Should India continue buying crude oil from Russia?

JPMorgan warns that continued uncertainty surrounding India's significant Russian crude oil imports, which accounted for up to 40% of its May 2025 supply at a $4/barrel discount, poses substantial economic risks. A reduction in these imports could eliminate the estimated $1/barrel gross refining margin uplift for Indian refiners and drive global oil prices into the $80s, given limited alternative supply. Such a scenario would severely impact state-run oil marketing companies, reducing their combined EBITDA by $1 billion for every $1 crude price increase, while potentially benefiting Reliance Industries. The absence of official government clarification creates a short-term market overhang for the sector.

Analysis

Uncertainty surrounding India's continued procurement of Russian crude oil presents a significant risk to the country's energy sector, according to a JPMorgan research note. Russian oil, which constituted approximately 40% of India's crude imports in May 2025 at a discount of about $4 per barrel, has provided a material uplift to refiners' margins, estimated at $1 per barrel in FY25. A reduction in these imports could not only erode this margin advantage but also potentially drive global crude prices into the $80s, as Russia may struggle to redirect the nearly 3 million barrels per day at risk. This scenario would disproportionately impact state-run oil marketing companies (OMCs) like IOCL, BPCL, and HPCL, for whom every $1 increase in crude prices is estimated to reduce combined annual EBITDA by approximately $1 billion due to fixed retail fuel pricing. In contrast, Reliance Industries may be positioned to benefit from higher oil prices, insulated by its use of syngas in refining and potential gains from wider chemical spreads. The lack of official government clarification on import policy has created a short-term overhang on the sector, with OMC exposure to Russian crude, though declining, remaining substantial.

Key Decisions for Investors

• Investors holding positions in Indian state-run refiners like IOCL, BPCL, and HPCL should closely monitor for any official government clarification on Russian oil import policy, as a reduction would directly threaten refining margins and profitability.
• Consider Reliance Industries as a potential relative outperformer or hedge within the Indian energy sector, given its operational insulation from crude price hikes and potential to benefit from market dislocations that would negatively impact OMCs.
• The primary short-term risk for Indian OMCs is geopolitical and policy-driven rather than fundamental; therefore, it is crucial to exercise caution and prioritize tracking developments in India-Russia trade before increasing exposure.
• Given the estimated $1 billion combined EBITDA hit to OMCs for every $1 increase in crude, any signal of reduced Russian supply should be treated as a significant bearish catalyst for the sub-sector.