Russia squeezed, Saudi route hit, China circles: Why India's oil bill could get heavier

India may have avoided a major crude supply shock from the US-Iran conflict so far, but a new set of pressures is building around the world's third-largest oil importer, with disruptions to Saudi Arabian export infrastructure, constraints on Russian crude shipments and the prospect of stronger Chinese competition for the same Russian barrels, according to a Times of India (TOI) report.

For India, which imports around 90% of its crude requirements, the immediate concern may not be running out of oil. The bigger risk, according to experts cited by TOI, is how much the country will have to pay for it.

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Russian crude remains the largest component of India's import basket and continues to be among the most economical options for refiners, the report said. But attacks and logistical constraints are complicating Russia's ability to export, while Saudi Arabia's East-West pipeline has been shut following drone attacks.

At the same time, China — already the world's biggest importer of Russian crude — could compete more aggressively for Russian barrels as its refineries return and supplies of Iranian crude remain constrained, TOI reported.

Together, those factors could narrow Russian discounts, increase freight and insurance costs and force Indian refiners to compete harder for alternative supplies.

Saudi disruption narrows India's options

Saudi Arabia could run out of exportable oil inventories at key Red Sea ports within five to seven days if its East-West pipeline remains shut following drone attacks, TOI reported, citing Reuters.

A prolonged disruption could potentially remove as much as 4 million barrels per day, equivalent to about 4% of global supply, from the market, according to the report.

The risk comes when oil flows through the Strait of Hormuz have already fallen sharply and global oil supply is expected to decline by 5.7 million barrels per day this year, the report said.

For India, the East-West pipeline matters because it allows Saudi crude to bypass the Strait of Hormuz and reach the Red Sea port of Yanbu. According to TOI, Yanbu has accounted for around 9% of India's crude imports since the war began.

Indian refiners may be able to manage an immediate disruption using inventories, but a prolonged shutdown could leave them with fewer options for rerouting supplies and potentially force them to seek replacement grades at higher prices and freight costs, the report said.

That puts greater importance on another pillar of India's crude strategy — Russia.

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Russia remains crucial, but export constraints are growing

Russian crude continues to provide an important supply cushion for India, but its war with Ukraine has complicated the export picture, according to TOI.

The report noted that several Russian refineries are facing full or partial outages and require maintenance. While lower domestic refining activity could theoretically leave Russia with more crude available for export, infrastructure constraints mean those additional barrels cannot necessarily reach overseas buyers.

Natalia Katona, Commodity Analyst, told TOI that Russia's export infrastructure is already operating close to its limits.

“The export infrastructure is already being used close to maximum capacity, while Black Sea shipments are being constrained by attacks, shipping risks and higher freight rates – currently freight from the Black Sea region is estimated at $20/bbl, while freight from Baltics (which is much farther) at around $13/bbl – all due to the named constraint,” she tells TOI.

Katona said the decline in Russian exports has been disproportionate and is largely being driven by reduced loadings at Black Sea terminals.

“If refiners cannot process the crude and exporters cannot find sufficient port and tanker capacity (or do not want to risk sending it through the Black Sea), production eventually has to be reduced. Novak has acknowledged that Russian output will decline somewhat year-on-year,” she says.

That means refinery outages do not automatically translate into a corresponding increase in Russian crude available to Indian buyers.

China could squeeze India's Russian oil advantage

China is already the biggest importer of Russian crude, and a recovery in its demand could put Indian refiners in more direct competition for Russian barrels, according to experts cited by TOI.

“This is probably the more immediate risk for India than an outright drop in Russian production. China’s seaborne imports of Russian crude increased from 1.40 million b/d in July to 1.69 million b/d in August, in addition to approximately 1 million b/d arriving through pipelines,” notes Natalia Katona.

China's overall crude demand has yet to return to pre-conflict levels, with its total seaborne crude imports in August still almost 40% below that level, the report said.

But TOI reported that Chinese refineries are gradually returning as stronger Asian fuel margins encourage higher processing rates. At the same time, China has fewer Iranian barrels available as tankers remain stuck inside the Gulf and cargoes that left before the blockade and accumulated around Singapore and China are gradually depleted.

“With Gulf supplies still well below normal, Russia is one of the few producers that can fill the gap at scale. China also enjoys better freight economics for ESPO, Sakhalin and Arctic crude grades cargoes,” Katona says.

According to Katona, during the peak Northern Sea Route season, Russian crude can reach northern China at a lower transportation cost than India.

“For Urals from Russia’s western ports, India remains an important destination, but right now we see some ships loaded with Urals going to China as well through the NSR and the Suez. That puts them into more direct competition with Indian refiners,” she adds.

India may keep the barrels but lose the discount

The result may not necessarily be a sharp decline in Russian crude reaching India. Instead, India risks losing much of the price advantage that made Russian oil particularly attractive after the Ukraine war, according to experts quoted by TOI.

