India's Strategic Navigation of Russian Oil Trade Amid Sanctions: Assessing Financial Resilience and Arbitrage Opportunities for Refiners and Banks

India's energy strategy has long balanced geopolitical pragmatism with economic imperatives. The Russia–Ukraine conflict catalyzed a dramatic shift in this calculus, as Moscow began offering oil at steep discounts to sustain its exports. By FY 2024–25, Russian crude accounted for 35.8 percent of India's imports, a stark contrast to its pre-2022 share of 2.5 percent according to a report. However, U.S. and EU sanctions targeting Russian energy giants like Rosneft and Lukoil in late 2025 have forced Indian refiners and banks to recalibrate their strategies. This article examines how India is navigating these challenges through sanctions-compliant financial instruments, arbitrage opportunities, and supply diversification, while assessing the resilience of its energy sector.

The Surge and Subsequent Constraints in Russian Oil Imports

The initial surge in Indian imports of Russian crude was driven by pricing advantages. Russian Urals crude traded at a $12.2 discount per barrel to the Brent benchmark in 2023, a gap that narrowed to $5–$6 by November 2025 as U.S. sanctions and tariffs took effect. The imposition of a 25 percent duty on Indian purchases of Russian oil in August 2025, coupled with sanctions on Rosneft and Lukoil, caused a sharp decline in imports-from 1.56 million barrels per day in August to 0.94 million barrels by November 2025.

Indian refiners, including Reliance Industries and state-owned entities like Mangalore Refinery & Petrochemicals Ltd., responded by reducing orders from sanctioned companies by 13 percent in October 2025. This shift underscored the immediate operational and financial risks of non-compliance, as secondary sanctions threatened access to global financial systems and insurance markets.

Financial Instruments and Compliance Frameworks

To sustain access to Russian oil while adhering to sanctions, Indian banks and refiners have adopted innovative financial mechanisms. A key strategy involves using non-U.S. dollar currencies such as the Chinese yuan and UAE dirham for transactions, reducing exposure to Western financial systems. Additionally, Indian banks are exploring BRICS cross-border payment systems to facilitate trade with unsanctioned Russian suppliers according to legal analysis.

Structured procurement methods have also emerged. For example, Indian Oil Corporation has restructured contracts with verified non-sanctioned Russian trading entities, ensuring compliance through real-time sanctions screening and corporate ownership analysis. Nayara Energy, which holds a 49.13 percent stake in Rosneft, has leveraged intermediary trading systems to maintain supply chains. These strategies highlight the sector's adaptability in navigating complex regulatory landscapes.

Arbitrage Opportunities and Diversification

Despite the challenges, Indian refiners have capitalized on arbitrage opportunities. Russian crude's pricing discounts-though reduced-still offer margins of $3–$5 per barrel compared to international benchmarks like Dubai. By refining this discounted crude and exporting high-value products to markets such as Europe and Asia, Indian refiners have maintained profitability. For instance, Reliance Industries accelerated Russian crude purchases before sanctions took full effect, securing supplies at favorable rates.

Diversification has further bolstered resilience. Indian refiners have expanded sourcing from Saudi Arabia, Iraq, and the U.S., with plans to import 24 million barrels of American crude by early 2026 according to industry analysis. This shift, however, comes at a cost: alternative suppliers typically offer benchmark-priced oil, increasing India's annual import bill by an estimated $3–$5 billion. The government's "Mission 500" initiative, aiming to boost U.S.-India trade to $500 billion by 2030, underscores this strategic pivot.

Risk Mitigation and Long-Term Implications

Indian companies have implemented robust compliance frameworks to mitigate sanctions risks. Real-time monitoring of sanctions lists, supplier verification, and contract restructuring are now standard practices according to industry reports. For example, Hindustan Petroleum Corporation Limited (HPCL) and Mangalore Refinery and Petrochemicals Limited (MRPL) have secured 5 million barrels of crude from alternative sources like U.S. WTI and Iraqi Basra Medium.

However, challenges persist. The EU's 18th sanctions package has curtailed arbitrage opportunities for Indian refiners. Additionally, the U.S. 25 percent duty on Indian Russian oil purchases has raised compliance costs by $6–7 billion annually. These pressures are prompting accelerated investments in clean energy, though a full transition remains years away according to market analysis.

Conclusion: Balancing Act for Investors

India's navigation of the Russian oil trade amid sanctions reveals a sector adept at balancing economic and geopolitical risks. While U.S. and EU measures have constrained access to discounted Russian crude, Indian refiners and banks have demonstrated resilience through innovative financial instruments, supply diversification, and compliance frameworks. For investors, the key takeaway lies in the sector's ability to adapt to volatile markets while maintaining profitability. As India continues to refine its energy strategy, the interplay between sanctions, arbitrage, and diversification will remain critical to its financial resilience.