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Red-Hot Canadian Oil Patch M&A Likely to Cool

By Andrew Topf - Feb 11, 2026

• Canada’s upstream oil and gas sector saw a record $31.2 billion in M&A activity in 2025.
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• 2025 saw major deals such as Whitecap Resources’ merger with Veren and Cenovus Energy’ takeover of MEG Energy.
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• Sayer Energy Advisors expects deal activity to moderate in 2026 due to a shrinking pool of high-quality targets, strong producer balance sheets, and structural constraints despite improving policy signals.
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Last year saw a record number of deals in the Canadian oil patch, with sectoral consolidation reaching an eight-year high.

But a new report from Calgary-based Sayer Energy Advisors anticipates mergers and acquisitions in Canada’s upstream oil and gas will moderate over the next 12 months.

The report’s findings go against the expectations of industry analysts and executives of more US buyers searching for acquisition targets, along with more favorable government policies towards the sector spurring more action in 2026.

According to the report, via the Calgary Herald, the upstream oil and gas sector saw an estimated $31.2 billion of M&A activity in 2025, a 53% jump from the previous year and the most dealmaking since 2017, when five large transactions led by foreign firms exiting the oilsands accounted for 80% of the total deal value.

The 2025 total included Whitecap Resources’ (TSX:WCP) $15 billion merger with Veren Inc. last March, and Cenovus Energy’s (TSX:CVE) $8.6B takeover of oilsands producer MEG Energy in November.

Other deals saw Sunoco LP’s (NYSE:SUN) purchase of fuel giant Parkland Corp. for $9.1 billion; Keyera Corp.’s (TSX:KEY) $5.1B acquisition of Plains All American Pipeline’s (NASDAQ:PAA) NGL (Natural Gas Liquids) Division; Ovintiv Inc.’s (TSX:OVV) purchase of NuVista Energy for $3.8 billion, and Canadian Natural Resources’ (NYSE:CNQ) acquisition of Chevron’s (NYSE:CVX) Oilsands/ Duvernay Assets ($1.0B).

Buyers bulked up to achieve better returns and operational synergies during a period of lower oil prices averaging roughly $60 a barrel, rather than investing in new drilling.

About 30% of last year’s M&A activity targeted assets in the Montney formation of northeastern British Columbia and northwestern Alberta — a region known for its natural gas, condensate and NGLs.

Most major deals were completed by domestic players, although interest from US buyers began to increase as US shale wells started to become depleted.

A separate report from ATB Capital Markets notes most producers still have strong balance sheets, which could slow M&A in 2026, as there will be fewer firms looking to sell.

“We anticipate a modest slowdown in Canadian (exploration and production) M&A activity through 2026 following three years of robust consolidation within the sector,” the report states, per the Herald.

“This expected decline in momentum is driven by an intersection of structural and economic factors, most notably the scarcity of remaining high-quality targets that possess adequate scale and inventory depth to justify valuation premiums.”

On the other hand, Grant Zawalsky, senior partner and vice-chair at law firm Burnet, Duckworth and Palmer LLP in Calgary, was quoted by The Canadian Press as saying that “M&A is a way that you can grow when you don’t want to invest in drilling, when you’re not going to get the kind of returns you’re expecting,” he said.

“Until the fundamentals change, we’ll likely see more of the same.”

He should know. Zawalsky worked on three major energy transactions last year: the Cenovus-MEG Energy acquisition, Whitecap’s combination with Veren, and Ovintiv’s purchase of NuVista Energy.

BD&P was involved in eight of the 10 biggest transactions.

Tom Pavic, president of Sayer Energy Advisors, said that while the investment environment has been improving due to the Canadian and Alberta governments reaching an energy accord that includes support for a new West Coast oil pipeline, he hasn’t observed increased global interest in Canadian acquisitions.

Pavic chalked the disinterest up to lingering concerns over regulatory burdens and infrastructure needed for overseas exports.

However, US private equity players have been showing an interest in picking up Canadian assets, building up production and then selling the companies or taking them public.

“Anywhere they see a value arbitrage with Canadian assets selling lower or being developed at a lower cost, they view that as an opportunity,” Zawalsky was quoted by The Canadian Press.

“And they tend to be more willing to take risk on the regulatory side than established oil and gas producers.”

