New Delhi: Discounts on Russian crude oil have dramatically increased over the past fortnight, jumping to $5-6 per barrel as international buyers steer clear of sanctioned Russian entities Rosneft and Lukoil. This represents a significant surge from the $1.7-4 per barrel discounts available in October when Indian and Chinese refiners had intensified their purchases.
Sanctions Trigger Discount Surge
Industry executives revealed that the heightened discounts directly result from recent sanctions imposed by the US Treasury Department's Office of Foreign Assets Control (OFAC) against Russia's two largest oil companies. The sanctions aim to pressure Moscow's energy sector and compel Russia to withdraw from Ukraine.
"As offtake of Russian oil has dipped, suppliers are increasing the discounts on offer, and are expected to rise further with the sanctions on Rosneft and Lukoil coming into effect," stated one industry executive who requested anonymity.
The current situation marks a dramatic shift from early 2022 when Russia initially offered discounts approaching $30 per barrel following its invasion of Ukraine and subsequent buyer avoidance.
Indian Refiners Adjust Sourcing Strategies
Indian oil companies have significantly reduced their engagement with sanctioned Russian entities while maintaining limited purchases from smaller, non-sanctioned Russian suppliers. Rosneft and Lukoil accounted for approximately 60% of Russia's total oil exports to India, which reached 88 million tonnes in FY25.
Prashant Vasisht, Senior Vice-President and Co-Group Head of Corporate Ratings at ICRA Ltd, explained: "As buyers like India are moving away from Russian suppliers that are sanctioned, the discounts would increase to attract more buyers."
Major Indian refiners including Indian Oil Corporation, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited have avoided new contracts with the sanctioned companies. Queries sent to these companies, along with the Union Ministry of Petroleum and Natural Gas, remained unanswered.
Supply Disruptions and Alternative Channels
Sumit Ritolia, Lead Research Analyst for Refining and Modelling at Kpler, anticipates significant disruptions in Russian crude flows to India. "With crude linked to these entities now effectively treated as a 'sanctioned molecule', Indian refiners (aside from Nayara) are expected to pause direct purchases after 21 November," he stated.
Loadings of Russian crude destined for India have already slowed considerably this month, dropping to 632,557 barrels per day from 1.9 million bpd last month. Despite this, actual Russian oil arrivals in India during November reached 1.9 million bpd, up from October's 1.6 million bpd.
Nayara Energy, which is owned by Rosneft, continues to import and process Russian crude. According to a CREA report, Nayara increased its production to 90% capacity in October and recorded a 32% month-on-month increase in Russian imports, reaching their highest volumes since the Ukraine invasion began.
Ritolia suggests that Russian oil will increasingly move through "opaque channels" involving intermediaries, shadow fleets, and complex logistics. "Refiners will likely proceed more cautiously, relying on unsanctioned traders, blended barrels, and more complex logistics to minimize OFAC exposure," he added.
Broader Market Implications
Russia's position as India's largest oil supplier faces challenges, though analysts don't anticipate a complete halt in imports. Russia accounted for 38% of its total oil exports to India in recent months, while China purchased 47%, making them the top two buyers globally.
The CREA report noted that Russia's fossil fuel export revenues declined to 524 million euros per day in October, the lowest level since the Ukraine invasion began. US authorities confirm that sanctions are achieving their intended effect of reducing Russian oil revenues and limiting Moscow's ability to fund its military operations.
Indian refiners are expected to diversify their import sources, increasing purchases from West Asia, Latin America, West Africa, and North America. In November, Iraq supplied approximately 965,000 bpd to India, followed by Saudi Arabia at 671,000 bpd and the United States at 594,000 bpd.
Despite the logistical challenges and potential higher freight costs, India continues to prioritize energy affordability and security, ensuring that discounted Russian barrels will remain attractive where possible through alternative supply channels.
