China’s Russian Oil Push Is Squeezing India as Iranian Exports Collapse

Iran’s oil-export collapse has changed the role of Russian crude in Asia. India had been using discounted Russian barrels to replace Middle Eastern supply disrupted by the Iran conflict. But as Iranian shipments to China dried up, Chinese refiners moved more aggressively into Russian crude—tightening the same supply pool India was relying on.

The result is not yet proof of an immediate physical fuel shortage. It is a weaker hedge: Russian barrels are harder to secure, their discounts are narrower, and the cost and political risk of delivering them to India are rising.

Iran’s lost barrels are pushing China toward Russia

Iranian crude exports fell to about 294,000 barrels per day in August 2026, compared with roughly 1.7 million barrels per day in 2025, according to Kpler data cited by Reuters. The decline followed the U.S. blockade of Iranian ships and ports and the disruption of tanker movements through the Strait of Hormuz.

China has historically been the dominant buyer of Iranian oil. When those supplies became less available, Beijing had to look for replacement barrels in a market already strained by attacks, restricted Gulf traffic and uncertainty over Russian exports. Chinese offers for Iranian crude also fell while prices rose, making substitution more urgent.

That substitution matters for India because Russia has been its most important source of emergency crude during the Middle Eastern disruption.

August volumes show India’s Russian-oil cushion shrinking

India’s Russian-crude intake reached record or near-record levels in June and July as refiners sought alternatives to barrels normally moving through Hormuz. Reuters reported that Russia supplied 2.47 million barrels per day, or 50.83% of India’s crude imports, in July. 1 Other vessel-tracking estimates put July imports closer to 2.8 million barrels per day, illustrating the uncertainty involved in real-time cargo data. 59

By the first half of August, Russian deliveries to India had fallen to about 1.9 million barrels per day—nearly 32% below July’s record, according to Kpler data cited by the Financial Express. 8 ThePrint likewise reported first-half August flows of about 1.9 million barrels per day, with the final monthly figure expected to depend on cargoes still being counted. 6

The direction is more important than the precise estimate: India’s exceptional July intake did not establish a stable new baseline. Russian supply to India has become more variable just as the country needs dependable alternatives to Middle Eastern crude.

China is competing for the most convenient Russian grades

China’s seaborne imports of Russian crude were estimated at 1.25 million barrels per day in August, down from 1.423 million barrels per day in July but still among its strongest recent months. 2

Sinopec, China’s state-owned refining giant, reportedly bought 30–40 cargoes of Russia’s Eastern Siberia–Pacific Ocean, or ESPO, blend for delivery between July and September. The purchases represent approximately 241,000–320,000 barrels per day. 17

ESPO loads from Russia’s Far East can move across the Pacific to Chinese buyers. India, by contrast, has relied heavily on longer-haul Russian flows and must compete for cargoes while also managing tanker availability, payment channels, insurance and sanctions compliance. The geography does not make Russian supply unavailable to India, but it can make Chinese demand more competitive for particular grades and routes.

The Russian discount is no longer the whole story

Russian crude remains attractive when its benchmark discount is large enough to offset transport and compliance costs. But that calculation is deteriorating. September ESPO cargoes were reportedly offered at discounts of about $1–$3 per barrel to ICE Brent, compared with around $4 per barrel for August-loading ESPO. 21

Higher freight and war-risk insurance premiums further reduce the benefit. Recent shipping disruptions and attacks on energy infrastructure have lifted war-risk costs, narrowed discounts on Russian grades and put pressure on India’s import bill and refinery margins. 11 Indian importers also face simultaneous uncertainty around the Strait of Hormuz and the Bab al-Mandab Strait, two critical maritime chokepoints. 12

For refiners, the relevant number is therefore not simply the headline Russian discount. It is the delivered cost after freight, insurance, financing, route risk and any potential loss of access to customers or payment systems.

Sanctions turn a price problem into a procurement problem

The United States is applying renewed pressure to Iranian oil trade, while proposed Russia-related legislation could authorize tariffs on major buyers of Russian energy. The U.S. Senate passed a 2026 sanctions bill that would allow tariffs of up to 100% on China, India and other countries under specified conditions, although further legislative steps would be required. 1922

That uncertainty complicates long-term contracting. An Indian refiner may be able to buy a discounted cargo today, but still face questions about whether the cargo can be insured, financed, delivered and resold under changing sanctions rules. Shipping and payment risk can therefore erase the apparent advantage of cheap crude before it reaches the refinery.

Why the shock matters for India’s wider economy

India imports about 89% of its crude-oil requirements, and roughly 40% of its crude imports normally transit the Strait of Hormuz. 14 A prolonged disruption therefore affects more than refinery procurement. It can raise the import bill, widen current-account pressure, weaken the rupee and increase the policy trade-offs around inflation, fuel taxes and subsidies.

Higher benchmark prices would amplify those effects. The market has already begun pricing the possibility of a longer Hormuz crisis: flows of crude and refined products through the strait fell sharply from their pre-war average, according to Kpler data cited by Reuters.

India’s strategic reserves add another constraint. The evidence supplied here does not establish an exact August 2026 reserve level or prove a specific month-by-month decline. It does show that India’s strategic petroleum reserves provide about 9.5 days of net-import coverage, while broader petroleum inventories are described separately as covering substantially longer periods. 13 That distinction matters: commercial stocks and strategic reserves are not interchangeable, and neither removes the need for replacement cargoes during a prolonged disruption.

What Indian refiners are likely to do next

The immediate response is diversification rather than abandoning Russian crude altogether. Bloomberg reported that Indian refiners were widening their search to West Africa and the Americas while also considering Persian Gulf supplies despite restricted Hormuz flows. 3

That strategy has three practical parts:

• Broaden crude grades and origins. Greater access to West African, American, Brazilian and other non-Gulf barrels reduces dependence on a single supplier, even if alternative crude is more expensive or requires refinery adjustments. 320
• Secure logistics earlier. Tanker capacity, insurance and payment arrangements can become bottlenecks before physical crude disappears. The dual-chokepoint risk makes forward planning more important. 12
• Treat Russian crude as an opportunistic hedge. Russian barrels can still lower costs when discounts and routes work, but their availability should not be assumed during a simultaneous Russia, Iran and Gulf supply shock.

The broader Asian oil-market effect

China is not relying on only one replacement route. Sinopec has said it will increase sourcing from Brazil, Africa and other non-Gulf locations, including supplies loaded outside the Gulf. 20 India is pursuing a similar diversification path.

That creates a more fragmented Asian crude market. China and India are competing for Russian, African, Brazilian and Atlantic Basin barrels at the same time that Gulf cargoes carry a higher geopolitical and freight premium. The likely consequence is greater volatility in delivered crude costs and refinery margins, even if global production is sufficient in aggregate.

The central lesson for India is strategic rather than merely commercial: discounted Russian crude was a powerful response to a Middle Eastern supply shock, but concentration turned that response into a new vulnerability. Once China began replacing Iranian barrels with Russian oil, India’s cheapest and fastest contingency supply became contested. For Indian refiners and policymakers, diversification, logistics resilience and reserve planning now matter as much as the nominal price of a Russian cargo.