By Andrew Topf for Oilprice.com

Big Oil’s Merger Boom Is Being Driven by a Surprisingly Small Club

By Haley Zaremba - Feb 06, 2026

• Just 20 oil and gas companies accounted for more than half of the total M&A deal value over the past decade, according to Bain & Co.
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• Frequent acquirers dramatically outperformed non-acquirers, delivering shareholder returns roughly 130% higher over ten years.
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• Recent mega-deals, including Devon’s acquisition of Coterra, highlight how consolidation is reshaping U.S. shale even as future dealmaking may slow or shift focus.

The oil and gas sector is continuing to consolidate after years of ‘merger-mania’, with ramifications for the entire energy sector and wider economy. But a recent report reveals that the spate of mergers and acquisitions that has characterized the fossil fuels industry over the last decade is not as widespread as it may seem, but rather concentrated among a few key players. 

A newly released report from the consulting firm Bain & Co found that, within the oil and gas sector, “fewer companies are doing more of the deals and creating more of the value.” In fact, over the last ten years, just 20 companies were responsible for 53% of total deal value when it comes to mergers and acquisitions within the sector.

“And it’s not only the large supermajors,” Bain & Co report, “but also independents such as Diamondback Energy and large midstream companies such as ONEOK and Energy Transfer.” Indeed, this consolidation frenzy is reshaping the landscape of Big Oil, with not-quite-supermajors gobbling up more and more of the market.

What is more, the companies that are driving merger-mania are winning big. The report concluded that the companies considered to be ‘frequent acquirers’ ultimately provided shareholder returns that dwarfed the firms that were not involved in acquisitions over the last ten years. Companies completing at least one acquisition per year yielded returns that were a jaw-dropping 130% higher than companies that did not conduct acquisitions. This is more than double the performance gap seen between acquirers and non-acquirers in the sector a decade ago.

What is the math behind this massive performance gap? In layman’s terms, as explained by news outlet Semafor, “mergers tend to allow companies to capture scale and reduce unit costs through operational efficiencies and consolidated infrastructure, savings that have become more important now that oil prices have retreated from their 2022 peak.”

The consolidation boom has been especially concentrated in the United States, where “year-over-year mergers and acquisitions (M&A) activity surged 331%, totaling $206.6 billion,” according to an August report from Ernst & Young. In fact, the domestic oil and gas sector has shrunk from a field of 50 major players to one of just 40 big names.

Just in the last two years, Chevron bought Hess for $53 billion, Exxon Mobil bought Pioneer Natural Resources for $60 billion, and Devon bought Grayson Mill Energy for $5 billion. And this merger-mania reached a new height just this month as Devon moved to acquire Coterra for nearly $26 billion in a marriage of two “crown jewels.” This deal “creates a domestic oil and gas juggernaut trailing only household names Exxon Mobil, Chevron, and ConocoPhillips in sheer production volumes” according to Fortune.

However, not everyone is thrilled about the new United States shale giant. The deal is a pure stock deal, with Devon shareholders set to hold 54 percent and Coterra shareholders 46 percent of the merged company. This makes it a bit contentious for investors. As explained by MarketWatch, “investors in the acquiring companies don’t usually like stock deals, because issuing new shares to fund the purchase dilutes their holdings, meaning they now own a smaller percentage of the company.”

The Devon-Coterra merger, popular or not, is major news after a relatively quiet year for mergers and acquisitions in 2025. In fact, it could be the harbinger of the next big consolidation wave. But probably not.

Some experts think that merger-mania is set to wind down or at least reorient its focus as prices become more volatile on the back of shifting demand patterns. “With ongoing uncertainty around supply and demand, pricing, tariffs, and geopolitics, operational efficiency and capital discipline will be critical,” says Ernst & Young’s Herb Listen. “The companies that adapt quickly, invest strategically and integrate effectively will define the next chapter of U.S. energy.”

