India could face an annual $5 billion surge in its oil import bill if forced to replace Russian crude, as pressure mounts following a new US tariff order targeting one of Moscow's top energy customers.
Trump accuses New Delhi of profiting from the resale of Russian oil, and beginning August 27, Indian goods will face an additional 25% tariff, bringing their projected baseline tariff to 50%.
Following US President Donald Trump's executive order, international oil markets have turned their attention to how India, one of the top buyers of Russian crude, will respond to this increasing pressure.
"India is expected to respond pragmatically rather than confrontationally," Sumit Ritolia, lead research analyst for Refining & Modeling at Kpler, told Anadolu.
Ritolia noted that government statements have been diplomatic but firm, stressing that discounted Russian crude remains a critical pillar of energy security and cannot be replaced without significant cost and disruption.
"Replacing 1.8 million barrels per day (bpd) of Russian-origin barrels, which currently make up about 38% of India's crude slate, would add an estimated $3-5 billion annually to the import bill at a $5/bbl premium, and potentially far more if global prices rise in a tighter sour crude market," he said.
A tighter sour crude market could prompt fuel price caps and strain India's fiscal balance, Ritolia said, while also risking a drop in total crude imports due to limited storage capacity.
Ritolia projects that while a full halt to Russian imports is improbable in the near term, refiners are expected to gradually diversify supply, leaning heavily on Middle Eastern sour grades, with smaller contributions from the US, West African, and Latin American barrels.
- Refiners can operate without Russian crude, but with notable trade-offs
"Technically, Indian refiners can operate without Russian crude, but the shift would involve notable economic and strategic trade-offs," Ritolia said.
"The most likely immediate adjustment would be cutting spot Russian purchases, particularly by state refiners, while maintaining term-linked flows to balance political optics with operational realities," he suggested.
If Indian significantly slows its purchases, China's capacity to absorb the surplus is limited to around 200,000-300,000 barrels per day, since most extra supply would have to go to non-state-owned refiners that are already facing low utilization rates.
"Any prolonged surplus risks building into floating storage, adding freight market pressure and complicating Russia's export logistics," Ritolia warned.
From a market positioning perspective, the secondary tariffs would signal a bullish trend in diesel margins globally due to potential disruptions in Indian diesel exports and in medium and heavy sour crude grades - such as Basrah Heavy, Upper Zakum, and Arab Medium/Heavy - as Indian refiners seek replacements for Urals.
At the same time, Urals could face a bearish trend if Indian demand declines and China is unable to absorb the full surplus, according to Ritolia.
He noted that the actual burden could be substantially higher if the situation pushes flat prices up, something increasingly likely.
"In a stressed scenario, the combined effect of higher premiums and stronger benchmarks could easily push the incremental annual cost toward or beyond the $7-11 billion range, particularly if substitution relies heavily on higher-cost Gulf and Atlantic Basin grades," he said.
By Ebru Sengul Cevrioglu
Anadolu Agency
energy@aa.com.tr