Halt in Russian crude imports could raise costs for Indian refiners: Kpler

Russian crude, which became a significant component of India's oil import basket after the Russia-Ukraine war, has lost some of its earlier pricing appeal as elevated freight costs eroded its advantage on a delivered basis. This has encouraged Indian refiners to look increasingly towards Middle Eastern grades, where shorter shipping routes and competitive delivered economics offer an alternative, according to Sumit Ritolia, senior manager for modelling at commodities intelligence firm Kpler.

"Replacing Russian crude at scale is fundamentally a supply-chain challenge rather than simply a question of paying more per barrel," he said. India, the world's third-largest oil consumer and a major crude importer, has reshaped its sourcing strategy since Russia's invasion of Ukraine in 2022, with discounted Russian barrels becoming an important part of its import mix. At the same time, refiners have sought to optimise feedstock costs amid volatile crude prices, freight rates and shifting trade flows.

Venezuelan heavy crude offers another potential source of discounted supply, particularly for complex refineries capable of processing it efficiently, but production constraints and competition from other buyers could limit additional volumes. These dynamics come as India expands refining capacity to meet rising domestic fuel and petrochemical demand while maintaining its position as a major exporter of refined products.

An immediate end to Russian imports would be difficult to manage, given that crude procurement is planned well in advance, with deals typically concluded eight to 12 weeks before delivery. Refiners would also need to reorganise shipping arrangements and commercial supply chains developed around Russian barrels, he said. The impact would extend across the Indian refining industry rather than fall disproportionately on private-sector or state-run refiners, he said.

A scramble for replacement supplies from the Middle East, Africa and other producing regions could increase competition for available grades and raise transport and procurement costs. India's exposure to Russian crude is therefore not simply a question of discounts. Refining margins also depend on freight, crude quality, refinery complexity, product yields and the prices refiners can secure for products such as diesel and gasoline.

Venezuelan crude remains among the cheaper feedstock options available to Indian refiners, but its heavy, high-sulphur characteristics make it most attractive to facilities equipped to process such grades efficiently. Ritolia said Venezuela had increased production and exports since January by restarting existing operations and improving export infrastructure, but growth appeared to have plateaued over the preceding two to three months.

He estimated that output and exports could rise by only a further 100,000 to 200,000 barrels per day (kbd) without more substantial investment in production and export infrastructure. That could limit the scope for India to increase purchases, even if diplomatic engagement by Washington encourages greater trade in Venezuelan crude. "I think the bigger question is Venezuela's ability to increase crude production and exports, rather than India's willingness to buy more barrels," Ritolia said.

The United States is already a major buyer of Venezuelan heavy crude, which is suited to complex refineries along the US Gulf Coast. Additional volumes available to Indian buyers would depend on production growth and how much supply remained after existing demand and commitments were met, he said. For India, the attraction is particularly strong among complex refiners such as Reliance Industries, whose Jamnagar complex has extensive residue-upgrading, coking and hydroprocessing capabilities.

These allow it to convert lower-value heavy fractions into higher-value products, including diesel and gasoline. But the benefits would not be uniform across the industry. Less complex refineries could find that additional residue, hydrogen requirements and processing costs offset the discount on heavy crude. "Venezuela needs to produce and export more crude first; India's willingness to buy additional barrels comes second," Ritolia said.

India's refining expansion is primarily aimed at meeting rising domestic fuel and petrochemical demand, rather than specifically targeting overseas diesel markets, Ritolia said. Exports, however, are likely to remain an important commercial outlet, particularly when international product prices make overseas sales attractive. New capacity additions, many of them led by public-sector refiners, increasingly incorporate petrochemical production, reflecting an effort to capture demand beyond conventional transportation fuels.

Projects such as HPCL Rajasthan Refinery Ltd. (HRRL) and the Bina refinery expansion illustrate this broader strategy, he said. The increase in nameplate capacity is unlikely to translate immediately into a comparable rise in refined-product supply. Commissioning, stabilisation and the ramp-up of new units can take several months, while higher maintenance activity expected in 2027 could offset some incremental output.

Ritolia said a more meaningful contribution from capacity additions expected in 2027 was likely in the second half of that year and into 2028, rather than immediately at the start of 2027. Indian refineries have also been operating at high utilisation rates, in some cases above nameplate capacity, supporting exports to Asia, Africa, Europe and the US West Coast. Where margins remain attractive, additional output can generate foreign exchange earnings, help offset part of the country's crude import bill and reinforce India's role as a global refining hub.

Surplus capacity can also provide strategic flexibility during supply disruptions, enabling India to supply refined products to neighbouring countries and other import-dependent markets, Ritolia said. Reliance could strengthen its gross refining margin (GRM) advantage through access to discounted Venezuelan crude, but a sustained recovery in its premium over other Indian refiners would depend on both feedstock availability and the wider refining cycle.

Ritolia estimated that Reliance was already importing about 300,000-350,000 barrels per day of Venezuelan crude, equivalent to roughly 20-25 per cent of its crude intake. With Venezuelan production and exports showing signs of plateauing, he said, the scope to increase purchases significantly could remain limited unless additional supply becomes available. At the same time, strong global product cracks - the difference between refined-product prices and crude oil costs - have supported margins across the refining industry.

This has benefited less complex refiners as well, potentially narrowing the relative advantage enjoyed by facilities such as Jamnagar. Historically, Reliance's complex configuration enabled it to process challenging, discounted crude grades and capture greater value from the resulting product mix. But that premium has narrowed as other Indian refiners have upgraded their facilities and gained access to competitively priced feedstocks, Ritolia said.

"Venezuelan crude could help Reliance strengthen its margins, but regaining its historical GRM premium is a different question," he said. A sustained widening of that premium would depend on Reliance securing additional Venezuelan volumes at attractive delivered prices, while any normalisation in global product cracks could make the benefits of Jamnagar's conversion capabilities more apparent. For Indian refiners more broadly, the outlook will depend less on any single source of discounted crude than on the ability to secure reliable supplies, manage transport costs and convert a diverse crude slate into products that command strong international prices.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.) Don't miss the most important news and views of the day. Get them on our Telegram channel First Published: Oct 29 2026 | 3:55 PM IST