The Geoeconomic Conundrum of India’s Oil Purchases

• Indian Refineries and the Government Exchequer Gained

Reliance Industries Limited, Nayara Energy, the Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL) are India’s five largest refining companies. The first two are privately owned, and the remaining three are public refineries. For domestic supplies within India, the IOC, HPCL, and BPCL hold a combined market share of 85–90 percent, and that is why they have only been considered for subsequent analysis.

Figure 1 shows how the gross refining margin (GRM) of IOC, HPCL, and BPCL, India’s top three public refineries, fared in the last four financial years. GRM is the difference between the revenue from selling refined products and the cost of crude oil. Due to the price cap and discounts offered, Indian refineries were able to procure Russian crude at a cheaper cost. This enabled them to reduce their overall costs and earn a higher margin since pump prices largely remained unchanged.

The GRM for these companies peaked in the first year (FY 2023) of war due to higher discounts on offer. None of these companies saw an increase in net profit (see Table 2) in that year compared to the previous one due to currency depreciation, as the value of the Indian rupee weakened by 8 percent against the U.S. dollar. In FY 2024, the profits surged for all three companies.

An increase in net profit enabled these refineries to increase their investment in capacity expansion and contribute more to the government exchequer in the form of duties, taxes, and dividends. IOC, which is the largest of the three public refineries with a market share of 42 percent, alone contributed roughly $27–30 billion each year, or, ₹240,185 crore (FY 2023), ₹241,629 crore (FY 2024), and ₹232,299 crore (FY 2025) respectively, which is one-third of overall contribution by the oil and gas industry in the last three fiscal years.

• The Pump Prices in India Largely Remained Stable

Figure 2 below shows the daily pump price across four Indian metro cities for the last four years (April 1, 2021–October 30, 2025), and it is evident that they were not affected by the fluctuations in international crude oil prices. In FY 2023, the average price of India’s crude import basket (see Table 1 above) increased by roughly 17 percent. In this period, due to the onset of the war in Ukraine and the accompanying global oil price spike, for about two months in 2022 (March 22–May 21), petrol and diesel prices in India did go up by 10 percent. Thereafter, it fell by around 7 percent and remained stable for the next two years before further reducing by 2 percent in March 2024 (before India’s 2024 general elections). Meanwhile, the average price of India’s crude import basket reduced by 11 percent and 5 percent in FY 2024 and FY 2025, respectively.

As per the latest data provided by India’s Ministry of Petroleum and Natural Gas, in FY 2026 (between April and November), the average price of India’s crude import basket has further receded to $67.68 per barrel. This is 14 percent lower than FY 2025 and 27 percent lower than FY 2023, when the average price of Indian crude reached $93.15 per barrel.

Based on the global crude oil price trend, pump prices in India should have gone down. However, it did not happen and can be attributed to the pricing mechanism, where taxes levied by the central and state governments in India constitute nearly half of the final price. This mechanism provided the government with the ability to navigate and keep the prices stable, either by increasing or decreasing taxes. Between November 2021 and May 2022, the Union government reduced excise duty by ₹13 per liter (18 cents per liter) on petrol and ₹16 per liter (21 cents per liter) on diesel in two tranches, and this benefit was passed on to the consumers. In April 2025, excise duty on petrol and diesel was increased by ₹2 per liter (0.02 cents per liter) each, but this was not passed on to consumers.

The Fears of Pivoting Away

It is feared that the loss of savings on the oil import bill caused by the shift away from cheap Russian oil will make fuel expensive for Indian industries and households. A 10 percent increase in global crude oil prices can raise India’s domestic inflation by 0.2–0.3 percent, which in turn can impact India’s GDP growth. However, the data in Table 1 and Figure 2 don’t support this argument. The retail prices of petrol and diesel have remained stable. India’s spending on oil imports is decreasing because of falling oil prices. India’s macroeconomic indicators are on a strong footing as the current account deficit has narrowed to 0.2 percent of GDP in Q1 of FY 2025–2026 from 0.9 percent a year ago. The inflation (consumer price index) forecast has also been lowered to 2.6 percent from 3.1 percent. As an icing on the cake, in 2026, global oil prices are expected to remain well below $70 per barrel and could reach as low as $60 per barrel.

