How Losing Russian Crude Could Shake India’s Economy

When global trade winds shift, Indian MSMEs feel the tremors. With mounting pressure—from tariffs to sanctions—India may soon lose access to its biggest supplier of discounted crude: Russia. New analysis warns this could cost the economy a staggering $9–11 billion per year. That’s not just data, it’s the bottom line for Indian exporters, service providers, and everyday businesses.

From Bargain Barrels to Bigger Bills

Not long ago, Russian oil accounted for under 2% of India’s crude imports. Today, it’s surged to nearly 36%, or about 1.8 million barrels per day, worth more than $50 billion in FY 25—a phenomenon unmatched globally.

This rapid reliance on discounted Russian crude has been instrumental in keeping fuel prices competitive and refining margins healthy, especially for giants like Reliance and Nayara Energy, which re-export refined products worldwide.

What Happens if the Tap Turns Off?

Oil Costs Surge

Experts at Kpler forecast that if India must replace cheap Russian barrels with costlier Middle Eastern or African crude, annual import spending could rise by $9–11 billion, driven by just a $5 drop in discount per barrel.

Fuel and Inflation Impact

Brent crude could climb toward $80 per barrel, squeezing refiner margins and pushing up domestic fuel prices—a shock any SME feels immediately through higher logistics, energy, and raw-material costs.

Export Hurdles from the EU

The EU’s 18th sanctions package now bans imports of refined fuels derived from Russian crude, even if processed in India. This jeopardises India’s $15 billion petroleum export market, and hits MSMEs tied to petrochemical and power-intensive industries.

Who Is Most Exposed?

• Private and public refiners scaling back Russian purchases are now securing 7 million barrels from U.S., Abu Dhabi, and Canadian suppliers—an unplanned strategy pivot that could hike landed costs quickly.

• Export-focused MSMEs and exporters in energy-intensive sectors (e.g. fertilisers, plastics, textiles) face rising input costs and thinner margins. Many operate on tight working capital, where fuel spikes can delay deliveries and affect cash flow.

• Consumers and logistics firms indirectly bear the inflation burden—gasoline, transport charges, and electricity costs could all rise.

How MSMEs Can Brace for Impact

• Alternative sourcing: Diversify supply chains to include non-Russian crude, even at a premium, to reduce future disruption risks.

• Pass-through strategies: Adjust contracts and pricing to build in fuel-linked adjustments that help manage volatility.

• Government advocacy: Push for more export incentives and relief schemes to offset pressure on logistics and energy costs.

• Lean operations: SMEs may need to tighten overhead, leverage renewable energy, or lock in fuel rates where possible.

Why It Matters: A Wake‑up Call

India’s strategy—a blend of affordability and supply security- has served it well. But the convergence of U.S. penalty threats, EU sanctions, and geopolitical volatility is testing that resilience. Despite initial reluctance, state refiners have slowed down Russian imports, even before official policy changes, as they weigh compliance risks.

Relying on discounted crude made sense. But now, every barrel imported from the West Middle East or North Africa may carry a hidden tax of geopolitical uncertainty.