Russia Offers Discounts to Sustain Oil Trade with India

Russia has introduced a special mechanism aimed at maintaining its oil trade with India, even as U.S. President Donald Trump threatens to impose a 25% tariff on Indian exports if the country continues purchasing Russian oil. This development emerged earlier this week, with reports from Reuters citing Russian diplomats in New Delhi discussing the initiative but withholding specific details.

Roman Babushkin, the Russian charge d’affaires at the New Delhi embassy, emphasized that despite the political climate, India is expected to sustain its oil import levels. Indian refiners had recently begun avoiding Russian crude on the spot market following Trump’s warning. However, the Indian government signaled its intention to prioritize national interests over U.S. pressures, stating it would continue to act in the best interests of India.

The temporary reduction in Russian oil purchases quickly reversed as Indian importers resumed buying, attracted by substantial discounts on Russia’s flagship Urals blend. Following a shift in the market, Indian refiners capitalized on these lower prices, as Chinese refiners were unable to absorb all the additional volumes previously available to Indian buyers.

According to Evgeny Griva, Russia’s Trade Deputy Commissioner, the new mechanism may involve further discounts to stimulate demand, with current discounts ranging from 5% to 7%. This strategy aims to ensure that Indian imports remain an attractive option for buyers.

Trump’s trade adviser, Peter Navarro, criticized India’s continued acquisition of Russian oil, labeling it “opportunistic and deeply corrosive” to global efforts to isolate Russia’s economy due to its actions in Ukraine. Since 2022, India has become the second-largest purchaser of Russian crude, transforming Russia from a minor supplier into its primary oil source, largely due to these discounts.

India relies heavily on imported oil, with over 85% of its demand met through imports. Analysts warn that if Indian buyers halt their purchases of Russian oil, the country might see its total import bill increase by approximately $9 billion this fiscal year, with an additional projected rise of $11 billion in the following year, according to the State Bank of India.

Interestingly, a former energy analyst noted that it was the U.S. administration that initially encouraged Indian buyers to switch to Russian crude in an effort to stabilize global oil prices after sanctions were imposed in 2022. Bob McNally, president of Rapidan Energy Group, remarked that U.S. officials previously urged India to import Russian oil to prevent a spike in global prices.

The current landscape suggests that a sudden cessation of Indian imports would likely disrupt about 1.7 million barrels per day, potentially leading to a significant price shock. Despite Trump’s administration’s concerns, the ongoing negotiations between Russia and India could pave the way for continued trade without repercussions from the U.S.

As both nations explore ways to sustain their oil trade, the implications for global oil markets remain significant, highlighting the interconnected nature of international energy relations.