Pondering Over the Value of High Tariffs for Economical Russian Oil: Is India's Decision a Risky Trade-off?
India, the world's largest buyer of Russian crude, imported 88 million tonnes of Russian oil in 2024-25, accounting for a significant share of its total crude imports. However, this import is now facing increased U.S. tariffs aimed at reducing funding for Russia's war in Ukraine.
These tariffs could have potential economic impacts on India. They might lead to higher costs due to tariffs, causing inflation and depreciation of the Indian rupee, making imports more expensive overall. Additionally, India heavily subsidizes oil products and manages fuel taxes to ensure price stability for consumers. The tariffs could put pressure on India’s fiscal budget.
Moreover, the tariffs could potentially reduce India’s refining margins if they offset the discount advantage currently enjoyed by buying discounted Russian crude.
Despite these challenges, India is projected to maintain its current level of Russian oil imports due to the 5% price discount, making it one of the cheapest sources available. India has defended its imports, stating they are necessary for securing affordable energy and preserving strategic autonomy.
India may explore alternatives such as increasing imports from Middle Eastern countries, enhancing refinery capabilities, pursuing greater energy diversification strategies, or exploring smaller suppliers. However, these options come with their own set of challenges.
The Indian seafood sector is also under strain, with nearly $2 billion in shrimp exports facing serious obstacles in the U.S. market due to tariffs imposed by President Donald Trump. Trump announced a 25% extra tariff on Indian goods, which will now face a total duty of 50% in the U.S. market.
As the economic outlook for the year is weaker than expected, with low private investment, pressure on the middle class, hiring freezes in major firms like Tata Consultancy Service (TCS), and stagnant wages in the information technology (IT) sector, the Indian government is urged to provide urgent relief to the shrimp industry and other sectors affected by these economic issues.
The long-discussed India-US trade deal remains stalled, and Nobel Prize-winning economist Abhijit Banerjee has suggested exploring whether the United States would remove tariffs if India halted Russian oil imports. The SEAI has also urged the commerce and finance ministries for similar relief.
The additional tariff takes effect on August 27, marking one of the highest rates imposed by Trump on any country. Black Sea oil now offers a discount of only about $2 per barrel. Policy circles are discussing a potential cut in Russian crude purchases.
In summary, while the U.S. tariffs pose economic challenges to India by increasing import costs and fiscal pressures, the discounted pricing of Russian crude and strategic considerations likely mean India will continue these imports in the near term, relying more on pricing arbitrage in refining and potential shifts among other suppliers to manage supply and cost.
- The increased U.S. tariffs on Russian oil imports could impact India's economy, possibly leading to inflation, depreciation of the Indian rupee, and putting pressure on India’s fiscal budget.
- Additionally, the tariffs could potentially reduce India’s refining margins by offsetting the discount advantage currently enjoyed by buying discounted Russian crude.
- As the Indian government seeks to provide relief to sectors affected by economic issues such as tariffs, discussions about a potential India-US trade deal remain stalled, with some suggesting the U.S. might remove tariffs if India halted Russian oil imports.
