"India Demand Lost" Russia’s Oil Exports Constricted by Western Sanctions, Eyes Rapprochement With U.S.

Prolonged Western Sanctions and India’s Exit Weigh on Russian Crude Demand
Urals Crude Plunges, Cargoes Pile Up at Sea as China Exports Near Ceiling
Cornered Moscow Pursues Economic Engagement With Washington, Including Return to Dollar Settlement

Russia’s oil industry has entered a state of acute distress. With sanctions imposed by the United States and the European Union (EU) persisting for years, even India—once a pivotal buyer of Russian crude—has aligned more closely with Washington, sharply increasing the difficulty of securing demand. Under mounting pressure, Moscow has begun signaling a conciliatory stance toward the United States in a bid to recalibrate bilateral relations.

Stranded Russian Crude

On the 11th local time, The Wall Street Journal reported that the discount on Russian crude has widened to levels last seen at the outset of the war. According to commodity intelligence firm Argus Media, Urals crude, Russia’s flagship export grade, is currently trading at around $45 per barrel. This represents a discount of approximately $27 to the international benchmark Brent crude and falls well below the $59 per barrel price level Moscow had assumed to balance its fiscal budget for the 2026 fiscal year.

Mounting inventories compound the strain. Vessel-tracking firm Vortexta estimates that as of the 10th, roughly 143 million barrels of Russian crude remain stranded aboard tankers at sea without buyers. The volume is equivalent to approximately two weeks of Russia’s total production. As Western governments intensify sanctions on Russia’s oil sector, a substantial share of output has effectively lost its destination.

Since Russia’s invasion of Ukraine in 2022, the EU has steadily broadened its sanctions regime. A newly unveiled package on the 6th includes measures prohibiting the provision of maritime services—including insurance, refueling, and maintenance—to tankers transporting Russian crude. Addressing the measures, European Commission President Ursula von der Leyen stated that their implementation would further reduce Russia’s energy revenues and make it significantly more difficult to secure buyers for its crude. She added that, given the global nature of the shipping industry, the EU would coordinate with the Group of Seven (G7) and other international partners to pursue a comprehensive ban.

Even ‘Key Customer’ India Halts Imports

Washington has recently curtailed a critical export outlet for Russian crude through a trade agreement with India. A provisional bilateral accord disclosed on the 7th stipulates that the United States will lower tariffs on most Indian goods from 50% to 18%, while India will cease purchases of Russian crude. President Donald Trump explained that India had pledged to halt both direct and indirect imports of Russian oil and instead expand purchases of U.S. energy products.

India’s withdrawal threatens to deliver a severe blow to Moscow. Following Russia’s invasion of Ukraine, Western nations suspended Russian energy imports en masse, while India capitalized on steep discounts to secure large volumes of Russian crude. Last year, roughly one-third of India’s total crude imports originated from Russia. In August of last year, the United States imposed a 25% reciprocal tariff on India alongside an additional 25% tariff tied to India’s oil trade with Russia, intensifying pressure to scale back transactions. India’s imports of Russian crude, which stood at approximately 2 million barrels per day in June of last year, slid to an average of 1.1 million barrels per day last month.

Facing the prospect of losing a core demand base, Russia has moved to deepen sales to China by sharply expanding price discounts. On the 5th, Reuters cited sources indicating that crude shipped from Russia’s Kozmino port to China is now being offered at a discount of about $9 per barrel to Brent, compared with previous discounts of $7 to $8 per barrel. The challenge lies in the fact that, during the second half of last year, major Chinese state-owned enterprises successively suspended purchases of Russian seaborne crude, narrowing Russia’s buyer pool largely to smaller independent refiners. Some analysts contend that China’s capacity to absorb additional Russian crude has effectively reached its upper bound.

Moscow Seeks to Restore Ties With Washington?

A sustained contraction in oil exports would severely undermine Russia’s ability to finance the war. Under intensifying Western pressure, Moscow finds itself in a tightening bind. Against this backdrop, the Russian government is reportedly pursuing a reset in relations with the United States, foregrounding the prospect of large-scale economic cooperation. According to a Bloomberg report on the 12th, an internal Kremlin document drafted this year details seven core sectors in which U.S. and Russian economic interests could converge following an end to the war in Ukraine.

Foremost among them is the possibility of rejoining the dollar-based settlement system. In a striking policy reversal from its efforts to construct alternative payment networks centered on the Chinese yuan in response to Western financial sanctions, Moscow signaled openness to restoring dollar transactions. The move is widely interpreted as a pragmatic strategy aimed at expanding access to foreign exchange markets and reducing balance-of-payments volatility. Should such a plan materialize, the United States would reinforce the dollar’s reserve currency status while simultaneously loosening the strategic alignment between Russia and China.

The document also outlines potential cooperation in energy and raw materials. It references joint development of critical mineral resources, including lithium, copper, and nickel. The proposal further envisions coordinated advocacy of fossil fuels in response to Europe- and China-led clean energy transitions, alongside joint development of offshore oil fields and liquefied natural gas projects. In addition, Moscow is said to have proposed compensating U.S. companies for past losses incurred in the Russian market and offering preferential conditions to facilitate their return to the consumer sector.

Senior Western officials remain skeptical of the overtures. They question whether Russia would genuinely sever ties with China, which has become a principal supplier of funding and materials underpinning its war effort. One official, speaking on condition of anonymity, told Bloomberg that the proposal clearly seeks to drive a wedge between the United States and Europe, adding that it may represent a tactical attempt to entice President Trump with expansive promises whose feasibility remains doubtful.