India Sees Trouble On Two Fronts, US Sanctions On Russian Oil And China’s Export Curbs—What Can India Do To Ride The Wave?

India finds itself in choppy waters on two critical fronts. On one side are fresh US sanctions on Russian oil, threatening to disrupt imports and eliminate long-enjoyed price discounts. On the other, China has tightened its grip on exports of key capital equipment, including solar panels, electronics, and electric vehicle (EV) components, leaving India scrambling to secure alternatives in vital sectors

US Sanctions On Russian Oil. The Impact

On Friday, the Biden administration imposed stringent sanctions on Russian oil producers Gazprom Neft and Surgutneftegaz, as well as around 180 tankers involved in ferrying Russian oil. While earlier US sanctions were relatively lenient, this new round packs a punch by targeting buyers and shippers of Russian oil with secondary sanctions. This could spell trouble for Indian refiners, who rely heavily on Russian oil to meet domestic demand.

Indian refiners often buy Russian crude from the spot market. Recently, Reliance Industries reportedly struck an annual deal to source Russian crude starting this year. For spot buyers, the impact of the sanctions means quickly switching to alternative suppliers. Those with term deals, however, might have some room to modify volumes or even invoke force majeure clauses.

Crude prices, which recently jumped $5 to cross $81 per barrel, are unlikely to stay that high, according to officials. There’s plenty of spare capacity globally, with additional supplies available from the US, Canada, Brazil, and Guyana. Even if OPEC doesn’t utilize its 3 million barrels per day of spare capacity, non-OPEC suppliers can step in to fill any gaps.

Still, Oil prices have surged above $80 a barrel, driven by uncertainty and key traders, insurers, and about 160 tankers being listed by the Office of Foreign Assets Control. However, officials believe the rally won’t last long, as the market has sufficient spare capacity to absorb disruptions.

The Impact of Sanctions

The real impact of these sanctions will be felt once the wind-down period ends in two months. Here’s what’s on the horizon –

• Oil Supply: Supply itself isn’t the issue. With OPEC’s spare capacity and contributions from non-OPEC nations like the US, Canada, Brazil, and Guyana, the global market can handle disruptions.

• Pricing Pressure: The rally above $80 per barrel isn’t sustainable, but it’s causing short-term jitters.

• Term Deals: Indian refiners are already negotiating term supply deals with Middle Eastern suppliers and may seek extra barrels if needed.

• Discount Loss: India’s refiners may lose the discounts they’ve been enjoying on Russian oil if supplies become scarcer.

• Russian Response: Russia hasn’t yet clarified its stance on the sanctions but is expected to find ways to keep its barrels flowing to India.

Deeper discounts could be on the table to meet the $60 per barrel price cap imposed by the Group of Seven countries.
Indian banks are also likely to demand certificates of origin to ensure crude doesn’t come from sanctioned suppliers. Meanwhile, India is evaluating the future of state companies’ stakes in the Vostok oil project, which has been sanctioned.

What Is India’s Official Response?

India has made it clear that it will reject oil tankers sanctioned by the US for their role in transporting Russian cargoes. However, vessels chartered before January 10 and unloading by March 12 will be exempt.

In response to these challenges, Indian refiners are exploring alternative supplies and preparing for the potential loss of discounts. While the situation remains fluid, India’s proactive measures and diverse sourcing strategies aim to minimize disruptions and maintain energy security.

China’s Export Curbs, A Major Supply Chain Squeeze

While struggling with Russian oil uncertainties, China’s decision to stall the export of essential capital equipment seems like a calculated move to slow down the manufacturing expansion of major players like Apple supplier Foxconn, EV giant BYD, and laptop maker Lenovo in India. Without access to high-tech machinery—which isn’t easily available locally—it’s tough for these companies to scale up their operations.

Industry insiders have already flagged the issue to the government, and while measures are being discussed, the immediate impact is clear: a setback for big manufacturing projects, particularly in electronics and auto sectors. Delays in equipment deliveries not only hike up costs for manufacturers but also disrupt their expansion plans.

Experts believe China’s strategy is tied to the current geopolitical climate, especially with the possibility of Donald Trump’s tariff-heavy regime making a comeback in the US. As Chinese and Taiwanese companies like Foxconn, Pegatron, and Compal look to reduce their dependence on China by expanding abroad, Beijing’s move is also likely to face resistance domestically. However, India is feeling the pinch more acutely since its manufacturing ecosystem heavily relies on Chinese machinery and expertise.

Over the past few months, China has zeroed in on the electronics sector, preventing companies from exporting capital equipment for new or expanded facilities outside its borders. While other nations like Vietnam and Mexico have developed robust local ecosystems by collaborating with Chinese players over the last 4-7 years, India’s ecosystem is still catching up.

To address this, the Indian government has rolled out a $3 billion component incentive scheme and may consider extending subsidies specifically for capital equipment. But for now, the situation calls for a re-evaluation of strategies to support domestic manufacturing. Building a more self-reliant ecosystem—less dependent on China for both components and machinery—has become a pressing need.

The Last Bit

India’s resilience is being tested as it faces dual challenges of US sanctions on Russian oil and China’s export restrictions. While the immediate future may look unsteady, these challenges also present an opportunity for India to reimagine its energy and manufacturing strategies.

India can turn this crisis into a stepping stone toward greater self-reliance and economic security by diversifying imports, boosting domestic production, and strengthening global partnerships,

The road ahead is uncertain, but with calculated moves, India might just ride the wave instead of being swept away by it.