The Reliance Industries Ltd. oil refinery in Jamnagar, Gujarat, India, on Saturday, July 31, 2021.
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India’s largest private oil refiner, Reliance Industries, is reportedly halting purchases of Russian crude oil, following the US decision to sanction Russia’s two largest oil companies, Rosneft and Lukoil.
Reliance has become a major buyer of Russian crude. In September, it bought about 629,590 barrels of Russian crude per day from the two companies, out of India’s total imports of 1.6 million barrels per day, according to data from commodities data analytics firm Kpler.
During the same month last year, Reliance bought around 428,000 barrels per day of oil from Russian companies.
In fact, India’s Russian crude oil imports used to account for less than 3% of its total crude oil import basket, but today they account for a third of India’s crude oil imports, experts say.
Reliance has not responded to CNBC’s requests for comment on reports that it is pausing the purchase of Russian crude.
It comes as the US Treasury Department on Wednesday imposed sanctions on Rosneft and Lukoil, citing Moscow’s “lack of serious commitment” to ending the war in Ukraine. The sanctions are aimed at “degrading” the Kremlin’s ability to finance its war, the US department said, noting that more measures could follow.
If Reliance stops Russian purchases, it will have “negative impacts on [Reliance’s] margin and profitability since Russian crude oil constitutes more than 50% of the [its] raw diet,” Pankaj Srivastava, senior vice president of base oil markets at market research firm Rystad Energy, said in emailed comments.
He added that availability of “similar crude oil is not a problem” and can be sourced from West Asia, Brazil or Guyana, but Reliance is unlikely to get the same price as Russian crude as it has long-term deals with suppliers such as Rosneft.
Last December, Reliance Industries signed a deal to import crude oil worth between $12 billion and $13 billion a year from Russia’s Rosneft for 10 years, which would translate to about 500,000 barrels a day, according to a Reuters report.
“Opportunistic purchases”
The purchase of Russian oil by Indian refiners was an “opportunistic purchase” driven by discounts to comparable grades, said Vandana Hari of Vanda Insights.
India bought 38% of Russia’s crude exports in September, second only to China at 47%, according to the Helsinki-based think tank Center for Energy and Clean Air.
Hari added that Indian refiners can easily switch to purchasing from sources with the trade-off of “pressure on refining margins.”
Muyu Xu, senior crude oil analyst at Kpler, said the Indian refining giant could face some short-term problems as it looks to replace Russian crude.
“Given the large volumes under the Reliance-Rosneft deal, we expect some short-term friction for Reliance in sourcing replacement barrels,” says Muyu Xu, senior crude oil analyst at Kpler.
He added that “Russia’s medium-acid Urals are still between $5 and $6 per barrel.” [barrel] cheaper than Middle Eastern crude of similar quality.
A Jefferies report last month said the impact of Reliance Industries’ shift away from Russian oil was “manageable.”
The brokerage said in September it had received queries from investors about the possible financial impact on Reliance if it stopped its imports of Russian oil due to sanctions.
The profit from Russian crude accounts for about 2.1% of the company’s estimated consolidated EBITDA of 2.05 trillion rupees ($22.8 billion) for fiscal 2027, the brokerage said.
Reliance’s consolidated EBITDA for the six months of fiscal 2026 was Rs 1.08 trillion ($12.3 billion), of which Rs 295 billion came from its oil-to-chemicals segment, while its retail and telecom businesses together contributed nearly Rs 500 billion.
Hopes for a trade agreement with the United States
Other Indian refiners are also looking to reduce imports of Russian oil. The withdrawal of Russian oil could increase India’s import bill, but it will not be “as big an impact as India’s.” [it] could have been if crude oil was in the $70 or $80 range,” said Hari of Vanda Insights.
U.S. West Texas Intermediate futures were trading around $61.83 a barrel on Friday.
Experts also say that the benefits of India reducing its purchases of Russian oil outweigh the disadvantages.
According to Trinh Nguyen, chief economist at Natixis, the arbitrage that Russian oil offered during the energy crisis has diminished, and there is no need for India to make significant purchases of Russian oil now.
India’s purchase of Russian crude oil has been a sore point in its trade relations with the United States, which culminated in the imposition of a full 50% tariff on Indian products exported to the United States.
With both state-owned and private refiners expected to halt the purchase of Russian crude oil (a long-standing demand of US President Donald Trump), the chances of India negotiating a mutually beneficial trade deal with the United States have increased.
—CNBC’s Ying Shan Lee contributed to this report.
