Middle East Supply Squeeze Forces India to Surge Russian Oil Buying, Overcoming US Hurdles

Indian Refiners Increase Reliance on Russian Crude Amid Middle East Volatility​

Indian refiners are aggressively acquiring Russian crude oil, anticipating sustained high purchase volumes throughout the year. This heightened demand is primarily driven by palpable supply constraints emanating from the Middle East. Furthermore, the perceived easing of US sanctions pressure is bolstering this strategic sourcing move.

Leading refinery executives indicated that they anticipated an extension of the US waiver allowing Russian oil purchases before its impending expiration. However, industry insiders suggested that purchases are unlikely to decrease, even without the extension. They cited a persistent scarcity of alternative supply options as the main underpinning for this continued high intake.

Supply Dynamics: Russian Imports and Alternatives​

Data from the intelligence firm Kpler showed that imports from Russia averaged 1.98 million barrels per day in March. While this figure dipped in April to an average of 1.57 million barrels per day, refiners attributed this slowdown to necessary maintenance shutdowns at Nayara Energy’s refinery, which processes a significant volume of Russian crude. These executives anticipate volumes will rebound substantially starting next month.

Vandana Hari, founder of Singapore consultancy Vanda Insights, commented that "India is grabbing all the Russian crude it can get its hands on." She further predicted that India will "continue maximizing Russian intake as long as its flows from Persian Gulf remain crimped."

Geopolitical Tensions Redrawing Global Oil Sourcing Maps​

The global oil landscape has undergone dramatic shifts. India, the world’s third-largest oil importer, transitioned from minor Russian sourcing to becoming the largest seaborne buyer following the invasion of Ukraine in 2022. This pivot allowed India to capitalize on heavily discounted prices as other major consumers curtailed purchases.

The calculus changed significantly last year due to increased pressure from the US regarding punitive tariffs and sanctions on Russia’s major producers. More recently, US and Israeli strikes on Iran, culminating in the closure of the Strait of Hormuz, have dramatically altered the sourcing equation for all involved parties. Washington appears focused on lowering oil prices, while India remains intensely focused on securing uninterrupted supply lines.

Inventory Build-up and Supply Pipeline Assessment​

Following the initial waiver granting permission for Russian oil purchases in early March, India completed purchases of approximately 60 million barrels for delivery that month. Historically, Russian crude had been accumulating in storage reserves through the second half of last year, a period when India had been cautious due to fears of increased tariffs from Washington.

Vortexa data indicated that Russian crude volumes peaked around 155 million barrels in early January, compared to roughly 93.2 million barrels in the middle of the previous year. Currently, storage levels stand at 100 million barrels, which may include already committed cargoes, bringing the figure close to levels seen a year ago.

Strain on Supply and Alternative Sourcing Challenges​

The US Treasury has also issued a waiver enabling temporary access to seaborne Iranian oil, and India has publicly stated its intention to consider Iranian crude. Nevertheless, refiners have reported facing limited success when trying to utilize these alternatives. Concerns surrounding intermediaries and specific suppliers are cited as key hurdles in tapping these backup sources.

Since the commencement of the six-week conflict in the Persian Gulf, India, which sources about 90% of its crude and relies heavily on the Strait of Hormuz, has faced acute shortages. This instability has contributed to surging prices and raised the specter of slower domestic growth. Furthermore, India has struggled to secure Liquefied Natural Gas, a commodity Russia has been offering to Asian buyers at a reported 40% discount to spot prices last week, despite ongoing sanctions.