US sanctions on Iran: Why India could face high oil bill despite not buying Iranian crude

The immediate impact on India is likely to be limited because Indian refiners have largely stayed away from Iranian crude amid concerns over US sanctions. But the bigger risk is indirect.

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New Delhi: India may not be buying Iranian crude, but a prolonged disruption in Tehran’s oil exports following the latest US sanctions could still push up the crude import bill by making alternative supplies more expensive.

The immediate impact on India is expected to be limited because Indian refiners have largely stayed away from Iranian crude amid concerns over US sanctions. But the bigger risk is indirect: If China, which imports the majority of Iranian crude, is forced to other suppliers, it could compete with India for the same alternative supplies.

“If China, which imports the vast majority of Iranian crude, is forced to source oil elsewhere, it will increase competition for the alternative barrels that India relies on. This demand reshuffling would likely push benchmark prices higher, resulting in a higher import bill for India,” Sumit Ritolia, manager for oil markets and refinery at Kpler, a trade data intelligence firm told ThePrint.

The US Treasury Monday announced sanctions against individuals, entities, and vessels linked to Iran and warned that countries and companies continuing to do business with Tehran could face secondary sanctions. The measures cover shipping, aviation, technology, gold, and digital assets, as well as financial and other activities linked to Iran’s trade.

“We are launching an economic onslaught against Iran’s financial connections around the globe. Our objective is to sever every economic lifeline that sustains this tyrannical regime until Tehran stands alone,” US Treasury Secretary Scott Bessent said in a post on X Monday.

China could be the link

For India, the direct risk from the sanctions is negligible, said Natalia Katona, commodity analyst based in Abu Dhabi. Indian refiners have largely stayed away from Iranian crude because of compliance concerns. The only recent deliveries were two cargoes carried by MT Jaya and MT Felicity in April under a temporary US waiver.

The bigger concern for the oil market is the continuing blockade around the Strait of Hormuz rather than the latest sanctions announcement, Katona said.

Iranian exports have averaged only around 3,00,000 barrels per day (bpd) in August, sharply below the 1.7 million bpd average in 2025. China, the main buyer of Iranian crude, has so far maintained imports of about 8,00,000 bpd by relying on cargoes that left Iran during a brief reopening of navigation in June and July.

However, that buffer is shrinking, with Iranian crude stored outside the Gulf falling by about 7 million barrels since the start of August to 24 million barrels, as Chinese buyers continue to draw down the remaining supplies.

“If the blockade holds, China could run short of Iranian options by October,” Katona said. After October, China would have two choices: seek alternative crude or reduce refinery runs.

If they turn to other suppliers, competition for available barrels would increase and could push global oil prices higher. The pressure is already visible in Iranian crude prices, with Iran Light trading at about a $4-a-barrel premium to ICE Brent.

The scale of the eventual disruption will, however, depend on how aggressively Washington enforces its new sanctions, particularly against major Chinese buyers and financial institutions. “So far, we have no names, no public deadlines, and no explanation of how this would be enforced,” Katona said, adding that the latest move looks more like a negotiating tactic than an immediate market shock.

Import bill the bigger concern

This potential competition for alternative crude is where India could feel the impact, even without importing Iranian oil. “India’s direct exposure to Iranian crude is currently very limited, as India does not buy Iranian crude,” Ritolia said.

But if China, which imports the vast majority of Iranian crude, is forced to source oil elsewhere, it would increase competition for the alternative barrels that India relies on, he said. That demand reshuffling could push benchmark oil prices higher and increase India’s import bill.

India imports around 85 per cent of its crude requirements. A sustained rise in international oil prices would increase the cost of importing oil, thereby putting pressure on the rupee and the current account.

The impact could also come through India’s existing dependence on Russian crude. However, Ritolia expects Moscow not to gain significantly from Iranian sanctions because Russian supplies to India are already around 2.0-2.5 million bpd, or roughly half of the country’s imports.

Instead, the bigger concern is the loss of discounted barrels from the global market. Any Iranian shortfall would have to be replaced largely by Middle Eastern producers, whose spare capacity remains constrained.

Hence, if Washington ultimately moves beyond threatening secondary sanctions and targets major Chinese buyers, refiners or financial institutions, the impact on global oil flows could be much larger.

For India, that would translate into a higher import bill, greater inflationary pressure and more strain on energy security.

(Edited by Nardeep Singh Dahiya)