The conflict in Iran did more than grab headlines—it fundamentally rewired the map of global oil flows. With the Strait of Hormuz effectively closed, nearly 20 million barrels per day of crude and petroleum products that normally transit this critical chokepoint faced disruption. The International Energy Agency estimates that around 10 million barrels per day of Gulf production was taken offline, representing one of the largest supply disruptions in oil market history. For India, which previously sourced about 52% of its daily crude demand of roughly 5 million barrels per day from regional producers including Iraq, Saudi Arabia, and the UAE, this was an existential threat to energy security.
Into this vacuum stepped Russia.
Russian imports stood close to 2 million barrels per day in August, after touching around 2.6 million barrels per day in June and July—a level that accounted for more than half of India's total crude intake. Russia's share in India's crude imports hit 55.5% in July, making Moscow the dominant supplier by a wide margin. This wasn't just opportunism; it was survival. Russian crude supplies had proven "among the most reliable" amid evolving geopolitical situations around both the Strait of Hormuz and the Bab el-Mandeb Strait.
Here's where the story gets technical but crucial. You might assume that if the US wants India to buy less Russian oil, American crude would be a natural substitute. You'd be wrong.
Several Indian refineries, however, are configured to process medium and heavier crude streams. This isn't a preference—it's engineering. These facilities were built to handle specific crude types, and reconfiguring them is financially unviable.
Venezuelan crude solves this technical problem because it is heavier and more sour (higher sulfur content), making it compatible with India's complex refining systems. But this solution comes with severe limitations. Venezuelan crude is mostly heavy to extra-heavy and can be processed by only a small number of Indian refineries, primarily Reliance Industries' Jamnagar complex and Nayara Energy's Vadinar refinery. Among state-owned refiners, only limited volumes have been processed at IOC's Paradip refinery, MRPL, and HMEL. Most public-sector refineries simply aren't equipped to run these grades at scale.
The cost economics tell a similar story.
Venezuelan crude is just $4-5 per barrel cheaper than Brent. US WTI crude, when delivered in India, trades almost at parity with ICE Brent. Russian crude remains the cheapest option, and Venezuelan crude cannot be a sustained and structural replacement.
While crude oil grabs the headlines, a quieter but equally significant shift occurred in liquefied petroleum gas (LPG) and liquefied natural gas (LNG). The US has emerged as India's top supplier of both. In July 2026, over 70% of India's LPG imports and nearly a third of LNG supplies originated from the US. US energy supplies to India had risen over 60% year-over-year.
This surge was driven by necessity. The Iran war scuttled the logistical advantage that Middle Eastern suppliers traditionally enjoyed. Imports from Gulf suppliers fell sharply after the effective closure of the Strait of Hormuz. UAE LPG imports fell to about 140,000 tonnes in August, while Qatar supplied around 60,000 tonnes. Saudi Arabia supplied no LPG to India in either July or August. Qatar's LNG imports to India fell to zero in April, while US supplies rose to about 0.75 million tonnes in August.
The US hasn't watched India's growing dependence on Russian oil passively.
This tariff stacked with existing 25% reciprocal tariffs, bringing total duties to approximately 50%. The message was clear: stop buying Russian oil or face economic pain.
The pressure worked, temporarily. India's Russian oil imports declined more than 13% in FY2026. By February 2026, purchases had fallen to a three-year low of 1.06 million barrels per day. During this period, imports from Iraq rose as Reliance Industries reduced orders from sanctioned Russian companies by 13% in October 2025, while increasing monthly imports from Saudi Arabia by 87% and Iraq by 31%.
Then came the reversal. On February 6, 2026, Trump signed an executive order removing the additional 25% tariff, effective February 7. The reciprocal tariff was lowered from 25% to 18%. The reported quid pro quo: India would stop purchasing Russian oil and instead buy much larger volumes from the US and potentially Venezuela. India also committed to purchasing over $500 billion of US energy, technology, coal, and other products.
Just as India appeared to comply, the Iran war created new supply constraints that forced a return to Russian crude. By July 2026, imports had surged to a record 2.8 million barrels per day. Now, a new threat looms.
India and China are the top two importers.
The bill would impose a 100% tariff on goods originating from any country meeting either of two criteria 30 days after passage: being among the five largest importers by volume of Russian crude during the 12 months preceding enactment and continuing to import after 30 days, or being among the top five nations facilitating Russian oil sanctions evasion. India runs the risk of qualifying under the first criterion—Russian crude accounted for more than 40% of India's imports in May 2026 and more than 50% in June 2026.
This geopolitical chess game has real economic consequences. India is battling foreign capital outflows as its trade deficit has widened amid high global energy prices. The trade deficit widened to $49.3 billion between April and July 2026 from $32.3 billion a year earlier. During this period, India's energy imports, which account for more than a quarter of its purchases, rose nearly 22%.
The rupee has been among the worst-performing Asian currencies against the dollar, weakening by 6.5% since the start of 2026. To shore up the currency, India has mobilized about $73 billion in foreign currency inflows in under 11 weeks, largely through Foreign Currency Non-Resident (Bank) deposits from non-resident Indians. The overwhelming share of the inflows—over $65 billion—came through these deposits.
India faces an impossible choice. On one side, the US is India's largest export destination, with Americans buying $87 billion worth of Indian goods in 2024. On the other, Russia provides discounted crude that is technically compatible with India's refinery infrastructure. Replacing Russian crude with market-priced alternatives would increase India's import bill, though estimates suggest the impact would be less than 2% of GDP.
The fundamental constraint is physical. Scaling back Russian imports "drastically within 30 days at a time when passage through the Strait of Hormuz is still constrained would be very difficult for India." Venezuelan production is limited to around 1 million barrels per day and faces structural deficiencies. The Middle East, traditionally India's key supplier, is currently unusually absent from India's basket because of the Strait of Hormuz disruption.
India is therefore adopting a portfolio approach: increasing imports from the US, West African producers, Brazil, alternate routes from Saudi Arabia and the UAE, and Venezuela as one component. Venezuelan crude could account for nearly 10% of India's approximately 4.5 million barrels per day of crude imports, providing valuable diversification but not independently filling a major shortfall in Russian supply.
The message from New Delhi is clear: ensuring the energy security of 1.4 billion Indians is the supreme priority. All other considerations—including US tariff threats—must be weighed against this fundamental imperative.
