Russian oil uncertainty hangs over India’s largest buyers

Indian state-owned refiners are facing the most significant supply uncertainty in months, according to people with direct knowledge of the trade, as the impact of a drawn-out conflict in the Middle East is compounded by the prospect of tighter US restrictions on Russian purchases.

Oil supplies through the Strait of Hormuz have been disrupted since the end of February, but Saudi Arabia was last week forced to close a crucial workaround — the East-West pipeline — after drone attacks, impacting more than 400,000 barrels a day of flows to India alone.

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Those disruptions are expected to be temporary, with Saudi Arabia currently working to bypass a damaged section in order to return about half the capacity within days, Bloomberg reported earlier. Russian crude, however, is already commanding a premium, the people said, and could become even tougher to handle after the US Congress gave its approval on Wednesday to a sweeping US sanctions bill that paves the way for punitive tariffs on countries dealing with Moscow’s oil industry.

State oil refiners’ September and October requirements are secured, but the processors are facing tougher decisions when it comes to November and beyond, the people said, asking not to be named as discussions are not public.

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India has relied heavily on discounted Russian oil and relatively secure term Middle Eastern supplies to contain import costs through the past months. A twin squeeze — especially if President Donald Trump signals he will use the new tariff powers — leaves refiners competing for barrels from further afield. That will crimp margins at refiners unwilling to cut run rates and already selling gasoline, diesel and cooking gas below cost.

India is currently Russia’s top buyer of seaborne crude, but its refiners have already been leaning on the US, Brazil, Canada, Venezuela and Africa for additional and more varied supplies. That diversification will continue, but at a price, the people said.

The timing of the crunch, months into a Middle East energy crisis, is particularly difficult. India’s crude inventories fell to 93.5 million barrels in the week beginning Sept. 14, the lowest since May, according to Kpler. That’s enough to cover the equivalent of about 20 days of imports.

At the same time, a new 180,000-barrel-a-day refinery in Rajasthan is ramping up and Indian Oil Corp. is expanding existing plants, adding over 340,000 barrels a day capacity by December, increasing the country’s need for crude.