calculus: Will Moscow continue to offer deep discounts, or gradually align prices as it stabilizes Asian markets?

3. India’s Energy Transition: How quickly can India diversify toward renewables, nuclear, and green hydrogen—reducing crude dependence overall?

Final word

India’s oil windfall from Russia is both a masterstroke of opportunism and a tightrope walk of strategy. The savings are real, the geopolitical leverage palpable. But history cautions against complacency.

The Soviet Union once supplied India with discounted oil and defense systems, only to collapse and force a painful adjustment in the 1990s. Today’s Russia partnership, buoyed by sanctions and war, may prove similarly contingent.

“India has played the energy chessboard with remarkable skill. The challenge is to ensure today’s discounts do not become tomorrow’s dependence.”