Navigating Geopolitical Risk in the Indian Oil Sector Amid U.S. Sanctions on Russian Producers

India's oil sector is at a crossroads, caught between the gravitational pull of geopolitical realignments and the urgent need for energy security. The U.S. sanctions imposed on Russian oil giants Rosneft and Lukoil in late 2025 have forced New Delhi to recalibrate its energy strategy, reducing its reliance on Russian crude while navigating complex compliance frameworks. For investors, this dynamic environment presents both risks and opportunities, demanding a nuanced understanding of how India balances its economic interests with its strategic partnerships.

The Shifting Landscape of Indian Oil Imports

According to a Hindustan Times report, India's imports of Russian crude oil fell by 8.4% year-on-year in the first nine months of 2025, as refiners pivoted to Middle Eastern and U.S. suppliers. By October 2025, Russian oil accounted for 19–20% of India's total crude imports, down from a peak of 34% earlier in the year, LiveMint reported. This shift reflects a broader recalibration of India's energy basket, driven by U.S. pressure to align with sanctions and the rising competitiveness of alternative suppliers.

The most striking example of this transition is the case of Reliance Industries, India's largest private refiner. In September 2025, Reliance purchased 629,590 barrels per day of Russian crude from Rosneft and Lukoil, representing 39% of India's total Russian oil imports for the month, CNBC reported. However, following the November 2025 sanctions deadline, Reliance suspended long-term purchases from Rosneft and began sourcing crude from the spot market, OilPrice reported. This pivot underscores the vulnerability of India's supply chains to sudden geopolitical shocks.

Compliance Strategies: Balancing Act Between Sanctions and Energy Security

India's compliance with U.S. sanctions has been neither uniform nor unconditional. While state-owned Indian Oil Corporation (IOC) has pledged to adhere to the new restrictions, it has also emphasized its sovereign right to prioritize national energy needs, Zawya reported. This duality reflects the broader challenge: India must maintain low energy prices for its economy while aligning with U.S. strategic interests in the Indo-Pacific.

Data from The Moscow Times reveals that a Russian crude oil tanker, the Furia, turned back in the Baltic Sea after the November 2025 sanctions deadline, illustrating the operational disruptions caused by compliance measures. Such incidents highlight the fragility of India's current supply chain and the potential for further volatility if geopolitical tensions escalate.

To mitigate these risks, India has adopted a multi-pronged approach. First, it has accelerated diversification of its crude oil sources, increasing U.S. imports to 540,000 barrels per day in October 2025-the highest since 2022, Business Standard reported. Second, it is exploring financial mechanisms to circumvent sanctions, including the use of intermediaries and a "shadow fleet" of tankers with opaque ownership, Mezha reported. While these strategies offer short-term relief, they also expose India to reputational risks and potential legal challenges.

Supply Chain Resilience: Diversification and Financial Challenges

India's oil sector is also grappling with the financial fallout of sanctions. For instance, Oil India Limited, a state-owned firm with stakes in Rosneft-operated fields, has been unable to access $300 million in dividends due to frozen Russian bank accounts, OilPrice reported. This liquidity crunch has forced Indian refiners to delay capital expenditures and prioritize short-term operational adjustments over long-term investments.

To bolster resilience, India is deepening ties with Middle Eastern suppliers. In October 2025, Indian refiners increased orders from Iraq and Saudi Arabia, which now rank as the second and third-largest crude suppliers to the country, The Moscow Times reported. However, this shift comes at a cost: Middle Eastern oil is more expensive than Russian crude, potentially squeezing profit margins for Indian refiners.

Alternative Partnerships and Long-Term Implications

India's response to sanctions also includes diplomatic maneuvering. Analysts suggest that New Delhi may seek to negotiate exemptions or carve-outs with Washington, leveraging its role as a key player in the Indo-Pacific strategy, according to a CSEP analysis. Additionally, India is reportedly considering legal challenges to U.S. and EU sanctions at the World Trade Organization (WTO), arguing that such measures violate GATT provisions, Reuters reported.

For investors, these developments signal a sector in flux. While India's oil sector remains resilient in the short term, long-term risks include rising crude prices, regulatory uncertainty, and the potential for further sanctions. Companies that can adapt quickly-by diversifying supply chains, investing in renewable energy, or securing alternative financing-will likely outperform peers.

Conclusion

The U.S. sanctions on Russian oil producers have forced India to rethink its energy strategy, exposing both vulnerabilities and opportunities. For investors, the key takeaway is clear: geopolitical risk is no longer a peripheral concern but a central determinant of returns in the Indian oil sector. Those who can navigate this complex landscape-balancing compliance, diversification, and innovation-will be best positioned to capitalize on the evolving energy dynamics of the Indo-Pacific.