Russian oil flows to India, China unlikely to dwindle despite Ukraine peace talks

Russia's temporary halt on attacks on Ukraine's energy infrastructure has raised hopes of a peace deal and eventual lifting of sanctions, but any normalization of Russian oil flows is unlikely to lead to immediate volume reductions to India and China, where refiners have become increasingly well-equipped to handle various crude grades from the largest non-OPEC supplier.

Refiners in the two countries were of the view that discounts on Russian crude could vanish or ease once sanctions are lifted.

But oil diplomacy will be at play and Russia will do all it can to ensure that it keeps its two top buyers on its side to ensure rock-steady outlets for its oil in the future, analysts, refiners and government sources told Platts, part of S&P Global Commodity Insights.

"As of now, I see Russian oil flows to India not facing much of a hurdle and will continue even after any peace process. But once sanctions are lifted, Russian oil and gas will be market driven and there won't be any special discounts," DLN Sastri, director for oil refining and marketing at the Federation of Indian Petroleum Industry, told Platts.

Temporary halt on energy infrastructure strikes

The Kremlin said March 18 that Russian President Vladimir Putin had ordered a 30-day halt to attacks on Ukraine's energy infrastructure as he and US President Donald Trump discussed plans to normalize relations and boost economic and energy ties. The Kremlin's initial statement made no specific mention of the sanctions regime spearheaded by the previous US administration.

"The drone attacks on some refineries and storage, the transportation bottleneck and high costs they pay for bringing oil to India and China, the ongoing Black Sea tensions, and the threat of production cuts -- all these will hopefully get a breather and prices should ease should the peace deal reach some conclusion," said a leading oil source with decades of experience handling Russian oil in India.

S&P Global Commodity Insights forecasts that global oil and liquids production will outpace demand throughout the year. Consequently, Platts Dated Brent is projected to average $73/b in 2025, lower than the $81/b average in 2024, with further declines anticipated in 2026.

In 2024, India witnessed a shift in its crude oil sourcing pattern. Imports from the Middle East took a bit of a hit, while Russian crude stepped up, making up around 35% of the total imports, which reached about 4.9 million b/d. Although India continued to receive smaller volumes from regions like Latin America and Africa, the Middle East and Russia combined accounted for nearly 80% of India's crude imports.

"A ceasefire is a good starting point but does not mean a peace deal is surely on its way. If it happens, it's not that we are going to witness any reverse flow of oil away from India once sanctions are lifted and a peace process is reached. In fact, what will happen is flows will become even smoother as the availability of non-sanctioned ships will rise," said one Indian refining source.

The China equation

Chinese crude buyers and analysts said Russian oil flows to Asia's biggest oil consumer and importer are unlikely to change immediately even if Putin agrees to an eventual peace deal, as policy moves by the EU would ultimately influence the oil flow map of Russian barrels.

"If the US agrees to lift sanctions, the risks of taking Russian barrels will be de-escalated and will smoothen out the logistics for the existing Chinese buyers," said one Beijing-based crude strategist with a state-run oil giant.

"However, the EU controls a majority of the shipping and insurance services. Unless the EU lifts the sanctions and returns to the market for Russian barrels -- which will be more difficult than reaching an agreement with the US -- trade flows are unlikely to shift," he added.

But a Singapore-based crude trader added: Once Russia, Ukraine and the US make a deal, the EU will have no reason to insist and eventually lift the sanctions."

China relied on Russia for 19.6% of its crude imports in 2024, Chinese customs data showed. The proportion stood at merely 15.5% in 2021 before the war. The volume surged 36% from 1.6 million b/d in 2021 to 2.17 million b/d in 2024.

A few traders at Shandong-based independent refiners said they would continue to watch the developments and price movements -- in case Russian crudes become expensive following any peace agreement. There were no immediate supply worries as some mega private independent refiners had gradually built stocks of sanctioned crudes, according to market sources.

Russian ESPO for April delivery was offered at a premium of around $2/b against ICE Brent futures on a DES Shandong basis, compared with a premium of $2.50-$2.70/b at the beginning of the month for March cargoes, according to sources.

A source with a state-run oil refinery in North China said prices for Russian crude would eventually go up if all the sanctions were halted after long-drawn talks. "If India continues to buy Russian crude and Europe returns to the market, prices will go up and less will likely go to China in the foreseeable future."