By Aanya Jain
Sanctions, Shipments and Strategy: What US Curbs on Rosneft and Lukoil Mean for India’s Oil Trade
The United States’ October 2025 decision to heavily sanction Rosneft and Lukoil, two of Russia’s biggest oil companies, has reverberated through global crude markets and landed squarely on New Delhi’s negotiating table. For India, which has for three years been one of the largest buyers of discounted Russian crude, the move is a geopolitically awkward inflection point: continue buying and risk deeper trade pain from Washington, or pivot away and pay more at the pump while forfeiting a rare source of cheap feedstock for refiners. Complicating matters for New Delhi are pragmatic constraints, payment channels, shipping logistics and the structure of refinery configurations, that blunt the immediate flexibility of policy.
This article maps the sanctions, traces how Indian refiners are responding, situates the development within the broader US-India trade standoff over Russian oil, and explains New Delhi’s options and likely trajectory as it seeks to protect energy security while keeping its strategic autonomy.
What Washington did and why it matters
On October 23, 2025, the US Treasury’s Office of Foreign Assets Control announced a sweeping designation of Rosneft and Lukoil, extending U.S. sanctions to some of the largest exporters and processors in Russia’s energy sector under existing authorities. The action cut the firms off from U.S. financial systems, barred U.S. persons from dealing with them, and raised the specter of secondary sanctions for third-party facilitators. The US framed the move as an attempt to choke Kremlin revenue streams that finance the war in Ukraine. The White House publicly tied the escalation to a broader diplomatic push to persuade large buyers to curtail purchases of Russian crude. The Treasury release and legal advisories make clear that the sanctions were meant to disrupt the logistical and banking ecosystem that supports Russian oil exports.
For global markets, the measures are consequential because Rosneft and Lukoil account for a material share of Russia’s crude exports and downstream throughput. Western buyers had already pared back purchases after Russia’s 2022 invasion of Ukraine; the new U.S. step forces a reappraisal across Asia, Africa and the Middle East where Russian barrels flowed at steep discounts. Oil traders and refiners must now assess counterparty risk, insurers’ appetite, and how to settle payments for cargoes when primary producers and traders are tainted by sanctions. The immediate effect has been a scramble for clarity: crude sellers and buyers paused new contracts while legal teams parsed the U.S. rules.
How Indian refiners reacted: pause, pivot, and preserve
India’s refining sector felt the impact within days. Public and private refiners moved quickly to assess exposure and adjust procurement plans. Several large Indian refiners, notably Reliance Industries and others with integrated fuel retailing and petrochemical businesses, reportedly stopped placing new orders for Russian crude after Washington’s action, even as a handful of companies signalled they would comply only with “applicable sanctions” and sought legal clarity. State-owned Indian Oil Corporation said it would abide by applicable sanctions while exploring alternative supply options. Reuters and Bloomberg reporting indicate refiners are now weighing smaller, indirect Russian cargoes from non-sanctioned traders and examining payment mechanisms that avoid breaching US restrictions.
Not all Indian players reacted identically. Nayara Energy, majority-owned by Russian interests through Rosneft, briefly experienced operational disruption earlier in 2025 when European sanctions hit some suppliers; by late October it had reportedly ramped runs back up to above 90% capacity, processing Russian cargoes arranged through Rosneft and third party traders. The company’s example illustrates the dilemma, downstream capacity and domestic fuel demand make it costly for some refiners to halt Russian purchases abruptly, particularly when alternatives carry higher landed costs. Nonetheless, multiple Indian refiners have “paused” new Russian purchases pending legal clarity and commercial comfort, a practical reaction to secondary-sanctions risk and to looming U.S. tariff pressure on Indian exports tied to Russian oil purchases
Payments, shipping and insurance
Three practical hurdles determine whether India can keep buying Russian crude at scale, payment rails, shipping and insurance. After the initial wave of sanctions in 2022, buyers developed ad hoc mechanisms, using non-U.S. banks, third-country traders, barter-style settlements and sometimes exporting products as payment, to keep barrels flowing. The new U.S. designations narrow those options by making direct dealings with Rosneft and Lukoil legally fraught for entities with U.S. exposure. Banks and insurers active in global trade are often wary of secondary sanctions and may avoid transactions even if technical workarounds exist. That increases the cost of purchasing Russian crude for refiners and can make cargoes uneconomic relative to Middle Eastern or U.S. barrels.
Shipowners and insurers are especially sensitive, many underwriters rely on Western reinsurance pools and maintain global banking links. If insurers refuse to cover voyages carrying sanctioned Russian oil, shippers may decline to take the cargo, or require higher freight and insurance premia. Early reporting in late October indicates several credit-worthy trading houses pausing business and some refiners seeking smaller suppliers or portfolio adjustments. These market mechanics, taken together, make a protracted, unbroken supply of Russian crude to India considerably harder to maintain without clear legal mitigation or political guarantees.
A menu of India’s policy options
New Delhi faces a narrow set of practical options; each carries strategic trade-offs.