By Haley Zaremba for Oilprice.com

U.S. Budget Deficit Set to Rise Again Amid Trump Tariffs and Tax Cuts

By Alex Kimani - Feb 12, 2026

• U.S. oil production is plateauing near record highs, making a 3 million b/d increase by 2028 increasingly unlikely.
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• The CBO projects rising deficits and debt despite tariff revenues, driven by tax cuts, entitlement costs, and surging interest payments.
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• Republicans dispute CBO assumptions, arguing stronger economic growth could narrow the fiscal gap more than forecast.
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Last year, U.S. Treasury Secretary Scott Bessent set a target to cut the U.S. federal budget deficit to just 3% of GDP by the end of President Donald Trump’s second term. The deficit reduction was a key component of his "3-3-3" economic plan, with the other two being achieving 3% real GDP growth and increasing energy production by 3 million barrels a day by 2028. The plan relies on spending constraints, regulatory reforms, and tariff revenue to narrow the deficit. 

With Trump now completing the first year of his second term, energy and economic experts have weighed in, and they’re warning that Bessent could miss some of his targets by a wide margin. 

First off, U.S. oil production is unlikely to increase by 3 million barrels by the end of Trump’s second term. U.S. shale oil production is currently shifting from rapid expansion to an "undulating plateau" near record levels of 13.6 million barrels per day (b/d). While production remains historically high, growth has slowed due to increased capital discipline, depleted inventories, rising costs, and lower oil prices. 

Indeed, there are growing signs that low oil prices will force some U.S. producers to curtail production: Last month, shale drilling pioneer Continental Resources suspended drilling in North Dakota's Bakken shale for the first time in decades, with billionaire founder Harold Hamm decrying low oil prices, "This will be the first time in over 30 years that Harold Hamm has not had an operation with drilling rigs in North Dakota," Hamm told Bloomberg in an interview, "There's no need to drill it when margins are basically gone.” 

According to BloombergNEF, the Bakken is viewed as a bellwether for the U.S. shale sector, with the basin currently having a breakeven price of $58/bbl to cover costs. This implies that the current WTI crude price of $62.4 per barrel offers razor-thin margins for producers.  U.S. oil output is projected to decline slightly in 2026 due to lower oil prices that reduce drilling incentives, slowing activity even as technology improves. Lower prices make some wells uneconomical, leading companies to scale back drilling, with gains in areas like the Permian Basin unable to fully offset losses elsewhere.

Second, the Congressional Budget Office (CBO) has projected that the U.S. fiscal gap will continue to widen over the next decade thanks to generous tax cuts by the Trump administration, tariffs, high interest costs, and increased spending on mandatory programs.

According to the CBO, the U.S. budget deficit for fiscal year 2026--Trump’s first full year in office--will climb to $1.853 trillion from $1.775 trillion, or 5.8% of GDP. 

However, the deficit-to-GDP ratio will hit 6.7% by 2036, well above the 50-year average of 3.8%. Cumulative deficits over the next decade are projected at $24.4 trillion, with debt held by the public expected to reach 120% of GDP by 2036. 

The 2025 reconciliation act, aka the "One Big Beautiful Bill," is estimated to add $4.7 trillion to deficits through 2035 due to permanent tax cut extensions and increased defense spending. Net interest outlays are the fastest-growing category of spending, projected to surpass $1 trillion in 2026 and double to $2.1 trillion by 2036. 

Rising costs for Social Security and Medicare for an aging population continue to drive mandatory spending upward. The CBO has warned that the Highway Trust Fund could be exhausted by 2028, followed by the Social Security retirement trust fund in 2032. On the flipside, new tariffs that were introduced in 2025 are projected to generate approximately $3 trillion in revenue over ten years, partially mitigating the deficit increases caused by other policies.

The CBO is a nonpartisan federal agency within the legislative branch that provides independent, objective economic and budgetary analysis to Congress. Established in 1974, it acts as the official "scorekeeper" for Congress, producing cost estimates for legislation and projecting federal revenue and spending to help lawmakers manage the budget. However, Republican politicians have frequently criticized the CBO as being biased toward the political left because its economic models and "scores" (cost estimates) frequently contradict Republican fiscal projections, particularly regarding tax cuts, healthcare, and deficit spending. 

Republican lawmakers and conservative groups argue that its methodologies are flawed, too conservative on growth, and favor the expansion of government programs. Republicans argue the CBO fails to accurately account for the economic growth generated by tax cuts, resulting in overestimations of the deficit impact of their proposals. 

