US sanctions on Russian oil fail to woo India, backfire with economic consequences

The United States’ attempts to persuade India to stop buying Russian oil have failed, prompting Washington to turn to sanctions. The Treasury Department has imposed penalties on Russian oil majors Rosneft and Lukoil in an effort to choke off the Kremlin’s revenue stream. However, the impact is likely to be limited; Russia is unlikely to yield easily, and the global oil market will adjust to the new restrictions.

The effectiveness of the sanctions will depend on how rigorously the United States enforces them, especially through secondary sanctions on entities that continue to deal with Russian oil. Past experience suggests that Washington may struggle to maintain a hard line, as markets will push back to avoid a price spike. A “gray‑zone” equilibrium could emerge, in which Western politicians appear tough on Russia while simultaneously avoiding destabilisation of the global market.

Reports indicate that some Indian refiners plan to reduce their purchases of Russian oil, and Chinese state‑owned oil companies are suspending imports. Nonetheless, these measures are unlikely to be the final word on the issue. India’s Commerce Minister, Piyush Goyal, recently highlighted the inconsistency of Western sanctions, noting that Germany received a waiver for its Rosneft‑owned refineries. He asked why India should be treated differently, exposing what he called the duplicity and hypocrisy of the West’s approach.

The sanctions are creating an artificial price segmentation in the global market: Western‑compliant buyers pay a premium for non‑Russian oil, while non‑compliant buyers can purchase Russian oil at a discount. Russia may lose some revenue, but the buyers of its oil capture the margin, effectively receiving an energy subsidy. In the long run, this strategy could erode the relative position of the sanctioning coalition by reshaping trade networks and creating new opportunities for Russia and other sanctioned countries.

The implications of these sanctions are far‑reaching, with potential consequences for the global economy and energy markets. As the situation unfolds, it remains to be seen how India and other countries will respond to U.S. pressure and whether the sanctions will achieve their intended goal of isolating Russia.