Tight Saudi, Iraqi crude supply may leave India scrambling as Russia sanctions hit

Middle Eastern oil producers, including Iraq and Saudi Arabia, may be unable to help meet Indian crude demand in coming months should US sanctions on Russia impact the subcontinent's primary supply.

Gurmeet Singh, the director general of the Federation of Indian Petroleum Industry, said the country has developed a strategy to replace Russian barrels, which may include boosting imports from Iraq, Saudi Arabia and the US, contingent on the evolving geopolitical landscape.

An official at Iraq's state oil marketer SOMO told S&P Global Commodity Insights that regional crude allocations for 2025 have already been determined, and spot cargoes are rarely available, indicating that OPEC's second-largest producer will likely be unable to address any supply gaps in India.

Saudi crude supply also appears tight, and with March loadings complete, India would need to wait until at least April to pick up any Saudi crude.

A grace period in the sanctions regime of the US Treasury Department's Office of Foreign Assets Control permits ships loaded before Jan. 10 to unload until Feb. 27, so any impact of the sanctions is expected to be felt afterward.

While OPEC has maintained current production cuts, they are expected to ease soon, potentially increasing the crude volumes available in the market. However, Saudi Arabia and Iraq's allocated increase of 56,000 b/d and 12,000 b/d, respectively, in April is modest, and the policy to ease cuts could change depending on market conditions.

"My sense is that there will not be much immediate extra volume for India [from Saudi Arabia]," said one Middle East-based market analyst.

The Saudi oil ministry did not respond to a request for comment.

Iraq and Saudi Arabia's production is constrained by their OPEC+ commitments, and Iraq regularly fails to comply with its quota. Iraq pumped 4.06 million b/d in January, down from the previous month but still over its quota by 60,000 b/d. Meanwhile, Saudi Arabia produced just under its 8.978 million b/d target at 8.97 million b/d, according to the latest Platts OPEC+ Survey from Commodity Insights.

The US and UK imposed fresh sanctions on Russia's energy sector Jan. 10, including curbs on two major Russian oil producers, Gazprom Neft and Surgutneftegas. The actual impact of the sanctions is yet to be seen, with some analysts saying the tangible effect will be minimal.

Russia supplied around 35% of India's crude in 2024, according to S&P Global Commodities at Sea data. The Middle East and Russia accounted for nearly 80% of Indian oil imports. Iraq and Saudi Arabia are the second- and third-largest suppliers of crude to India, just ahead of the UAE and US.

In January, 1.2 million b/d of Russia's medium sour Urals crude arrived in India, according to CAS data. As of Feb. 12, CAS showed 490,000 b/d of Urals being shipped to India for the month.