How India Became a Lifeline for the Russian Economy

And why that could change in 2026

Since the start of Russia’s full-scale war against Ukraine, trade between Moscow and New Delhi has undergone a rapid transformation. From a partnership that was limited in scope and largely political until 2022, it has become one of the largest energy flows in the world. In the fiscal year 2024–25, bilateral trade reached $68,7 billion [1], and Indian refineries have become a key route for Russian oil, which has been squeezed out of the European market by sanctions.

This dependence appears reciprocal, but its structure is asymmetrical.

India received cheap fuel at a time of global turbulence, while Russia is a financial channel that partially compensates for the loss of European buyers. But by the end of 2025, this model began to malfunction: the US increased tariff pressure, the rupee settlement mechanism never worked [NS1], and Russian suppliers switched to requiring payments for contracts in yuan. In 2026, this axis may change, and this creates new opportunities for Ukraine.

Trade surge: how cheap oil changed the balance

Back in 2021, trade between India and Russia was hovering around $10–11 billion. After the invasion, it grew almost instantly: in 2022, to ~$49 billion, in 2023, to ~$65 billion, and in the 2024–25 fiscal year, to a record $68,7 billion [1]. Most of this amount was energy imports: Indian buyers received Russian oil at a discount of up to 30% compared to the market, which allowed them to save billions against the backdrop of rising world prices [3].

The structure of growth itself was uneven. Against the backdrop of a rapid increase in imports — $63,8 billion — Indian exports to Russia amounted to only $4,9 billion in 2024–25 [1]. The difference in flows created an imbalance of about $59 billion, which was the reason for the failed negotiations on the rupee settlement regime [NS1].

The mechanism, which had been actively discussed since 2022, was formally supposed to compensate for the inequality, but in practice it was never launched: Russia could not spend the accumulated rupees, and Indian banks feared secondary sanctions. Therefore, most payments remained in dollars or were made through dirhams - until in 2024-25 Moscow began to vigorously promote the transition to the yuan [2].

Yuanization of Trade: Beijing's Financial Architecture

In October 2025, Reuters reported that Russian traders had formally invited Indian state-owned companies to switch to paying in yuan. [2] This seemed to be the logical conclusion of a three-year process: China had provided Russia not only with a market (more than two-thirds of its oil exports) but also with a payments infrastructure where the yuan has a wider “sanctions window” than the dollar or even the dirham.

For India, this approach means simplifying transactions where the rupee-ruble mechanism has not yet been determined. For Russia, it is an opportunity to gain a foothold in the Chinese financial circuit. However, this very integration creates risks: dependence on Beijing increases, and Moscow's room for maneuver in currency policy narrows. For the West, this opens up an alternative lever of pressure - not through sanctions against Russian companies, but through the Chinese clearing system.

Nayara Energy: Indian "bridge" for Russian oil

One of the central elements of this energy hub is India’s Nayara Energy, 49% controlled by Rosneft [5]. Its refinery in Vadinar is one of the largest in Asia, with a capacity of about 400 barrels per day. After the imposition of European and American sanctions, it became almost completely dependent on Russian raw materials [6].

In October 2025, crude-runs at the plant reached 90%, the highest level in years [5]. Supplies from the Middle East have declined precisely because of sanctions risks, and Russian oil has become the main resource for refining and re-export [NS2]

This model is not limited to direct deliveries. Some contracts operate on a netting scheme: Russia supplies oil, and part of the payments are settled through the export of Indian petroleum products to third countries. For India, this provides a stable flow of fuel, for Russia, some convertible currency, and for the global market, a constant channel for shadowing the origin of barrels.

Weapons and strategic intersections

India has been the largest buyer of Russian weapons for decades: in 2020–24, it accounted for 38% of Russian arms exports. [7] Although this share is gradually decreasing due to contracts with France and the United States, India’s dependence on Russian technological platforms remains, especially in the field of air defense, aviation, and missile systems.

Amid the decline in Russian defense exports, the Kremlin has stepped up attempts to link energy deals with military-technical cooperation: oil discounts are becoming a tool to maintain a presence in the market, where Russia's position is weakening due to the war [NS3]

US tariff strike: the beginning of a turnaround

In August 2025, the US announced 50% tariffs on Indian imports, directly linking them to purchases of Russian oil. [8] This move was sent by Washington as a political signal: if India continued to financially support the Russian oil sector, it would face restrictions on access to the US market.

Already in the fall, Bloomberg reported that most Indian refineries, except Nayara, had canceled purchases of Russian oil for December [9]. New Delhi talked about diversification, and government officials hinted for the first time in years at a review of long-term contracts. Tariff pressure was the factor that broke the inertia of energy cooperation that had kept Russia afloat.

The Russia-India-China Triangle: Axis or Temporary Compromise?

Against the backdrop of sanctions and trade pressure, a de facto energy-financial axis began to take shape in 2024–25, with China at the center offering settlement infrastructure, Russia offering resources, and India offering a sales market [NS4]

But the future of this structure does not depend solely on Moscow or Beijing. If India sees greater long-term benefits in cooperation with the United States—in technology, investment, or defense deals—than in cheap Russian oil, the bloc could lose its viability. Conversely, if tariff pressure is removed without political conditions, the energy flow could be preserved.

What does this mean for Ukraine?

Ukraine has two strategic interests. The first is to limit financial revenues to the budgets of the Russian Federation, which directly support aggression. The second is to strengthen political ties with India, which formally remains neutral but actually influences the effectiveness of oil sanctions.

A reduction in Indian imports of Russian oil by even 20–30% would mean one of the most significant blows to Russian exports during the entire war. At the same time, the role of the Chinese factor is growing: the more trade is transferred to the yuan, the greater Moscow's dependence on Beijing becomes - and the greater the opportunities for pressure from those states that have influence over China.

Sources

External

[1] Embassy of India in Moscow — India–Russia Economic Overview — 2025

[2] Reuters — Traders seek yuan payment — 07.10.2025

[3] Times of India — Russia's war-period crude exports to India — 2025

[4] OEC — Russia–India Trade Profile — 07.11.2025

[5] Reuters / OE Digital — Russian-backed Indian refinery boosts crude runs — 31.10.2025

[6] European Commission — 18th sanctions package — 2025

[7] SIPRI — Trends in International Arms Transfers — 2025

[8] Politico — US to hike tariffs on India to 50% — 08/06/2025

[9] Bloomberg — Indian refiners skip Russian crude for December — 11.11.2025

[10] AP News — Modi–Putin meeting amid tariffs — 2025

News materialssky

[NS1] India and Russia failed to agree on trade in rupees - 2025

[NS2] How Nayara Energy circumvents sanctions — 2025

[NS3] India halts US defense purchases after Trump tariffs - 2025

[NS4] China, Russia and India are preparing a grand summit - 2025

Maurice K for Newsky © 2025