Indian Refiners in Turmoil Over Russian Oil Tariffs

Indian oil refiners are facing significant disruption after former U.S. President Donald Trump imposed a 25% import tariff on all goods from an Asian nation (assumed to be Russia) over its purchase of Russian oil.

Reliance on Discounted Russian Energy

These processors, who have heavily relied on discounted Russian energy in recent years, were already grappling with a proposed European Union ban on exporting diesel produced using Russian oil. With Washington now taking an increasingly hard line on the Kremlin, a scramble for alternative crude oil sources has turned into a frenzy.

Seeking Alternatives and New Challenges

A senior executive at a major Indian refining company stated that the company will try to source more crude from the Middle East and Africa, while also awaiting government guidance on how to proceed. The executive, who requested anonymity due to the sensitivity of the matter, said that the situation was not entirely unexpected, but it will increase costs and lower profit margins.

Heavy Dependence on Russian Imports

India heavily relies on energy imports, with over a third of its overseas crude oil purchases coming from Russia, making it the most important buyer of Russian oil. Many Indian refiners have come to depend on these discounted cargoes.

Additional Pressure from the EU

Earlier this month, the country's crude processors were hit by the EU's intention to ban imports of diesel produced in India using Russian oil, with Nayara Energy Ltd. singled out for penalties. These processors now find themselves under even greater pressure from Washington.

Uncertainty Regarding Potential Penalties

Trump stated in a social media post that in addition to the 25% tariff, India will have to pay a "fine" for purchasing Russian oil. The amount of this fine remains unclear, and refiners are seeking clarification from New Delhi on the matter.

Market Uncertainty

Vandana Hari, founder of Singapore-based oil consultancy Vanda Insights, stated that Trump's comments created "more uncertainty" for Indian refiners regarding their Russian crude oil imports. She added that this uncertainty could persist until August 7, unless Putin makes a conciliatory gesture before then. She was referring to the deadline set by Trump for a ceasefire in Ukraine.

Impact on Stock Prices

Shares of Indian refiners fell on Thursday. The country’s largest processor, state-owned Indian Oil Corp., fell as much as 3.2% in Mumbai, while Bharat Petroleum fell as much as 4.1%. Hindustan Petroleum Corp. fell as much as 3.7%, and privately-owned Reliance Industries Ltd. fell 2%.

Urgent Procurement Tenders

Even before Trump's announcement, state-owned Indian refiners were issuing procurement tenders for unusually urgent arrival dates. Indian Oil Corp. recently issued a tender for crude oil arriving in late September and early October, shortly after awarding a similar contract for roughly the same dates.

Hedging Against Risks

Bharat Petroleum also purchased Middle Eastern and West African crude oil this week, also for delivery in late September and early October. Under normal circumstances, tenders issued at this time would be for oil arriving in mid- to late-October.

Caution Regarding Russian Oil

According to several other informed sources who requested anonymity because they were not authorized to speak to the media, state-owned refiners are also being cautious about orders for Russian Urals crude oil to be shipped in September due to uncertainty regarding delivery.

Import Figures

According to vessel-tracking data compiled by foreign media, India purchased about 1.63 million barrels of Russian crude oil per day last year, accounting for more than a third of its total imports. These volumes have remained generally stable so far this year. In addition to geopolitical challenges, Indian refiners have also had to contend with reduced availability and higher prices for Russian oil.

Readjustment Challenges

"There’s going to be a scramble for cargoes," said R. Ramachandran, a veteran of the Indian oil industry who served as director of refining at Bharat Petroleum before leaving the company in 2020. "There is no dearth of crude in the market, it’s just that India will have to pay a higher price," he added, noting that supply chains may take three to six months to realign.