CRUDE CALCULATIONS: INDIA’S RISKY BET ON RUSSIAN OIL
India’s relationship with Russian crude is a masterclass in strategic ambiguity, presenting opportunity but also some potentially serious liability. Since Moscow’s invasion of Ukraine, Western sanctions have throttled Russia’s traditional export corridors. Seizing the moment, India stepped in, dramatically ramping up its imports of discounted Russian oil. The numbers speak volumes: from a negligible share in early 2022, Russian crude now accounts for over a third of India’s total imports. It’s an economic windfall wrapped in geopolitical thorns.
Price, above all, drives India’s pivot. Russian barrels come cheaper, often trading well below Brent. For a country importing nearly 85% of its oil, this matters. It eases fiscal pressures, reins in inflation, and allows more breathing room for government subsidies and welfare schemes. The rupee, already under stress, finds indirect support. So do refiners, who bank wider margins and sometimes re-export refined products to buyers in the very regions that imposed sanctions on Russia to begin with. It’s a lucrative arbitrage (buying and selling to take advantage of price differentials); while legally defensible, it may be morally murky.
But oil isn’t just a commodity – one could argue that it is a political statement. Every barrel purchased from Russia risks inviting scrutiny, especially from Washington. India finds itself walking a narrowing tightrope between economic pragmatism and strategic alignment. The United States (US) has been vocal about reducing global reliance on Russian energy, and although it has not imposed secondary sanctions on Indian purchases, the implicit red lines are clear. Any escalation in Russia’s war effort or deterioration in US-Russia relations could shift those lines overnight.
To date, Washington has mostly chosen to look the other way – bar the threat of additional tariffs of course. The logic can be viewed as rather simple. India remains a vital partner in the Indo-Pacific framework and a counterweight to Chinese domination. Alienating New Delhi would be strategically self-defeating. But tolerance has limits. Recent US legislation has shown a growing appetite for using sanctions as a blunt tool, even against allies. Should sentiment shift, India could face a financial and diplomatic backlash. Sanctions on Indian banks facilitating oil payments or on refineries processing Russian crude would disrupt not only trade, but also investor confidence.
Beyond the geopolitical fog, there are also structural risks. India’s deepening reliance on Russian oil exposes it to volatility in supply chains that are still adapting to sanction-induced distortions. Payments are another headache. With Russia locked out of SWIFT (an inter-country bank transfer system) and wary of holding dollars, transactions have veered into a patchwork of currencies and barter-style arrangements. This adds friction and unpredictability. The rupee-rouble mechanism, initially hailed as a workaround, has stumbled on issues of convertibility and settlement. India’s financial institutions remain cautious, aware that crossing unseen red lines could trigger compliance fallouts.
There’s also the reputational cost. India aspires to global leadership – through G20 summits, climate negotiations, and ambitions of a permanent UN Security Council seat. Continued engagement with Moscow undermines its moral standing in the eyes of its Western allies, and perceptions matter. While India has defended its neutrality as non-alignment rather than endorsement, that distinction is getting harder to sustain with every tanker that docks in the Indian ports of Vadinar or Jamnagar.
Still, India’s calculations rest on precedent and power. China, far more integrated into global supply chains, has maintained deep ties with Russia and faced limited consequences. Why should India expect worse? It’s a gamble, but not an irrational one. With oil demand projected to grow for decades in India, and no viable alternatives matching Russian volumes at similar prices, the incentives are stacked in favour of the status quo.
The choice, ultimately, is not either-or. India is unlikely to exit its relationship with Russia – it has too much at stake. But the country can hedge its exposure. Diversifying import sources, investing in strategic reserves, and pushing for renewables may help dilute its overreliance on oil, Russian oil. Quietly reducing volumes while maintaining the diplomatic posture of independence might be its best bet.
However, India’s real strength lies in its ability to balance. For decades, it has cultivated relationships with Moscow and Washington simultaneously buying arms from one, conducting joint naval exercises with the other. That equilibrium is under strain but not broken. If India’s Russian oil strategy is seen as transactional rather than ideological, it may continue to straddle the line. But if that perception shifts from pragmatism to complicity, the fallout could be swift and sharp.