The Road Ahead for India

India has two options available—stay the course and continue to buy from Russia or diversify away from Russian crude.

The first option carries substantial risk given the hawkish stance of the current administration in the United States. Choosing this option jeopardizes the ongoing bilateral trade negotiations, which need to be addressed urgently to improve the competitiveness of Indian MSMEs due to the imposition of 50 percent tariffs. The recent purchase trend suggests India is opting for the second option as its refineries are scaling down their purchases of Russian crude—a few refineries have stopped buying, while others are buying from non-sanctioned entities.

Going forward, there are three important questions to be addressed:

1. Is there enough oil supply in the global market to replace Russian oil?
2. Can India revert to its prewar import basket to replace Russian crude?
3. What should be the strategy for diversification?

For the first question, the outlook is favorable. The International Energy Agency estimates that there will be a surplus of crude oil in 2026 over global demand. The increase in oil supply is led by non–Organization of the Petroleum Exporting Countries (OPEC) countries (the United States, Guyana, Canada, and Brazil), accounting for two-thirds of global supply growth. The remaining will come from OPEC+ countries, including Russia. The surplus oil supply will also keep downward pressure on oil prices.

To address the second question, a comparison of India’s oil import basket before and after Russia’s invasion of Ukraine offers insights (see Table 3). The prewar period (January 2021–March 2022) is used as a baseline, discounting pandemic-related distortions and previous embargo losses from Venezuelan and Iranian supplies.

The meteoric rise of Russian crude has come at the expense of established suppliers:

• Iraq, Kuwait, the United Arab Emirates (UAE), and Saudi Arabia collectively lost around 15 percentage points of market share.
• The United States’ share dropped by five percentage points.
• Nigeria’s share shrank by four points.
• The “others” category, including Mexico, Malaysia, Colombia, and Brazil, saw a combined 10 percentage point decline.

India’s ability to restore its prewar import basket hinges on the production capacity of key suppliers, notably Iraq, Kuwait, the UAE, and Saudi Arabia, which collectively accounted for over 50 percent of India’s crude imports prior to their displacement. These Middle Eastern partners have been steadily increasing output in 2025 and have announced further capacity increments, positioning them as the most viable replacements for Russian crude. Importantly, the crude grades from these suppliers are broadly compatible with Indian refinery configurations, which predominantly process high-sulfur crude (about 75 percent).

However, India should pursue a phased transition (across Q1 to Q4) as it shifts away from over 1.5 million barrels per day of Russian oil for the following reasons. First, while Iraq, Kuwait, UAE, and Saudi Arabia could technically substitute Russian volumes immediately, doing so would likely diminish their spare capacity going into 2026, heightening the risk of volatility in global oil markets. These suppliers have so far adopted a cautious stance on output increases, with further increments only confirmed through March 2026. Second, crude production in the United States is at its peak, with sustained growth in Guyana, Canada, and Brazil. India can leverage this evolving supply landscape by balancing long-term contracts with targeted spot market purchases, optimizing both costs and energy security in 2026. Third, Indian refineries are optimized for certain crude grades (75 percent high sulfur and 25 percent low sulfur), and a phased approach gives refineries time to adjust blending strategies, manage inventories, and optimize yields for new sources. Fourth, a phase transition will allow India to assess how the sanctions will be enforced by the United States and its allies on Russian crude.

India stands at a pivotal moment in its energy policy, faced with the dual challenge of maintaining affordability and security while navigating evolving geopolitical realities. The macroeconomic foundation is robust: Oil import spending has stabilized, inflation and current account deficits have moderated, and global supply outlooks remain favorable. Diminishing discounts on Russian crude and a downward trend in global oil prices further support a pivot back to prewar diversified imports.

A phased transition away from Russian crude is not only economically prudent but also strategically wise, as it reduces the risk of market volatility and reinforces India’s leverage in global trade and diplomatic negotiations. Ultimately, the pace and success of this shift will depend on external sanctions enforcement and India’s adept economic diplomacy. A steady, calibrated diversification strategy offers the best pathway to protect the Indian economy from transient disruptions, locking in resilience and bargaining power for the years ahead.

Shashwat Kumar is a fellow with the Chair on India and Emerging Asia Economics at the Center for Strategic and International Studies in Washington, D.C.