Reliance Industries, India’s largest private refiner, has ceased purchases of Russian crude oil due to new U.S. sanctions on Rosneft and Lukoil. This shift disrupts a key supply chain that accounted for over 50% of Reliance’s crude intake, potentially impacting margins but opening doors for better U.S. trade relations.
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U.S. sanctions target Russian energy giants Rosneft and Lukoil, forcing Indian refiners like Reliance to halt imports immediately.
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Reliance imported 630,000 barrels daily from Russia in September, representing one-third of India’s total Russian oil supply.
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The move could raise costs as discounted Russian barrels are replaced by pricier alternatives, with experts estimating a 2.1% hit to Reliance’s EBITDA.
Reliance Industries halts Russian oil buys amid U.S. sanctions on Rosneft and Lukoil. Discover the financial impacts and geopolitical shifts for India’s energy sector. Explore implications now.
What is Reliance Industries Doing About Russian Oil Purchases?
Reliance Industries, India’s biggest private refiner, is quietly stopping its purchases of Russian crude oil in response to fresh U.S. sanctions on major Russian energy firms Rosneft and Lukoil. This decision marks a significant pivot from a supply that had become vital, comprising over 50% of Reliance’s crude needs just months ago. The change stems from escalating geopolitical pressures, aiming to align with U.S. policy on the Ukraine conflict.
How Are U.S. Sanctions Impacting Reliance’s Supply Chain?
The U.S. Treasury Department imposed these sanctions on Wednesday, citing Russia’s insufficient commitment to ending the war in Ukraine. While no Indian entities are directly named, the indirect effects are profound for refiners reliant on discounted Russian oil. Pankaj Srivastava, senior VP at Rystad Energy, warns that dropping Russian crude could negatively affect Reliance’s margins and profitability, as it formed more than half of its crude diet.
Replacements from regions like West Asia, Brazil, or Guyana exist, but Srivastava notes they come at higher costs compared to the bargains Russia offered. Reliance’s long-term 10-year deal with Rosneft, valued at $12 to $13 billion annually for around 500,000 barrels per day, is now uncertain. Muyu Xu, senior crude oil analyst at Kpler, highlights potential short-term disruptions in securing equivalent volumes.
Russian Urals grade oil traded at $5–6 per barrel less than comparable Middle Eastern crude, making the switch economically challenging. India’s energy landscape has evolved rapidly: Russian oil now accounts for one-third of national imports, up from less than 3% a few years ago. In September, Reliance alone imported nearly 630,000 barrels daily from Rosneft and Lukoil, part of India’s 1.6 million barrels per day total from Russia.
Frequently Asked Questions
What triggered Reliance Industries to stop buying Russian oil?
New U.S. sanctions on Rosneft and Lukoil, imposed by the Treasury Department over Russia’s Ukraine involvement, prompted the halt. Reliance, previously sourcing over 50% of its crude from these firms, faces secondary pressures to comply and avoid broader repercussions.
How will U.S. sanctions on Russian oil affect India’s energy imports?
India’s refiners, including Reliance, must source costlier alternatives, potentially raising import bills but manageable given lower global prices around $61.83 per barrel for WTI crude. This shift reduces dependence on Russia, which supplied 38% of its global exports to India last September.
Key Takeaways
- U.S. Sanctions Reshape Supply: Pressure on Rosneft and Lukoil forces Reliance to abandon discounted Russian crude, disrupting a deal worth billions annually.
- Financial Strain Ahead: Replacing 630,000 barrels daily could dent margins by 2.1% of Reliance’s projected ₹2.05 trillion EBITDA, per Jefferies analysis.
- Geopolitical Opportunities: Aligning with U.S. policy may improve trade ties, easing tensions from prior 50% tariffs on Indian goods.
Conclusion
Reliance Industries’ decision to halt Russian oil purchases amid U.S. sanctions on Rosneft and Lukoil underscores the volatile intersection of energy markets and geopolitics. While short-term challenges to refining margins and supply chains loom, experts like Vandana Hari of Vanda Insights emphasize India’s adaptability. This pivot not only mitigates risks but positions India for stronger U.S. trade relations, fostering a more diversified energy future as global crude dynamics continue to shift.
