US President Donald Trump, through his 25% additional tariffs on India for its Russia crude oil trade, wants to put pressure on Vladimir Putin to end the war with Ukraine – feel experts. But with its tariff rate doubled to 50%, where does Trump’s move to indirectly target Russia leave India?India is the world’s third-largest oil consumer, and has significantly stepped up its procurement of Russian crude oil since the start of the Russia-Ukraine war – attributable to the huge discounts on offer.But Trump’s move to impose double tariffs on Indian imports, aimed at penalising continued Russian oil purchases, creates challenges for India, and its refining sector.
Will India budge on Russia crude oil trade?
This situation presents a complex challenge for Prime Minister Narendra Modi – he has to keep India’s crude oil import bill under check, and also maintain diplomatic balance in India’s ties with Russia and the US, especially during times of global instability.However, the US pressure is unlikely to cause a fundamental shift in India’s policy stance.Also Read | Donald Trump’s 25% additional tariff on India: What are ‘secondary tariffs’ and how do they differ from ‘secondary sanctions’? ExplainedAccording to a Bloomberg report, the decision presents a difficult choice: acquiescing to US pressure could endanger India’s long established relationship with Russia, which is more than just about oil trade and forfeit the economic benefits currently enjoyed. Conversely, maintaining Russian oil purchases, as suggested by Modi’s resolute stance and domestic considerations, risks direct economic consequences and strained relations with the US which is India’s biggest trading partner, potentially resulting in losses that may outweigh the benefits.
Indian exports uncompetitive after 50% US tariff
Prime Minister Narendra Modi delivered a subtle message to Trump on Thursday, asserting that India’s stance on protecting its agricultural, fishing and dairy sectors remains firm, indicating his readiness to accept personal consequences if required.“Hamare liye apne kisaanon ka hit sarvoch prathamikta hai. Bharat apne kisaanon, pashu-paalakon aur macchuaare bhai-bahanon ke hiton ke saath kabhi bhi samjhuata nahin karega. (For us, the interests of farmers are our top priority. India will never compromise on the interests of its farmers, dairy farmers and fishermen),” Modi said.“Main jaanta hoon ki vyaktigat roop se mujhe bahut badi keemat chukaanee padegi. Lekin main iske liye taiyaar hoon. (I know that I will personally have to pay a heavy price. But I am ready for it),” Modi said.The current oil market conditions and diminishing discounts on Russia’s primary Urals crude theoretically provide Modi an opportunity to gradually reduce dependency on Russian oil imports, which have significantly increased since 2022. However, the practical implementation faces challenges as the opposition and party colleagues criticise US approaches, fostering nationalist sentiment.Also Read | Donald Trump’s 50% tariffs on India: What does it mean for the stock market & what should investors do? ExplainedIndia saw savings of £3.8 billion on oil purchases until March, despite reduced discounts on Russian crude, ICRA ratings agency reported. The country’s exports to the US reached approximately £87 billion in 2024.“It’s very, very unlikely that Indian oil imports from Russia will go to zero,” said Vandana Hari, founder of consultancy Vanda Insights, according to the Bloomberg report. “Everyone understands Trump’s aim is to try and pressure Putin, but to do it with a gun on India’s shoulder is not going down well with New Delhi,” Vandana Hari added.
Trump piles on pressure
Trump has insisted that India stop purchasing discounted Russian oil, which he claims is “fueling the war machine” in the Ukraine conflict. His demand stems from his dual objectives of reducing the US trade deficit with India and making progress in discussions with Russian President Putin to end the Ukrainian crisis. The 25% base line tariff rate on India is effective today, but the secondary tariff of 25% announced for India’s crude oil trade with Russia will come into effect from August 27. Experts believe that the 21 day period leaves room for negotiations between India and the US.The report said that Indian refining executives anticipate increased procurement from the US during ongoing negotiations. According to individuals familiar with procurement strategies, state-owned processors, who typically acquire Russian crude through spot transactions, are currently maintaining distance from such purchases.