A major point of contention is the CBO's reliance on "static" scoring, which often ignores macroeconomic effects (like increased investment) that Republican lawmakers believe would make their tax cuts pay for themselves. Republicans favor "dynamic" scoring, which they argue better reflects reality.

"CBO will always predict a dark future when Republicans propose tax relief – but the reality is never so dire," Rep. Jason Smith, the U.S. representative for Missouri's 8th congressional district, declared last year. "The CBO assumes long-term GDP growth of an anemic 1.8% and that is absurd," said White House press secretary Karoline Leavitt. "The American economy is going to boom like never before after the 'One Big, Beautiful Bill' is passed."

That said, U.S. economic growth is projected to remain resilient in the current year. After declining by an annualized 0.6% in the first quarter of 2025, real GDP expanded by a much-improved 3.8% in the second quarter and a robust 4.4% in the third quarter, marking the largest quarterly increases since the third quarter of 2023. Goldman Sachs has forecast that GDP will grow by 2.5% in the current year, exceeding the consensus of 2.1%.

By Alex Kimani for Oilprice.com

U.S. Container Imports Expected to Fall in First Half of 2026

Forecast for U.S. imports expects declines for the first half of 2026 (Port of Long Beach file photo)

Published Feb 9, 2026 8:01 PM by The Maritime Executive

 

While there appear to be signs of a normalization in the U.S. container import flows and less impact from frontloading, the expectations are that volumes will continue to fall at least through the first four months of 2026. Uncertainty about the U.S.’s tariffs, policy issues, and geopolitical developments all continue to weigh on the outlook for trade.

Both the National Retail Federation and Descartes Global are pointing to a weak start to 2026 import volumes. Descartes calculates that January container volumes were at a total of 2.3 million TEU, which was up more than 90,000 TEU versus December, but down nearly seven percent versus a year ago. Last year, importers were believed to be frontloading ahead of the return of Donald Trump to the White House.

The retail trade association is forecasting January’s retail import figure at 2.11 million TEU, which it says is down more than five percent from a year ago. It suggests that the month-over-month increase was importers advancing orders to get ahead of the Lunar New Year holiday, which begins next week, and when factories across Asia will be closed.

Analysts have forecast that carriers would take between 10 and 14 percent of capacity out of the market around the Lunar New Year. The major lines typically begin blanking sailings from their schedules around the holiday and afterward and are further encouraged this year, with freight rates already weak.

Imports from China specifically were down nearly 23 percent in January 2026, according to Descartes. It notes that China accounted for a third of U.S. trade but believes the tariff policies and uncertainties are showing in the current levels of imports.

“With tariffs still a matter of debate in the courts and in Congress, their effect on imports is being clearly seen,” said Jonathan Gold, the NRF Vice President for Supply Chain and Customs Policy. “The situation underscores the need for clear and predictable trade policies that support supply chain certainty and reliability, business planning, and consumer affordability.”

The NRF reiterated its earlier projections that imports will show significant year-over-year declines during the first half of 2026. It projects container volumes under two million TEU per month until April. For the first half, it projects a total of 12.27 million TEU, which would be down two percent from 2025.

The first improvements, however, could begin in May 2026, a year after Trump’s so-called “Liberation Day,” when the tariff levels were first rolled out. Retailers and other shippers rushed to get their goods into the U.S. ahead of the policies or during some of the pause windows created as tariff negotiations were proceeding.

Descartes, however, also highlights that with the lack of a decision from the U.S. Supreme Court on the tariffs, “policy uncertainty for importers remains elevated, with no near-term change to tariff conditions.” The Trump administration has also threatened new moves if the U.S. Supreme Court strikes down its current tariff policies.

Trump’s Fossil Fuel Push Meets a Legal Reality Check

By Felicity Bradstock - Feb 07, 2026

• A judge ruled the Department of Energy broke federal law by using a handpicked climate panel that rejected mainstream science.
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• The disputed report was used to justify rolling back cornerstone U.S. climate regulations, including limits on emissions.
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• Despite the ruling, the Trump administration is expected to keep using the report as it prioritizes oil, gas, and coal over clean energy.
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United States President Donald Trump pursued an electoral campaign that focused on fossil fuel expansion and the reining in of renewable energy projects. Trump has regularly dismissed climate science as fearmongering, suggesting that the U.S. does not need to expand its green energy and cleantech sectors; rather, the country should focus on pumping more oil and gas to boost energy security. However, a recent assessment suggests that Trump may have been misinformed when setting the U.S. energy agenda.

