Saturday, July 31, 2021, at the Reliance Industries refinery in Jamnagar, Gujarat, India.
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Reliance Industries, India's largest private oil refiner, is reportedly suspending purchases of Russian crude oil in response to the US decision to impose sanctions on Russia's two largest oil companies, Rosneft and Lukoil.
Reliance has become a major buyer of Russian crude oil. According to data from commodity data analysis firm Kpler, India purchased approximately 629,590 barrels per day of Russian crude oil from both companies in September, out of a total import volume of 1.6 million barrels per day.
In the same month last year, Reliance purchased around 428,000 barrels of crude oil per day from a Russian company.
In fact, India's crude oil imports from Russia, which once accounted for less than 3% of the total crude oil import basket, now account for one-third of India's crude oil imports, experts say.
Reliance did not respond to CNBC's request for comment on reports that it is suspending purchases of Russian crude oil. Reliance Industries said in a statement late Friday that it would follow “EU guidelines on imports of refined products into Europe” but suggested there was no guidance yet from the Indian government on curbing crude oil imports from Russia.
The company added that diversifying its crude oil sourcing strategy will help refinery operations meet domestic and export requirements.
The U.S. Treasury Department on Wednesday imposed sanctions on Rosneft and Lukoil, citing the Russian government's “lack of serious efforts” to end the war in Ukraine. The US Department of State said the sanctions were aimed at “diminishing” the Kremlin's ability to finance the war, and suggested further measures could follow.
If Reliance halts purchases from Russia, “it will have a negative impact on (Reliance's) margins and profitability as Russian crude constitutes more than 50% of (the company's) crude diet,” Pankaj Srivastava, SVP of commodity oil markets at market research firm Rystad Energy, said in emailed comments.
He added that “the availability of similar crude is not an issue” and can be sourced from West Asia, Brazil and Guyana, but Reliance is unlikely to get the same price as Russian crude because it has long-term contracts with suppliers such as Rosneft.
In December last year, Reliance Industries signed a deal to import crude oil worth $12 billion to $13 billion a year from Russia's Rosneft for 10 years, Reuters reported. This is equivalent to approximately 500,000 barrels per day.
“Opportunistic purchase”
Vandana Hari of Vandha Insights said Indian refiners' purchases of Russian crude were “opportunistic purchases” due to discounts compared to comparable grades.
India bought 38% of Russia's crude exports in September, second only to China's 47%, according to the Center for Energy and Clean Air, a Helsinki-based think tank.
Hari added that Indian refineries could easily pivot to buying from source, but the trade-off would be “pressure on refining margins.”
Muyu Xu, senior crude oil analyst at Kpler, said India's oil refining giants could face some challenges in the short term as they seek to replace Russian crude.
“Given the large production volume under the Reliance-Rosneft contract, we expect some friction in the near term as Reliance secures replacement barrels,” said Muyu Shu, senior crude oil analyst at Kpler.
“Russian medium-acid Urals is still about $5 to $6 per barrel cheaper than similar quality Middle Eastern crude,” he added.
A report released by Jefferies last month said the impact of Reliance Industries' withdrawal from Russian oil would be “manageable.”
The brokerage firm said in September that it had received inquiries from investors about the possible financial impact on Reliance if it were to stop importing Russian crude oil due to sanctions.
The benefit from Russian crude oil will account for about 2.1% of the company's estimated consolidated EBITDA of 2.05 trillion rupees ($22.8 billion) in fiscal 2027, the brokerage said.
Reliance's consolidated EBITDA for the first half of FY2026 was INR 1.8 trillion ($12.3 billion), of which INR 295 billion came from the petrochemicals segment, while telecom and retail businesses together contributed nearly INR 500 billion.
Expectations for US trade deal
Other Indian refiners are also considering cutting imports of Russian crude oil. Vanda Insights' Hari said that while the withdrawal of Russian oil may raise India's import bill, “it won't be as big of a shock as it would have been had oil prices been in the $70s or $80s.”
U.S. West Texas Intermediate futures were trading around $61.83 per barrel on Friday.
Experts also say the benefits of India cutting its oil purchases from Russia will outweigh the downsides.
Trinh Nguyen, a senior economist at Natixis, said the arbitrage provided by Russian oil during the energy crisis has tapered off and India now doesn't need to buy large amounts of Russian oil.
India's purchases of Russian crude oil have hurt its trade relations with the United States, leading to the United States imposing a total of 50% tariffs on Indian products exported to the United States.
Both state-owned and private refiners are expected to stop buying Russian crude, a long-standing demand of US President Donald Trump, raising the possibility that India will negotiate a mutually beneficial trade deal with the US.
— CNBC's Ying Shan Lee contributed to this report