US grants temporary waiver for India to import Russian oil

WASHINGTON – The US has cleared the way for India to temporarily increase its purchases of Russian oil, reversing months of pressure on the world’s third-largest crude importer as an escalating conflict in the Persian Gulf
upends energy flows.

A licence issued late on March 5 covers transactions related to Russian crude oil and petroleum products loaded onto vessels before the same day, so long as they are delivered to India and purchased by an Indian firm. The measure expires on April 4 at 12.01am local time (April 4, 2.01am Singapore time).

“To enable oil to keep flowing into the global market, the Treasury Department is issuing a temporary 30-day waiver to allow Indian refiners to purchase Russian oil,” US Treasury Secretary Scott Bessent said in a post on X.

“This deliberately short-term measure will not provide significant financial benefit to the Russian government as it only authorises transactions involving oil already stranded at sea.”

The move – intended to ease pressure on oil supplies – provides immediate relief for at least one of the economies most directly impacted by disruptions in the Middle East. With plenty of Russian oil on the water, sanctioned and non-sanctioned, refineries could quickly ramp up purchases and stabilise operations.

The decision also marks a significant turnaround by the US, which had been putting intense pressure on New Delhi over its purchases of Russian oil. India has not traditionally been a major consumer of Russian crude, but it cranked up its purchases to take advantage of discounted cargoes after the invasion of Ukraine in 2022. 

US President Donald Trump – seeking to pressure the Kremlin into a peace deal – has for months sought to cut off that trade, slapping punitive tariffs of 50 per cent on Indian goods and sanctioning Russia’s two largest producers. Its levies on India were eased under a trade deal agreed in February, and India had kept Russian purchases to a minimum since then.

“While the waiver is temporary and primarily aimed at clearing stranded cargoes, it provides a critical short-term buffer for India’s refining sector while potentially reshaping Russian crude pricing dynamics and trade flows over the coming weeks,” said Mr Sumit Ritolia, lead research analyst, refining and modelling, at analytics firm Kpler. Russian oil discounts will likely narrow and could turn to premiums as competition for supply rises, he added.

Over 22 million barrels of Russian crude are unsold or in idle tankers in Asia, with over 80 per cent of the ships near India’s waters and in the Singapore Strait, according to ship-tracking data compiled by Bloomberg. Yet more tankers are on the move, suggesting the total tally could be even higher.

Out of the roughly 5 million barrels a day that India imports, just a fifth came from Russia in February, according to Kpler. However, other major suppliers include Iraq, Saudi Arabia and the United Arab Emirates – and have much of their production now stranded by the effective closure of the Strait of Hormuz.

“It may take some pressure off the market in the immediate term, but at the end of the day with as much as 20 million barrels per day of Persian Gulf supply being lost, this is not a game changer for the market,” said Mr Warren Patterson, head of commodities strategy for ING Groep NV in Singapore.

“The only way to see more permanent pressure taken off prices is to get oil flowing through the Strait of Hormuz once again.”

Inflation risks

The waiver would bring some comfort to policymakers as it reduces the impact on inflation and eases pressure on the rupee. Inflation remains well below the central bank’s 4 per cent target, although the currency has plunged to a record low since the Iran tensions and the Reserve Bank of India has been intervening in the currency markets to prevent a rapid depreciation.

Pressure on India’s current account deficit may persist as well, as the oil would have to be bought at a premium over Brent, said economist Gaura Sengupta from IDFC First Bank.

The deficit widens by about half a percentage point on an annual basis if crude prices increase by US$10 (S$12.80) per barrel, Ms Madhavi Arora, an economist at Emkay Global Financial Services Ltd, said in an interview on Bloomberg Television on March 6.

“We have to be prepared for that pain” from a widening current account deficit, which “will eventually spill over to the currency and other Reserve Bank dilemmas”, she said. 

The waiver, along with other promises from the US to consider all options to contain spiking oil and gasoline prices, helped cool benchmark prices in the March 6 morning trade in Asia – but the ultimate impact on India and on the wider market may well prove limited in time and scope.

Additional crude will also not resolve a squeeze on liquefied natural gas and cooking fuel supplies for India.

“Much of this is reactive action, instead of a pre-set game plan that thought through all the risks,” said Ms Rebecca Babin, a senior equity trader at CIBC Private Wealth Group.

“The headlines should provide some panic relief, but we will need concrete details to start really see risk premium erode.”

Indian refiners and government officials have been considering a range of contingency measures this week to manage the disruption to supply – including the option of turning to Russian cargoes. The oil ministry had pushed for diplomats to seek some room for manoeuvre from Washington, where Treasury officials also had discussions on easing pressure.

India has also held talks with the US to seek clarity on a proposed mechanism to provide insurance for tankers transiting the Strait of Hormuz.

The Asian nation’s refiners have been feeling the impact of curtailed supplies. Mangalore Refinery and Petrochemicals Ltd has told customers it will suspend oil product exports, and has shut one of its three crude processing units due to low stockpiles, people familiar with the matter said. BLOOMBERG