Trump takes action, India's daily supply of 1.6 million barrels of Russian oil is in jeopardy!

The U.S. Treasury Department has imposed sanctions on Russia's two largest oil companies, Rosneft and Lukoil, marking the first time the Trump administration has imposed direct economic costs on Russia due to the Russia-Ukraine conflict. This measure threatens the energy supply chain between Russia and its major Asian customers, forcing key buyers like India to significantly reduce or even completely halt purchases in the short term.

On October 23, media reported that the U.S. Treasury announced the sanctions on Wednesday, citing Russia's lack of a serious commitment to ending the Russia-Ukraine conflict. Treasury Secretary Steven Mnuchin stated that the U.S. is prepared to take further action. The government has set November 21 as the deadline for business liquidation, giving companies nearly a month to complete or cancel existing transactions with the two companies.

These sanctions directly impact Indian refiners. India imported about 1.6 million barrels of crude oil per day from Russia in September, with Rosneft and Lukoil accounting for about half of Russia's daily crude oil exports of over 4 million barrels. Indian state-owned refiners Indian Oil, Bharat Petroleum, Hindustan Petroleum, and private giant Reliance Industries are all facing supply disruption risks.

According to a previous article by Wall Street Insight, the latest sanctions mean that all four major Russian oil companies are now under U.S. sanctions. Following the announcement, market concerns about potential disruptions to Russian oil supply intensified, pushing international oil prices up by more than 4%.

Indian Refiners Face Supply Restructuring

Several Indian refining companies are directly exposed to the risks of Russian supply. According to Kpler data, Indian state-owned refiners Indian Oil, Bharat Petroleum, Hindustan Petroleum, as well as private companies Reliance Industries, HPCL-Mittal Energy Ltd., and Oil and Natural Gas Corp are major buyers of Russian oil.

Media reports, citing informed sources, indicate that Indian state-owned refiners are currently reviewing their Russian oil trade documents to confirm that no supplies come directly from Rosneft or Lukoil. Vortexa oil market analyst Emma Li stated that India may need to abandon its long-term shipping agreements.

Rosneft also owns nearly 50% of Nayara Energy Ltd., which operates the Vadinar refinery in Gujarat. This refinery may face difficulties in selling refined products rather than obtaining crude oil.

Kpler senior crude oil analyst Muyu Xu stated:

" This could be a very significant upgrade. Trump's sanctions on Rosneft and Lukoil will have a major impact on Russia's maritime crude oil exports, potentially prompting major buyers to cut purchases in the short term—if not completely halt them."

Amrita Sen, an analyst at energy consulting firm Energy Aspects, stated that this move will "further complicate the oil exports of Russian companies." She believes that the new sanctions may force Asian buyers to reduce their purchases of Russian oil.

Analysis indicates that Russian oil giants shifted their supply from Europe to Asia in 2022, but their situation has sharply deteriorated this year due to falling global energy prices and the U.S. imposing secondary tariffs on Indian purchases of Russian oil.

The sanctions are much stronger than the previous price cap mechanism

These sanctions differ significantly from the previous price cap mechanism established by the G7. The price cap allowed Russian crude to flow as long as the price was below $60 per barrel.

John Kilduff, a partner at Again Capital, pointed out: "This seems to mean that regardless of the price, you cannot purchase Russian crude oil. This is a comprehensive ban."

The sanctions mean that buyers will need to find new transportation and payment methods, which will incur additional costs and complexities. Bob McNally, president of Rapidan Energy Group, stated that this is exactly what the U.S. wants: to cut Moscow's profits without completely stopping Russian exports.

Energy experts noted that India will have no choice but to primarily turn to U.S. and OPEC supplies.

Kilduff stated: "OPEC currently has idle capacity, especially in Saudi Arabia. But the increased demand for non-sanctioned global supplies will drive up prices." Vandana Hari, founder of Vanda Insights, also mentioned that India's alternative is more Middle Eastern crude oil.

Muyu Xu expressed that she does not believe the flow of Russian crude will completely stop, but interruptions are inevitable in the short term.