Despite shrinking discounts on Russian crude oil, the flow to major consumers like India remains largely uninterrupted, driven by economic considerations and the absence of outright sanctions. Recent data indicates a narrowing of discounts on Urals crude, Russia's flagship crude grade, relative to benchmarks like North Sea Dated (NSD) and Brent crude.
Throughout July 2025, Urals crude prices remained below the G7 and EU-imposed price cap of $60 per barrel. However, discounts to NSD narrowed to approximately $11.9 per barrel, a contraction of $0.6-$0.8 per barrel, reflecting a tighter market for sour crude. This narrowing occurred due to strong demand for sour crude, which supported Urals prices. Towards the beginning of August, however, discounts widened again following new sanctions announcements. For instance, the discount for Urals FOB Primorsk to NSD rose from $11.5/barrel in mid-July to $12.55/barrel, and the discount for Urals FOB Novorossiysk increased from $11.15/barrel to $12.25/barrel. The discount for Russian Urals at Indian ports reached $3/barrel on August 7 trading, compared to $1.95/barrel since mid-July.
India, which emerged as the largest customer of Russian oil after Western nations shunned it following the invasion of Ukraine in 2022, continues to purchase Russian crude based on economic viability. Volumes may fluctuate monthly depending on the discounts offered. While discounts had previously reached as high as $40 per barrel, they narrowed to around $1.5 per barrel recently, leading to reduced offtake. However, the intent to continue buying Russian oil remains unchanged, and discounts have since widened to about $2.70. Indian Oil Corporation (IOC) Chairman AS Sahney stated that there is "no pause" on Russian oil purchases and that the company is not making any extra effort to increase or decrease Russian crude purchases. He emphasized that purchases are driven by economic considerations and that there have been no instructions from the government to alter purchase volumes.
These imports meet a substantial portion of India's crude oil needs. Russian crude oil now accounts for 30% of India's requirements. In the first quarter of the fiscal year, Russian oil constituted 34% of Bharat Petroleum Corporation Ltd's (BPCL) crude intake, and the company aims to maintain a 30-35% ratio as long as sanctions are not imposed.
Despite the continued flow of Russian crude, pressures are mounting. The U.S. government is reportedly pressuring major buyers of Russian crude, including India, to scale back purchases. Furthermore, the European Union (EU) has imposed a ban on imports of oil products refined from Russian crude oil, effective January 2026. The EU will also set a lower price cap for Russian oil from September 3.
These measures aim to curtail Russia's oil revenues. The EU's new sanctions, banning imports of refined products made from Russian crude, are expected to increase diesel demand and time spreads. Europe currently imports around 500,000 barrels per day of refined products from India and Turkey, major importers of Russian crude. The International Energy Agency (IEA) believes that these EU sanctions could further constrain the diesel balance, especially with U.S. distillate stocks at their lowest seasonal level since 1996.
Amidst these shifts, Russia has been adapting its strategy. In February 2023, Russia announced a 5% reduction in oil production (500,000 b/d) in response to the price caps. There are reports that Russia has responded to India's reduced offtake by cutting Urals prices for Chinese buyers and aggressively marketing diverted supplies originally intended for India.