1. Maintain purchases via intermediaries and bespoke payment mechanisms. This preserves cheap feedstock and supports refinery margins, but it risks higher financial and reputational exposure, and could further complicate talks with Washington over trade. Several refiners have already paused new orders to avoid immediate legal risk, but some, especially those with legacy Russian ties, may continue on a case-by-case basis.
2. Increase purchases to non-sanctioned suppliers from the Middle East, Africa, and US Gulf. This reduces political friction but increases landed costs and creates short-term refining disruptions as companies rebalance crude slates. For refiners configured to process heavy, sour Russian blends, finding exact replacements is difficult and may require run cuts or additional upgrading.
3. Seek carve-outs, waivers or legal clarity from the US. India could press Washington for specific exemptions for transactions already under contract or for a phased transition, particularly if New Delhi is negotiating a broader trade deal, which may include increased energy sourcing from the U.S. Washington’s willingness to bargain will depend on how central the oil question is to the administration’s political calculus; the tariff threats suggest oil purchases are a significant lever.
4. Invest in strategic stocks and domestic refining flexibility. India can accelerate strategic petroleum reserve fills and incentives refiner conversions to process a wider slate of crudes or to add desulphurisation and upgrading capacity. This is a medium-term strategy that reduces acute exposure but requires CAPEX and time.
5. Engage internationally to build secure payment and insurance corridors. India could work with trusted partners such as UAE, Singapore, and Japan, as well as private traders to create an alternative ecosystem that minimises U.S. legal entanglement while keeping Russian barrels flowing, but this will be difficult now that the sanctioned entities are among Russia’s largest oil conduits. Japan, Australia and the U.S. have discussed partnerships to develop non-Chinese supply chains for critical commodities; similar cooperative risk-sharing could be explored for energy.
Each option reflects a trade-off between economics and geopolitics, cheaper fuel at the price of closer alignment with Moscow, or higher energy costs but better ties with Washington and its markets.
The Lukoil sale and shifting ownership structures
The sanctions also catalysed rapid real-world adjustments. Financial press reporting indicates Lukoil moved to sell its overseas assets to commodity trader Gunvor to insulate operations from sanctions pressure, a transaction that would reshape trading flows and ownership structures in Europe and beyond. Such forced divestments complicate long-term supply security for buyers dependent on the previous corporate counterparties; they also illustrate how sanctions can change corporate ownership maps overnight, creating legal and operational complexity for buyers worldwide. If larger traders pick up assets, flows may continue but under new, often more legally distant arrangements.
How this affects the US-India trade bargain
Energy policy is now an explicit bargaining chip in Washington’s negotiations with Delhi. President Trump’s tariff threats, public and repeated, have signalled that Washington expects concrete Indian steps on Russian oil purchases to unlock talks and a more favourable tariff environment. For New Delhi, the calculus is acute, accept U.S. demands and smooth the path to an advantageous trade deal, or resist and risk high tariffs that would hit key export sectors. Recent reporting indicates Indian refiners have not yet fully curtailed Russian imports preemptively, but the sanctions make continuation politically and commercially costly. Washington’s aim appears to be to force third-party buyers into alignment with its Russia policy; whether India concedes will depend on New Delhi’s valuation of short-term energy savings versus long-term trade and strategic benefits.
What it means for India’s energy security and industry
In the short term, India will likely see a pause in Russian volumes as refiners reassess contracts and insurers and banks retrench. That will nudge Indian crude imports toward the Middle East, Africa and the United States, raising the country’s import bill and potentially adding inflationary pressure. Refiners configured for heavy Russian grades will either pay premiums for suitable cargos or adjust operations. In the medium term, however, New Delhi has levers to mitigate pain: diversify supply, accelerate strategic crude purchases funded by swap lines or sovereign guarantees, and incentives domestic refining upgrades and petrochemical integration to preserve margins.
Geopolitically, the sanctions place India at a cross-roads. Continued large-scale Russian oil purchases will complicate relations with Washington and could imperil trade concessions; a rapid pivot will cost money and political capital at home. India’s historical posture, maintaining strategic autonomy while engaging multiple partners, will be tested by hard financial constraints and the legal realities created by the new U.S. measures.
Bottom line: constrained choices in a politicised market
The US designations of Rosneft and Lukoil mark a sharper U.S. attempt to coerce downstream buyers to cut Russian energy revenues. For India, that coercion collides with a domestic need for affordable crude, refinery technical constraints and a strategic desire for autonomy. In essence, New Delhi’s refiners have begun to pause new Russian purchases and explore alternatives; a few firms with legacy Russian ties may continue limited operations through intermediaries, but the overall trend will be toward reduced Russian volumes unless Washington offers exemptions or India accepts higher costs.
The sanctions have therefore accelerated a difficult balancing act, New Delhi must choose between near-term economic benefits from discounted Russian oil and the longer-term political and commercial advantages of aligning with Washington. That trade-off will shape the contours of the possible US-India trade deal, the sourcing choices of India’s refiners, and the structure of global crude flows for months, perhaps years, to come.