Who bought Russia’s fossil fuels after EU bans
In the past week, refiners including Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. have actively participated in the spot market, sourcing various grades from alternative suppliers. These include the US, Nigeria and the United Arab Emirates, with focus on securing immediate delivery cargoes, the Bloomberg report said.For the long-term, Asian market participants anticipate Indian refineries will seek agreements with Middle Eastern oil producers, particularly Saudi Arabia and Iraq.However, without comprehensive sanctions on Russian oil, industry experts have not indicated any significant or systematic alterations to existing arrangements.India’s crude oil import patterns historically showed limited Russian imports, with primary reliance on Middle Eastern sources. This scenario transformed in 2022 following the Russia-Ukraine war and the G7 nations’ implementation of a $60-per-barrel price ceiling, designed to restrict Russian oil revenues whilst maintaining global supply flow.Also Read | ‘Extremely unfortunate’: India reacts strongly to Donald Trump’s 25% additional tariff for buying Russian oil; ‘will take all actions necessary…’Whilst India avoids sanctioned oil from Iran or Venezuela, its crude oil purchase from Russia did not come under the sanction radar, leading to increased purchases, often reducing intake from traditional suppliers including Saudi Arabia, Iraq and Nigeria. Russian oil imports, previously insignificant in India’s 2021 portfolio, now constitute approximately 37%, according to Kpler’s analysis. This positions India alongside China as main purchasers of Russian crude.
US previously supported India’s oil trade with Russia
Government officials believe that the transition prevented supply shortages and reduced elevated prices — a stance previously agreed by the US. During their India visit last year, Treasury officials portrayed the price cap as “a mechanism for India and other partners to access Russian oil at discounted prices.” They emphasised ensuring supply availability and indicated no intentions to restrict Indian purchases, the report said.The unexpected shift in Trump’s stance — without implementing additional sanctions — has puzzled the government. Officials caution that eliminating Russia from the supply chain could result in global oil prices more than doubling from current levels, reminiscent of the significant price movements in 2022.The current timing benefits India, potentially enabling a reduction in Russian imports. With oil trading below $70 and abundant supply, thanks to the Organization of the Petroleum Exporting Countries increasing market availability, there are options to expand further. This presents alternatives for India, a significant contributor to future demand growth, albeit necessitating the renewal of certain trading relationships.Also Read | Donald Trump hits India with highest 50% tariff for Russia crude oil buys – how will it impact Indian economy? Explained“If you look at the size of India’s trade with the US, and look at how much savings India gets from buying Russia crude, it’s pretty clear what India would do,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. “Are you going to risk up to $87 billion worth of exports to the US in order to save a few billion from oil discounts?”
Discounts on Russia crude have reduced
The price advantage of Russian oil has diminished considerably. Indian importers paid $4.50 per barrel less for Russian crude compared to Saudi purchases in May. This is a significant reduction from 2023, when the difference was over $23 per barrel, despite India’s cost-sensitive market.“The economic cost of shifting suppliers away from Russia is not actually that big,” said Shilan Shah of Capital Economics. “It feels like a political decision rather than an economic one. India doesn’t want to be seen caving to Trump’s demands. India and Russia have pretty longstanding trade relations, which I think India would be keen to maintain,” Shah was quoted as saying by Bloomberg.
China in focus for Russia crude oil
With the potential implementation of full tariffs, Russian producers face significant challenges in finding alternative buyers for India’s daily purchases of approximately 1.8 million barrels. Although China accepts sanctioned oil, it prioritises diverse supply sources to ensure energy security. China remains hesitant to become overly reliant on Russian crude, regardless of pricing.Nevertheless, China’s absorption of crude could help stabilise global oil markets as India reduces its purchases, given the absence of other substantial buyers.
China and India dominate Russian oil imports
“China will be very, very careful about soaking up all the Russian crude that’s being diverted from India,” Vanda Insight’s Hari said. “The oil will likely be offered at deeper discounts. But, if China absorbs a substantial amount, guess where Trump’s eye will turn next?”Trump has been asked why he has chosen to single out India for his additional penalties, given that China is the largest buyer of Russian crude. “It may happen. I don’t know, I can’t tell you yet. But we did it with India. We are doing it probably with a couple of others, one of them could be China,” he said.
