Trump Increases Tariff on Indian Imports Due to Buying of Russian Oil
India's ongoing purchases of discounted Russian oil have significant financial and geopolitical implications. The country is currently in a delicate position, balancing its energy needs with diplomatic relations with both Russia and the United States.
Russia, India's largest seaborne crude oil buyer according to Reuters, began offering discounted oil prices after western sanctions in 2022 for its invasion of Ukraine. This has allowed India to refine some oil for domestic production while exporting and profiting from the remaining oil.
However, former U.S. President Donald Trump threatened a 25% tariff rate against India for its business with Russia and even suggested an additional "penalty" unless a peace agreement in the Russia-Ukraine war was reached. The new tariff rate for India remains unknown.
India's energy minister, Hardeep Singh Puri, stated that buying Russian oil helped level out global prices. Despite the tariff threats, India's main refiners paused their purchases of Russian oil last week, but the country has maintained long-term contracts with Russia.
Economically, India faces a substantial increase in its crude oil import bill if it ceases buying discounted Russian oil. Estimates suggest an additional $9–12 billion annually. The U.S. imposing up to a 50% tariff on Indian goods could also jeopardize India's $87 billion export market in the U.S., potentially harming key sectors like textiles, gems, and leather.
Geopolitically, India is maintaining a strategic balance by securing energy needs affordably from Russia while managing diplomatic relations with the U.S. The U.S. tariffs aim to pressure India to curtail support for Russia, which finances its war efforts in Ukraine. However, India’s stance suggests it prioritizes energy security and cost-effectiveness, even while negotiating with the U.S. to safeguard broader economic interests and trade relations.
The long-term implications include higher fuel costs and inflationary pressures within India if it shifts away from cheaper Russian crude to more expensive Middle Eastern suppliers like Iraq, Saudi Arabia, and UAE. There could also be a strain in India-U.S. trade relations, as India risks losing favorable access to the large U.S. market due to punitive tariffs tied to its Russian oil import policy.
Indian refiners may also face challenges, as they may have to find new buyers for petroleum products if U.S. and European sanctions limit access to their current markets linked to Russian oil processing. Geopolitically, India finds itself in a delicate position, caught between Western sanctions aligned against Russia and its own energy security and strategic partnerships. This may lead New Delhi to pursue a nuanced foreign policy that resists full alignment with U.S. demands.
In essence, India faces a costly trade-off between energy affordability and economic access to Western markets, alongside maintaining its geopolitical autonomy amid escalating U.S.-Russia tensions. The continuing strategy of buying discounted Russian oil, even under U.S. tariffs, underscores India's prioritization of energy security and price stability over full compliance with U.S. sanctions, at least in the near to medium term.
Sources:
- Bloomberg
- Forbes
- The Diplomat
- The Indian Express
- The Economic Times
- The ongoing purchase of discounted Russian oil by India has significant implications for both politics and industry, as former U.S. President Trump threatened a 25% tariff rate against India for its business with Russia.
- In the face of tariff threats, India's main refiners have paused their purchases of Russian oil while maintaining long-term contracts, highlighting the delicate balance between energy needs, diplomatic relations, and trade.
- If India ceased buying discounted Russian oil, it could experience a substantial increase in its crude oil import bill and potentially harm key sectors like textiles, gems, and leather due to U.S. tariffs on Indian goods.
- The long-term strategy of buying discounted Russian oil, even under U.S. tariffs, suggests that India prioritizes energy security and price stability over full compliance with U.S. sanctions, driven by both economic and geopolitical concerns.