On 30th January, a federal judge ruled that the U.S. Department of Energy (DoE) broke the law when Energy Secretary Chris Wright handpicked five researchers who reject the scientific consensus on climate change to write a report on global warming to inform national policy. The Federal Advisory Committee Act of 1972 states that agencies are not permitted to recruit or rely on secret groups for policymaking.

The DoE issued the report, which rejected the urgency of addressing global warming, in July, without holding any public meetings. The report was later used by the Environmental Protection Agency’s administrator, Lee Zeldin, to justify plans to rescind the endangerment finding. The finding, which was established by the Obama administration in 2009, declared carbon dioxide a public danger, giving the agency the legal basis to cap greenhouse gas emissions from major sources such as coal power plants and cars.

Judge William Young said that the DoE did not deny the fact that it had not held open meetings or established a Climate Working Group panel with a range of viewpoints, as the law requires. “These violations are now established as a matter of law,” Young determined in his 4-page decision. He said the Climate Working Group was established as a federal advisory committee to inform policy, and not, as the DoE claimed, merely “assembled to exchange facts or information.”

The Environmental Defence Fund’s senior attorney, Erin Murphy, who brought the lawsuit to the court’s attention, alongside the Union of Concerned Scientists – a national group of about 250 scientists and experts, said that the ruling undermines Trump’s efforts to scrap climate regulations. “It was powerful for the court to issue this order making it clear that this is a legal violation and not how the government should be approaching policy,” Murphy said.

Despite the favourable ruling, no order has been issued for the report to be rescinded. In a statement, the DoE said it was pleased that Judge Young had denied a request to prevent the agency from using the report or keeping it online.

A spokesperson for Secretary Wright, Ben Dietderich, said, “The activists behind this case have long misrepresented not just the actual state of climate science, but also the so-called scientific consensus.” Dietderich added, “They have likewise sought to silence scientists who have merely pointed out — as the Climate Working Group did in its report — that climate science is far from settled.”

In the DoE report, the Climate Working Group stated that carbon dioxide-induced global warming “might be less damaging economically than commonly believed,” and that “aggressive mitigation policies” – such as those designed to reduce the use of fossil fuels – “could prove more detrimental than beneficial.”

Following the publication of the report last July, more than 85 scientists and climate experts denounced the group’s findings in a 459-page document, suggesting that the DoE report was full of errors and misrepresentations. “No one should doubt that human-caused climate change is real, is already producing potentially dangerous impacts, and that humanity is on track for a geologically enormous amount of warming,” the scientists wrote.

In his first year in office, President Trump has repeatedly referred to climate change policy, both in the U.S. and internationally, as a “green new scam”. Trump has also sought to water down the efforts of the 2022 Inflation Reduction Act, the most far-reaching U.S. climate policy to date, as well as halt offshore wind development, and discourage investment in renewables and cleantech. Meanwhile, he has doubled down on efforts to increase oil and gas output, while reinvigorating the country’s coal industry.

In backtracking from the success of a green transition under former President Biden, in favour of fossil fuels, Trump has gone in the opposite direction to much of the rest of the world. As Europe continues to ramp up its renewable energy capacity, wind and solar energy provided more electricity in the European Union than fossil fuels for the first time in 2025. Meanwhile, emerging green energy powers, like the Middle East and Latin America, are making significant progress in reducing their reliance on fossil fuels. 

The recent ruling on the DoE’s climate report demonstrates just how much the Trump administration disregards the scientific consensus on climate change. Even though the judge ruled that the means of developing the report were unlawful, the DoE will keep its report online and is expected to continue using it to shape national policy, which could contribute to higher U.S. greenhouse gas emissions and a larger U.S. contribution to global warming.

By Felicity Bradstock for Oilprice.com

The Rapid Rise of Humanoid Robots

By Felicity Bradstock - Feb 07, 2026,

• Automakers are prioritizing long-term automation gains over current productivity limits of humanoid robots.
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• Tesla and Hyundai are among the leaders pushing humanoid robots into factories within the next few years.
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• Labor groups and experts warn that technical hurdles and employment disruptions remain significant risks.
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Several automakers are investing heavily in robots in a bid to further automate operations in the future. It does not seem to matter that the current generation of humanoid robots works at a slower pace than humans, as automakers still view these machines as more cost-efficient for their factories. While Elon Musk invests heavily in Tesla’s Optimus Robots, Hyundai has big plans for incorporating robots in its United States operations in the coming years.