What trading with Russia gives India in barrels and rupees, risks costing it in trust and influence. The benefits, while tangible, are weighted with warnings. The costs, though currently deferred, loom in the background – uncertain, but potentially profound. Navigating this terrain demands nuance, not slogans. It’s not just a question of fuel, but of direction: where does India see itself in the new global order, and what is it willing to compromise to get there.
MARKET SNAPSHOT
- US bonds anticipate a Fed rate cut
- All eyes on tariffs and company results across global equity indices
- Trump-Putin discussions weigh on oil prices
- Rand stronger, as dollar retreats, but remains fragile
BONDS
US 10-year Treasury yields remained near 4.25%, close to recent lows, as markets leaned toward earlier and deeper US Federal Reserve (Fed) cuts after disappointing US labour data and on fresh concerns around tariffs. Jobless claims exceeded expectations, reinforcing the view that US growth is losing momentum.
In the UK, Gilt yields edged above 4.55% after the Bank of England (BoE) trimmed rates to 4%, but a split policy committee signalled no clear path for further easing. Traders scaled back bets on another cut this year, particularly as services inflation remains stubbornly high.
Germany’s 10-year Bund yield slipped to 2.6%, reflecting weaker US jobs numbers, steady euro-area inflation at 2.0% and ongoing uncertainty over the US trade policy’s impact on Europe. Money markets now see a strong chance of a European Central Bank (ECB) cut within months.
South African bond markets tracked global sentiment but remained sensitive to domestic politics and trade tensions, particularly US tariffs on local exports.
EQUITIES
US equity futures firmed after a mixed session on Thursday, with chipmakers outperforming on news that US-manufactured semiconductors would avoid the newly imposed US tariff of a 100% import levy on imported chips.
UK shares fell after the BoE’s rate cut, weighed down by declines in energy and defence stocks, though hotel and leisure names gained on robust earnings.
European indices posted solid gains, lifted by upbeat corporate results in shipping, pharmaceuticals, and industrials, with global healthcare firm, Novo Nordisk, and global logistics giant, Maersk, among the standouts. Disappointments came from telecoms and defence suppliers.
South Africa’s JSE All Share Index pushed higher, extending monthly and annual gains, supported by a combination of stronger global risk appetite and sector-specific resilience.
COMMODITIES
Brent crude is hovering near $66/barrel and is set for its worst week since late June as optimism around a potential Trump–Putin summit eased supply concerns. Sanctions on Indian oil imports from Russia and hints at broader tariffs on Chinese goods kept trade risks alive, but expectations of higher output from the Organisation of the Petroleum Exporting Countries and slower demand growth weighed heavily.
Gold eased to about $3,380/ounce as traders took profits, though it remained on track for a second consecutive weekly gain. Support came from the softer US economic outlook, tariff-related uncertainty, and ongoing central bank purchases, including China’s ninth straight month of buying. New US import duties on gold bars tightened supply prospects, adding a modicum of support to prices.
CURRENCIES
The US Dollar Index held above 98 but was heading for a weekly loss, pressured by rising expectations of Fed easing and weaker US labour market indicators.
The euro recovered above $1.16/EUR, buoyed by the view that the Fed will cut more aggressively than the ECB, though both central banks face trade and inflation headwinds.
Sterling climbed to around $1.34/GBP after the BoE’s rate cut, with markets scaling back the number of expected moves from the central bank for the remainder of the year.
The rand strengthened to below R17.80/USD, benefitting from a softer greenback and hopes for Fed cuts, though sentiment remained fragile as South Africa prepares for steep US tariffs on a wide range of its exports.
Please note that all information and data is at the time of writing.
Key indicators:
USD/ZAR: 17.73
EUR/ZAR: 20.76
GBP/ZAR: 23.79
Gold: $3,394
Brent Crude: $66
Sources: TradingView, Trading Economics, Reuters, Bloomberg and LSEG Workspace.
Written by Citadel Advisory Partner and Citadel Global Director, Bianca Botes.
Weekly Wrap content provided by Citadel Pty Ltd.
