India’s days of buying cheap Russian oil may be over.

Sweeping U.S. sanctions on Russian energy companies and oil shipping ship operators will complicate India’s efforts to continue importing cheap Russian crude and could push up inflation in Asia’s third-largest economy, analysts said.

Bob McNally, president of Rapidan Energy Group, said the country may be looking at a potential oil crisis.

“India will be more affected by sanctions than China because India imports much more oil from Russia than China does,” he told CNBC.

Last Friday, U.S. Treasury announces sanctions on two Russian oil producersand 183 vessels, mainly tankers transporting Russian crude oil. Currently, oil tankers sanctioned by the United States are still Allowed to offload crude oil until March 12.

south asian peoples 88% of oil demand depends on imports According to government data, there was little change between April and November 2024 compared with a year ago. About 40% of these imports come from Russia, according to trade intelligence firm Kpler.

Data provided by Kpler showed that of the 183 tankers newly sanctioned, 75 of them had carried Russian oil to India in the past. Last year alone, 183 sanctioned tankers transported approximately 687 million barrels of crude oil, 30% of which went to India.

“Much of this oil is going to Indian refineries, so the impact there is likely to be greatest,” Aldo Spanier, senior commodities strategist at BNP Paribas, said in a research note after the sanctions. of.”

Spanier added that the new U.S. sanctions are deeper and broader than markets expected, and disruption is expected to intensify.

India’s Ministry of Petroleum and Natural Gas did not respond to CNBC’s request for comment.

Sanctions also came at this time India expected to surpass China By 2025, it will become the world’s largest oil consumer, accounting for 25% of the growth in global oil consumption.

The United States forecasts that rising demand for transportation fuels and home cooking fuel will spur an increase in output of 330,000 barrels per day this year, the most of any country. Energy Information Administration shows.

The latest data from the EIA shows that India will consume 5.3 million barrels of oil per day in 2023. Last year, this consumption was expected to increase by 220,000 barrels per day.

India has not always been so dependent on Russian oil.

As of 2021, Russian oil accounts for only 12% of India’s oil imports. That has surged to 37.6% by 2024, Kpler senior oil analyst Muyu Xu told CNBC.

The catalyst for the increase in oil imports was the war in Ukraine, prompting some Western countries to impose sanctions on Russia and reduce purchases of Russian crude. As Russian oil prices fell, India was able to obtain supplies cheaply from companies not subject to sanctions.

The discount for Russian Urals crude to global benchmark Brent crude averaged about $12 a barrel from August to October last year, according to S&P Global. Recently released data Last November. By 2024, Russian Urals oil will also be $4 cheaper per barrel compared to Iraqi oil. India’s main import sources of crude oildata from Kpler is shown.

“If India fully complies with US sanctions, we may see a sharp decline in Russian crude oil arrivals in February or even March,” Xu added.

Viktor Kurilov, senior analyst at Rystad Energy, said by email that supply disruptions in India could be as high as 500,000 barrels per day.

In addition, as Trump’s inauguration approaches, global supplies of cheap Iranian crude are also at risk of tougher sanctions. Iran 4% of world oil production by 2023, according to an environmental impact assessment report released last year.

Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC: “This is also a double whammy for the major importer (India) because Iran may face the incoming Trump administration. New sanctions pressure from the Trump administration.”

Goldman Sachs wrote in a report released after the sanctions were announced that Brent crude prices could rise to $90 a barrel if new sanctions are combined with potential restrictions on Iranian crude.

India’s economy ‘very vulnerable’ to oil price swings, A research paper published in 2023 established. Abdhu Deheri, assistant professor of economics at Vellore Institute of Technology, and M. Ramachandran, department of economics, Pondicherry University, said in a research paper that domestic retail prices of petrol and diesel have soared “like a rocket” due to rising crude oil prices.

Reserve Bank of India 2019 analysis finds every $10 rise in oil prices May lead to a 0.4% rise in headline inflation.

“High oil prices, if passed on to consumers, could further damage their purchasing power at a time when income and GDP growth are slowing,” ANZ economist Dhiraj Nim said.

However, weak consumer demand could prevent producers from passing on the cost burden to consumers, meaning it could dent company profits, Nim added. However, if the government chooses to bear the additional costs, it could lead to financial strains.

Andy Lipow, president of energy consultancy Lipow Oil Associates, said China and India not only have to pay more for the oil they consume, but they also have to pay more to get the oil to their countries because tankers The price has also increased.

Libo said that coupled with a stronger dollar and a weaker rupee, the impact on the Indian economy will be magnified.

Indian rupee falls to record lows Pressure from a strong U.S. dollar and selling by foreign portfolio investors.

The country is no stranger to protests over high oil prices. 2018, Widespread protests across the country Gasoline and diesel prices hit record highs, causing businesses and schools to close in some areas.