A recent estimate by Barclays suggests that the current humanoid robot market has a value of between $2 billion and $3 billion, which is expected to grow to at least $40 billion by 2035, as AI-powered robots are deployed.

Tesla’s CEO, Elon Musk, recently announced that the firm’s long-awaited humanoid robot, Optimus, is nearing completion. Speaking at the World Economic Forum 2026 in Davos, Switzerland, in January, Musk said that Tesla plans to “make its Optimus robots available for sale to the public by the end of 2027.” He added, “My prediction is there will be more robots than people.”

Musk expects the robots to be highly reliable, safe, and functional by this time, and, therefore, capable of performing a diverse range of tasks. If successful, Tesla will be one of the few companies offering consumers general-purpose humanoid robots for the home, at a cost of between $20,000 and $30,000.

Tesla already has some Optimus units in operation at its facilities, capable of performing basic tasks. Musk expects these robots to be able to manage more complex tasks by the end of the year, thanks to the rapid speed at which they can learn. In January, Tesla announced that it plans to carry out data collection to train its humanoid robot at its Austin Gigafactory, to teach the Optimus how to operate in the Texas facility. The firm has already been collecting data and training Optimus prototypes in its Fremont facility in California for over a year.

However, experts say that mass-producing highly capable humanoid robots is extremely complicated, and many doubt that Tesla will meet its 2027 release deadline. It is one thing to have these robots performing monotonous tasks in just one space, but it is a very different thing to create a machine that can perform a wide range of tasks in the home. Due to the uncertainties around robot production, several investors are waiting for proof that Tesla can deploy this level of technology.

Tesla is not the only automaker with big plans for robots, with Korea’s Hyundai announcing plans to roll out humanoid robots at its U.S. plant by 2028. In January, Hyundai Motor Group presented Boston Dynamics' Atlas robot at the Consumer Electronics Show in Las Vegas. The firm said it aims to construct a factory capable of producing 30,000 robots a year by 2028 and to start deploying humanoid robots at its Georgia facility that same year.

The announcement sent Hyundai’s shares soaring. However, the company’s labour union is less enthusiastic about the move, suggesting that it will spur mass layoffs. The union accused Hyundai of putting its profits above its commitment to its workers. “Under no circumstances will workers welcome the plan, as the robot deployment will bring a huge employment shock,” a spokesperson stated. “The union warns that not a single robot can be deployed at worksites without an agreement between the union and management.”

Hyundai has defended the move by suggesting that robots can be tasked with operations that are dangerous for humans. However, as robots cost relatively little to maintain and do not require sick days, vacation time, rest, or lunch breaks, the potential cost reduction is clearly attractive.

In addition to contributing to mass layoffs, many are questioning the efficiency of using robots. The Chinese firm UBTech Robotics, one of the country’s leading robotics developers, recently admitted that its latest Walker S2 humanoids are capable of just 30 to 50 percent of a human worker’s productivity, suggesting that major advancements are needed to warrant the replacement of humans with robots in production lines and other operations.

Nevertheless, orders have increased in recent months, with Chinese electric vehicle makers, such as BYD and Foxconn, experimenting with offsetting labour shortages by using humanoid robots. “You can imagine … if Tesla has the advantage of deploying their own human robots into the manufacturing line, that means maybe BYD, they are staying behind,” explained UBTech’s chief brand officer, Michael Tam.

The age of the humanoid robot is coming, as several automakers in the United States and elsewhere invest in developing the capabilities of these bots. This could eventually lead to mass layoffs, as companies use the robots to perform simple or dangerous tasks in place of humans. However, significant technical advances must still be made to enhance efficiency and produce robots that are capable of carrying out a more diverse range of tasks.

