RELIANCE’S DECISION NOT JUST A CORPORATE MOVE BUT A SIGN OF INDIA’S DIPLOMATIC STRATEGY: DEVANAND SINGH

RELIANCE’S DECISION NOT JUST A CORPORATE MOVE BUT A SIGN OF INDIA’S DIPLOMATIC STRATEGY: DEVANAND SINGH

24-JAN-ENG 12

RAJIV NAYAN AGRAWAL

ARA-----------------------------India's energy strategy appears to be taking a new direction amidst the pressures of international politics. The decision by Reliance Industries Limited, the country's largest corporate group, to stop importing Russian crude oil for its Jamnagar refinery is not merely a business decision, but an indicator of changing global dynamics. The turmoil in energy markets following the Russia-Ukraine war, the stringent sanctions imposed by the US and the European Union, and the increasing diplomatic pressure on India have created an environment in which both India's private and public sectors are now treading cautiously.

The implications of Reliance's decision should be viewed on several levels: trade, diplomacy, energy security, and India's position within the legal framework of international sanctions. This move has made it clear how much the decisions of superpowers in world politics affect global energy flows, and how emerging economies have to balance their strategic interests.

Reliance Industries, which has been the largest importer of Russian oil in India, has been bringing in almost half of India's Russian crude oil imports and processing it at its massive Jamnagar refining complex. This refinery not only supplies fuel to the domestic market but is also a leader in export-oriented production. Therefore, the new restrictions imposed by Western countries on the origin of refined fuels directly impact its operational strategy.

The European Union is set to ban the import of fuel products made from Russian crude oil starting next year. Under these sanctions, refineries will have to increase their supply from non-Russian sources to continue uninterrupted trade in European and American markets. By changing its import patterns months before this rule comes into effect, Reliance has signaled that it does not want to jeopardize its export capacity in global markets. The company also acknowledged that it has completed the process of reducing its dependence on Russian crude oil well ahead of schedule to ensure full compliance with European sanctions set to take effect on January 21, 2026.  Given the severity of the US sanctions regime, this decision also appears to be a strategic move taken preemptively.

The White House has openly praised Reliance's decision. This stance from the US government is significant because trade disputes between India and the US had intensified considerably over the past two years. President Donald Trump had described India's increasing energy and arms purchases from Russia as "activities that benefit Russia against Ukraine" and, in response, imposed tariffs of up to 50 percent on India. 25 percent of this additional tariff was specifically applied to countries engaged in energy or defense deals with Russia.

This aggressive stance by the US had almost stalled the pace of India-US trade negotiations. Despite India's repeated explanations that purchasing cheaper Russian energy directly helps stabilize global energy prices, the US did not show any flexibility in its position.

However, now that India's major refining companies, particularly Reliance, are significantly reducing their purchases of Russian oil, the US stance also appears to be softening. The White House not only welcomed this decision but also expressed hope that the pending trade negotiations between India and the US could regain momentum. This situation indicates that India's move is a significant signal towards fulfilling US diplomatic expectations.

The unprecedented increase in India's oil imports from Russia proved to be an economic boon for India compared to the pre-war period. While Russian oil constituted only 2.5 percent of India's total purchases in 2022, this figure reached approximately 35.8 percent in 2024–25. The substantial discounts received by Indian refineries not only helped control domestic fuel prices but also made the export-oriented refining model more profitable. However, this increase, while economically beneficial, was also politically sensitive. The stringent sanctions imposed by the US and European countries, and the pressure on countries that provide Russia with energy revenue, complicated the situation for India. India consistently argued that energy security is a top priority for any country, and Russia's discounted rates offered a stable option during wartime, but this situation could not be sustained indefinitely under the pressures of global geopolitics.

In recent months, there has been a sharp shift in import patterns at both government and private refineries. Reliance has reduced imports from sanctioned Russian companies by approximately 13 percent. Meanwhile, increases in imports from Saudi Arabia and Iraq by 87 and 31 percent respectively have made it clear that Indian companies are turning to alternative sources. State-owned oil companies have also indicated a move away from Russian crude oil for December contracts. One reason for this is that financial institutions and insurance companies are shying away from financing ships carrying Russian oil due to Western sanctions. The result of all these developments is that Russia's share in India's energy basket is gradually decreasing, and this shift is not entirely voluntary but driven by global pressures. This is a precautionary decision taken in view of potential risks in the future.

Experts believe that after the speed with which India has reduced Russian imports, the US should remove the additional 25 percent tariffs imposed on Indian goods. They say that when the US does not respond positively to India's goodwill gestures, it weakens mutual goodwill and negatively impacts the progress of trade negotiations.

This is true, because the tariffs imposed by the US not only affect India's exports but also send the message that the US does not hesitate to use trade policy as a political tool. If India succeeds in convincing the US, through changes in the import patterns of Reliance and other companies, that it is respecting Western sanctions, then the prospects for progress in trade negotiations may increase. Reducing imports from Russia can be as diplomatically beneficial as it can be economically challenging.

The heavy discounts offered by Russia now seem to be gradually disappearing. This could affect both domestic fuel prices and refinery margins. India has to import almost 85 percent of its oil from abroad. In such a situation, the price and stability of alternative sources are always a matter of concern.

Energy cooperation has been a major pillar of Russia-India relations. If Indian companies reduce imports, it could lead to a cooling of relations, although defense cooperation still remains central to the relationship between the two countries. The increasing demand for Saudi and Iraqi oil could affect global prices, increasing financial pressure on India. After months of uncertainty, public accusations in diplomacy, and a stalemate in trade negotiations, it now seems that tensions between India and the US may ease. The change in import patterns by Reliance is the signal that the US has been waiting for for months, although experts believe this is only the beginning. The real solution will come when the US removes additional tariffs, the deadlock in the India-US trade agreement is broken, and both countries develop a shared strategy on energy security and global supply chain issues.

Overall, Reliance's decision is not just a corporate move, but also an indication of India's diplomatic strategy. Reliance's decision to stop importing Russian crude oil is not merely a technical decision taken due to global sanctions. It is also an attempt by India to navigate the changing geopolitical landscape and reshape its energy diplomacy. While India wants to improve its trade relations with the US, it also does not want to jeopardize its decades-old relationship with Russia. It will become clear in the next few months how much this move benefits the India-US trade talks and how India creates a new import balance to meet its energy needs, but it is certain that Reliance's move will be considered a significant turning point in the realignment of India's energy strategy under the pressure of global power politics and sanctions.