India’s energy sector is navigating turbulent waters as new U.S. and European sanctions on Russian oil producers disrupt established import channels. Indian banks, which previously hesitated to process payments for Russian crude due to the difficulties of verifying supply chains and fear of Western penalties, are now cautiously reopening financing, provided the oil is supplied by non-sanctioned Russian entities and all transactions are sanctions-compliant. This shift reflects a broader adaptation by Indian refiners and financial institutions to safeguard affordable energy supplies while reducing the risk of secondary sanctions.
Why the Change?
Recent sanctions imposed by the United States specifically target Russia’s oil giants Rosneft and Lukoil, along with their subsidiaries. These sanctions, effective from November 21, 2025, have turned any crude linked to these firms into what analysts are calling a “sanctioned molecule.” That means even if the oil flows through intermediaries, transactions involving these companies or entities using Western financial systems may attract U.S. penalties. Public and private Indian refiners have paused or reduced orders from such firms, given the history of compliance with similar U.S. action against Iranian and Venezuelan oil in prior years.
Attractive Discounts but Stringent Checks
The silver lining for Indian refiners comes in the form of deeper discounts. Russia’s Urals crude, the main grade shipped to India, is now offered at up to $7 per barrel below the Dated Brent benchmark, the steepest discount in two years, compared to a $3 discount before the latest sanctions [1]. This pricing incentivizes price-sensitive Indian buyers to pursue these cargoes, as long as they can ensure the oil is sourced from non-blacklisted sellers. However, only about one-fifth of these discounted cargoes are available from non-sanctioned entities, limiting India’s options.
Indian banks have responded by establishing stricter compliance systems to verify the origin of each shipment, not just where it was loaded but also the vessel’s entire transit history. There are multi-level checks for sanctioned involvement, such as ship-to-ship transfers linked to blacklisted entities. Most Indian refiners have paused new Russian cargo purchases for December and January deliveries, instead sourcing more expensive alternatives from the Middle East, North Africa, or Latin America.
Alternative Currencies: Reducing Sanction Exposure
With the dollar-based payment infrastructure under U.S. jurisdiction, Indian banks and refiners are increasingly using currencies like the UAE dirham and Chinese yuan for settlements. This alternative makes the transactions less visible to American oversight and reduces the risk of U.S. financial retaliation. For example, state-run Indian Oil Corporation and other major refiners have settled several Russian crude transactions using yuan, a process that streamlines payments and meets Russian requirements more efficiently.
Handling rupees has proven less viable, as Russia accumulates more rupees and dirhams than it can spend. In contrast, the yuan is proving more acceptable because Russia can readily use it for imports and to settle trade with China, enhancing the currency’s appeal in oil trade amid sanctions.
The Risk of Secondary Sanctions
Secondary sanctions are measures that target not just the sanctioned country or companies but also third-party nations or companies doing business with them. Indian refiners and banks are especially wary of being cut off from the U.S. financial system, or facing expensive legal disputes and frozen payments. This risk has previously led Indian companies to comply with U.S. moves against countries like Iran and Venezuela. With Russian oil constituting over 35% of India’s total imports in 2025, any disruption represents a considerable threat to India’s energy security [2].
To minimize risks, Indian banks, especially those without global exposure are handling these trades. Institutions such as EXIM Bank, UCO Bank, and some smaller private banks are reportedly among those setting up compliant payment channels. Larger banks with significant U.S. and EU operations remain more risk-averse and are likely to avoid financing Russian crude transactions.
The Near-Term Outlook: Imports Down, Prices Up
Indian imports of Russian crude, which had been robust at up to 1.9 million barrels per day as recently as November 2025, are projected to drop as low as 400,000 to 650,000 barrels per day through December and January [3]. The steep fall is directly attributed to the new U.S. and European sanctions, as well as refinery caution and banking verification delays. With Russian supply shrinking, Indian refiners will need to look elsewhere, increasing demand for more expensive oil from other producers and potentially narrowing profit margins for Indian refiners.
Adaptation and the Long-Term View
Despite short-term declines, experts agree that Russian barrels will likely continue to flow into India, albeit through more complex and opaque routes involving intermediaries, alternative currencies, and elaborate compliance infrastructure. As long as Russian oil remains cheaper and India’s energy policy favors affordability, refiners will continue to source as much as possible from non- sanctioned Russian sellers. Unless Washington introduces direct secondary sanctions against Indian buyers or New Delhi voluntarily imposes curbs, some level of Russian crude flows is expected to survive, supported by evolving compliance, risk management, and cross-border payment mechanisms.
References
- Economic (2025, November 26). Indian banks consider financing non-sanctioned Russian oil trade.
- The (2025, November 24). Russian oil offered to India at deep discount after US sanctions.
- (2025, November 25). India’s Russian oil binge to end in December as sanctions bite.
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