By Felicity Bradstock for Oilprice.com

Why Cutting Russia Out of India’s Oil Mix Won’t Be Easy

By Irina Slav - Feb 07, 2026

• India’s refiners rely on discounted Russian heavy crude that is difficult and costly to replace.
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• Switching to U.S. oil would raise costs and strain refinery operations.
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• Washington’s tougher stance marks a sharp reversal from the Biden-era tolerance of India’s Russian oil buying.

India imports 85% of the oil it consumes. A third of that comes from Russia—or used to come from Russia, until last November, when President Trump’s administration sanctioned the top exporters. Now, Washington is doubling down on cutting India’s oil link with Russia, but it may prove tricky for the world’s second-largest importer of oil.

“Even though India has reduced its purchase of crude oil from Russia in recent months, it is unlikely to cease all purchases immediately, which could be disruptive to India’s economic growth,” Moody’s said earlier this week in a note following the news that Washington and New Delhi had reached an agreement on a trade deal, to be signed officially in March.

President Trump announced the progress in the trade deal talks, saying the U.S. would reduce tariffs on Indian imports in exchange for a commitment on the part of New Delhi to stop buying crude oil from Russia and boost purchases of American oil instead, along with other goods and commodities.

Russia did not appear fazed by Trump’s plans. “We, along with all other international energy experts, are well aware that Russia is not the only supplier of oil and petroleum products to India. India has always purchased these products from other countries. Therefore, we see nothing new here,” Dmitry Peskov, Kremlin spokesman, told media.

India’s The Hindu also quoted an energy expert from the National Energy Security Fund of Russia as noting the difference in the properties of U.S. crude and Russian crude. “The American shale oil they export is light grades, similar to gas condensate. Russia, on the other hand, supplies relatively heavy, sulfur-rich Urals. This means India will need to blend U.S. crude with other grades, which incurs additional costs, meaning a simple substitution won't be possible,” he said.

Cost is the key word when it comes to India and crude oil imports. It is the most likely reason that while President Trump has been celebrating India’s commitment to stop buying Russian oil on social media, India itself has been in no rush to either confirm that commitment or even comment on it. Instead, Prime Minister Narendra Modi said on X that it had been “Wonderful to speak with my dear friend President Trump today. Delighted that Made in India products will now have a reduced tariff of 18%. Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement.”

That tariff reduction from 25% to 18% is contingent on India suspending purchases of Russian oil, and the omission of that part of the deal is telling. Before 2022, India imported meager volumes of Russian oil, at less than 100,000 barrels daily on average in 2021, per data from Vortex cited by the Wall Street Journal. By June 2022, that had gone up to 930,000 barrels daily. By July 2023, the average daily volume of Russian crude going into India had soared to 1.97 million barrels. In January this year, the average volume of Russian oil for India stood at 1.06 million barrels daily, per Vortexa—two months after the sanctions against Rosneft and Lukoil went into effect.

The WSJ also points out the cost consideration. U.S. crude is more expensive for Indian buyers, not least because it takes longer to ship it all the way to India from the Gulf Coast. The publication cited Vortexa analysts as saying the switch would cost Indian refiners an additional $7 per barrel, which is unlikely to sit well with most of them. In further financial challenges, “Refiners are technically capable of operating without Urals, but a rapid disengagement would be commercially challenging and politically sensitive,” one Kpler analyst told the WSJ.

This is probably why Indian refiners looking for alternatives to Russian crude have been buying a lot of Middle Eastern oil, including from Iraq, the UAE, and even from  West Africa. Analysts point to Venezuelan crude as an alternative to Russia’s heavy, sour grades, but the rate of Venezuelan production and exports is insufficient to replace Russian barrels—especially at an acceptable price. Price has always been a top priority for Indian oil importers—and the previous U.S. administration utilized this in its plans to squeeze Russia’s oil income without causing a spike in prices.

The United States under Biden had zero problem with India becoming a major oil customer of Russia. In fact, the Biden admin asked India to step up its Russian oil purchases following Russia’s 2022 incursion into Ukraine and the consequent start of sanctions. As then Treasury Secretary Janet Yellen told Reuters back then, Russian oil “is going to be selling at bargain prices and we’re happy to have India get that bargain, or Africa, or China. It’s fine.” Two years later, it stopped being fine, and now, under Trump, it is anything but fine, even as negotiations with Moscow on the fate of Ukraine continue.

By Irina Slav for Oilprice.com