Praveen Rai, Director, Grant Thornton Bharat, told TOI that stronger Chinese purchases could force Indian refiners to pay higher premiums or look elsewhere for incremental supplies.

“This does not necessarily mean a shortage of crude for India, but it does mean higher landed costs through a combination of higher crude prices, narrower discounts, and elevated freight costs. Consequently, the benefit that Russian crude has provided to India's refining sector over the past few years could diminish considerably if Chinese demand remains strong,” he tells TOI.

The shift is already visible in Russian crude pricing, according to the report. Urals delivered to India were offered at a premium of $1 a barrel to Dated Brent for September-October arrivals, compared with discounts exceeding $10 a barrel earlier in July.

According to Katona, the grade subsequently moved to a premium in some transactions as export availability tightened.

“The grade subsequently moved to a premium in some transactions as export availability tightened. Therefore, even if Russian volumes into India remain close to 2 million b/d, the economic benefit may be significantly smaller,” she says.

Katona nevertheless expects Russian oil to remain competitive for Indian refiners because other comparable grades are also becoming more expensive.

“Russian suppliers adjust flexibly to keep Urals the most attractive medium-sour barrel for Indian refiners,” she says.

Every $1 oil rise adds about $5 million a day to India's bill

For India, price rather than physical availability could therefore emerge as the bigger risk, according to the experts cited in the TOI report.

Pankaj Srivastava, Senior Vice President, Commodity Market - Oil at Rystad Energy, told TOI that every $1 per barrel increase in crude prices raises India's import bill by approximately $5 million a day, assuming imports of around 5 million barrels per day.

“Strong product cracks and elevated refinery margins are offsetting much of the impact of higher crude costs on refining economics. However, every $1/bbl increase in crude prices raises India’s import bill by approximately $5 million per day, assuming imports of around 5 million b/d. Additional supplies from Africa and South America should provide some diversification and ease pressure on crude availability,” he tells TOI.

The calculation illustrates India's exposure to a sustained rise in crude prices. Even if sufficient barrels remain available, higher benchmark prices combined with shrinking Russian discounts and more expensive freight could increase the country's import costs.

TOI also flagged the possibility of fresh US tariffs linked to India's Russian crude purchases if proposed sanctions legislation gives the Trump administration powers to impose penalties on countries buying Russian energy.

Where can India find replacement crude?

India has one important defence against physical disruption: a crude procurement network spanning more than 40 countries, according to the report.

Rai told TOI that the country's diversified sourcing portfolio provides flexibility if Russian crude becomes less economically attractive. But replacing Russian barrels is not simply a question of finding another oil-producing country, with refiners also having to consider crude quality, freight, delivered cost and compatibility with their plants.

“From a cost and logistics standpoint, the most attractive substitutes are likely to remain Iraq, Saudi Arabia and the UAE, with Iraq being the closest replacement for Russian Urals because its medium-sour grades closely match the requirements of Indian refiners,” he tells TOI.

Another pool of potential supplies includes Venezuela, Brazil and West African producers such as Nigeria and Angola, though longer shipping distances and geopolitical risks can increase transportation costs, according to the report.

The US offers another source of diversification, particularly for lighter crude, but distance makes those barrels more expensive to transport and their characteristics may not be optimal for Indian refineries designed around medium-sour grades, Rai said.

“The United States remains an important diversification source for lighter crude grades. However, these barrels involve the highest freight costs and may not always deliver the best refining economics for refineries optimised for medium-sour crude,” he says.

Rather than replacing one supplier with another, Rai expects refiners to spread purchases across several markets.

“Indian refiners would adopt a portfolio approach, increasing purchases from Iraq, UAE where possible, while supplementing requirements through selective imports from Venezuela, Brazil, West Africa, and the United States,” he adds.

The bigger threat is the landed cost of oil

India's diversified sourcing strategy can protect it against an outright supply shortage, but it cannot fully insulate the economy from a simultaneous increase in crude prices, shipping costs and insurance, according to the TOI report.

Sumit Ritolia, Lead analyst, Modelling and Refining at Kpler, told TOI that the greater risk for India is the rising landed cost of crude.

“For India, that means a higher oil import bill, more pressure on the current account and rupee, and a greater inflationary risk if elevated energy costs persist,” he says.

TOI noted that higher landed crude costs could also put pressure on oil marketing company margins and potentially the government's fiscal position if domestic fuel prices do not fully reflect the increase in international crude and transportation costs.

India therefore has alternatives if Russian or Saudi supplies become constrained, but those alternatives may not come at the same price.

With Saudi export infrastructure disrupted, Russian shipments facing constraints and China potentially competing for more of the same Russian barrels, India's diversified oil basket can soften the risk of a physical supply shock. But as the experts cited by TOI pointed out, it cannot eliminate the cost pressure when several major sources and oil routes come under stress at the same time.