Oil Turmoil Boils: Despite US Sanctions On Lukeoil & Rosneft, Russian Supply To India Will Not Halt

However, what has come as a surprise is another key development that could have an effect on the efficacy of sanctions. This is the reported exemption being given to Germany and the UK on dealings with a Rosneft subsidiary based in the former country.

Commerce and Industry Minister Piyush Goyal pointed to these exemptions during a conference in Berlin and sought to know why India was being left out. The issue is likely to be taken up at a diplomatic level so that there is an evenhanded approach in regard to such exemptions from sanctions.

India has been singled out for purchasing Russian oil. The 50 per cent tariff -- 25 per cent of this slapped as a penal tariff-- by the Trump administration was nothing short of singularly targeting India, while several other economies continued to buy oil from Moscow.  

In the case of India, Rosneft and Lukoil supply 60 per cent of crude imported from Russia. The balance is from other Russian sources, which are not covered by sanctions. In other words, Russian oil will continue to flow to this country, though at reduced levels.

China has also announced it will halt seaborne trade in oil with Russia. It has not, however, halted supplies of oil and gas via onland pipelines.

As for the financial consequences of shifting from Russian oil, fortunately, these will not be significant right now. Prices have already fallen considerably from US$80 per barrel in January to around US$66 now.

The discount on Russian oil is thus minimal at this stage, so there will be little impact on the country's import bill, which was about US$104 billion in 2024-25.

Why Were Sanctions Imposed?

The measures are meant to curtail much-needed revenues for a country that relies heavily on oil and natural gas sales. The ultimate aim is to weaken the Russian economy so that it comes to the negotiating table and halts the war in Ukraine. Whether the sanctions will achieve this purpose will depend to a large extent on their enforcement in global oil markets. There is no doubt, however, that it will put pressure on crude prices by choking supplies from one of the world’s biggest oil and gas producers.

As far as India is concerned, the biggest area of concern is the potential impact of sanctions on the economy. This is a critical question as India has so far stubbornly refused to cut back on purchases of crude oil from Russia. The independent stance has led to a punitive levy of 50 per cent tariffs on exports to the US, a penalty which has strangely not been imposed on China, which remains the biggest buyer of Russian oil. Yet the imposition of sanctions will now hurt both countries, and the expectation is that imports will gradually be dialled down.

Most analysts opine that sanctions could have a damaging effect on both Indian and Chinese oil refiners. The fallout must be viewed in the context of the fact that such specific sanctions on Russian oil producers have been imposed for the first time since the Ukraine war began. Till now, there were reservations against using this instrument owing to the worrying possibility of oil prices being driven upwards. 

The removal of Russian oil from global oil markets would reduce overall availability and thereby contribute to a hardening market. These fears have been realised as prices of the benchmark Brent crude have already spurted by around five per cent to reach around 66 dollars per barrel.

The Indian Argument 

India, which has been pressurised by the U.S. in recent months to reduce Russian purchases, has so far been arguing that it is abiding by guidelines laid down by the Western coalition. These were simply to ensure that oil purchases were within a price cap of US$60 per barrel. Given that Russia had been offering considerable discounts initially compared to market prices, this had not been a problem.

The limited provision had been introduced, clearly keeping in mind the fact that even European countries were finding it difficult to reduce their own dependence on Russian oil and gas. It is only now that oil and gas supplies to Europe have been brought down from 27 and 45 per cent of total consumption to three and 18 per cent respectively, that an effort is being made to impose sanctions on oil companies.

To clarify, such sanctions imply that any transactions with the identified companies would be barred by Western financial institutions. It would invite other penalties as well on the entities that are engaged in business with these concerns. There could also be a possibility of a trade embargo or a freeze of the assets of companies violating the sanctions. Since most global transactions are carried out in dollars through Western financial institutions, any international business entity’s operations could be virtually paralysed by dealing with sanctioned firms.

The Likely Effect 

The fact is that the imposition of sanctions on Rosneft and Lukoil is not likely to have a significant impact on the country’s energy security, owing to the easy availability of crude oil in world markets. Yet it is also not likely that the supply of Russian crude will be halted altogether. 

The volumes are bound to be reduced to ensure that Indian refiners are not affected in terms of carrying out day-to-day financial transactions. The flow of Russian oil will continue partly because it is not easy to cut back on supplies of specific grades of crude for which Indian refineries are designed to process. Partly, however, India would like to ensure that it provides a measure of support to a long-term ally like Russia that has been an all-weather friend to this country.