Explainer: Donald Trump's 50% tariffs - will India budge on Russia crude oil trade?
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'? Explained
According 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.
by Taboola
by Taboola
Sponsored Links
Sponsored Links
Promoted Links
Promoted Links
You May Like
Huge crater swallows land. At the bottom, police find something that leaves them speechless.
Plays Star
Undo
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? Explained
India 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.
Stay informed with the latest
business
news, updates on
bank holidays
and
public holidays
.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Mint
24 minutes ago
- Mint
What happens when politicians meddle with economic data: Argentina's example
Government statistician Graciela Bevacqua arrived at the office on a Monday to bad news from her boss: There was no easy way to say this, but the president wanted her head. It was January 2007, and Bevacqua oversaw the consumer-price index at Argentina's national statistics agency, Indec. Rising inflation threatened the electoral hopes of leftist President Néstor Kirchner's wife, Cristina Fernández de Kirchner, who was running to succeed him. Bevacqua was unwilling to fudge the numbers, so Kirchner replaced her with a loyalist who did it. Echoes of the Argentine saga have reverberated in the U.S. since President Trump fired Erika McEntarfer, commissioner of the Bureau of Labor Statistics, on Aug. 1 after big downward revisions to jobs data. He accused the bureau of rigging the data to make Republicans look bad but provided no evidence, and independent economists dismissed the allegation. 'This is the sort of thing only the worst populists do in the worst emerging economies," economist Phil Suttle said of McEntarfer's dismissal in a note to clients. Although Argentina is an emerging economy, its statistics agency was regarded as professional and independent, and governed by a solid legal framework. That makes its experience a useful lesson in what awaits the U.S. if new leadership politicizes economic data. Following Bevacqua's removal, Argentina's officially reported inflation rate fell to 8.5% in 2007 from 9.8% in 2006. Fernández de Kirchner easily won the election, and the government initially saved billions of dollars in interest on inflation-linked bonds which could be spent on social programs and subsidies. In reality, inflation had accelerated to around 25%, private economists estimated. The government faced lawsuits from unions and pensioners whose social-security checks were indexed to inflation. Some of the government's savings on inflation-linked bonds were offset by higher payments on debt tied to gross domestic product, which came in artificially high. 'It started to become a huge mess," said Alberto Cavallo, an Argentine economist teaching at Harvard University who created a website that tracked inflation based on publicly available prices to fill the void left by Indec. Users bombarded him with all sorts of questions over email, like how much to adjust settlement payments to an ex after a divorce. 'The examples add up, and you end up realizing how important some of these statistics are," he said. Cristina Fernández de Kirchner became Argentina's president in 2007, succeeding her husband, Néstor Kirchner. In the U.S., trustworthy economic data are central to determining how much people pay in taxes, receive in retirement benefits and earn on some investments. Along with an independent Federal Reserve, they also underpin the dollar's reserve-currency status, as well as roughly $120 trillion in stocks and bonds. It is unclear how far Trump intends to go in overhauling the BLS or its sister agencies. Kevin Hassett, Trump's National Economic Council director, has said that the president 'wants his own people there, so that when we see the jobs numbers, they are more transparent and reliable." On Tuesday, the BLS will report the CPI for July, its first major release since McEntarfer was fired. Trump had told reporters last Sunday that he planned to announce a new BLS commissioner 'sometime over the next three or four days" but hasn't yet done so. 'This is the most important selection in the history of the BLS," said William Beach, McEntarfer's Trump-appointed predecessor. Beach, who has called her firing 'totally groundless" and a 'dangerous precedent," said that to 'heal this, you would have to have an appointment of a person whose reputation for honesty and integrity is beyond question. You would have to have a unanimous vote in the Senate for that confirmation." If new appointees are perceived as partisan, that would likely erode the agencies' credibility. Market participants would take positive economic data with a grain of salt and presume negative data masked an even worse reality. The ability of the Fed and other policymakers to respond to changes in the economy would be compromised. 'You can't hide the fact that people are out of work and prices are changing, but without direct measurement of those things that are officially collected and that everyone has equal access to, it really would be sort of a Dark Ages situation," said Brent Moulton, a former associate director of the Commerce Department's Bureau of Economic Analysis, which calculates GDP, personal income and several other data series. Institutional checks exist to guard against outright manipulation. Mishandling economic statistics or improperly accessing the confidential information used to compile them is a felony. In addition, dozens of career staff work on major releases like the monthly jobs report, inflation data and GDP who would likely blow the whistle if data were mishandled, former officials said. But Argentina had similar legal protections around Indec, which survived a military dictatorship, hyperinflation and economic meltdowns and was considered a model statistics agency in Latin America. More than 100 staffers worked on the inflation index, Bevacqua said. 'The index had so many safeguards, it seemed impossible to me that someone could manage to change the numbers," Bevacqua said. 'Not only did that happen, but they stayed for many years, and part of the institution is still recovering." After Bevacqua was removed, political appointees changed the methodology for items that had jumped in price from December 2006 to January 2007. These included lettuce, health insurance and hotels, Argentine prosecutors said in an investigation report. Argentina's economic woes were the result of more than data manipulation. Price controls, capital controls and exchange-rate controls distorted economic incentives and led to even more interventions. The central bank lacked de facto independence and kept interest rates too low to bring inflation under control. Argentina stopped manipulating the data in 2015 after Fernández de Kirchner left office, and started a new inflation series that began in June 2016. It is now regarded as credible. The minister who spearheaded the politicization of Indec in 2007, Guillermo Moreno, was recently sentenced for manipulating the inflation data to three years of 'conditional" prison—akin to probation—and banned from public office for six years. Inflation continued to climb, dooming the Kirchners' political movement. Argentines elected libertarian Javier Milei president in 2023 on a platform of radical economic liberalization. Inflation, which peaked at 289% last year, was down to 39% as of June. Bevacqua said it is too soon to compare the situation at BLS to Indec. A key difference: Political appointees in the Kirchner administration had been making unusually detailed information requests about the inflation data for at least a year before they fired her, she said. 'I think the U.S. has strong institutions," she said. 'But it could be a sign. You never know."
Hindustan Times
24 minutes ago
- Hindustan Times
India shooting down Pakistani aircraft from 300kms dealt huge psychological blow: Military officials
Air Chief Marshal Amar Preet Singh's comment about the Indian Air Force downing a large Pakistani aircraft from a distance of around 300 km reflected its unprecedented air superiority that dealt a "huge" psychological blow to Pakistan during Operation Sindoor, military officials have said, reported PTI. Chief of the Air Staff Air Chief Marshal A. P. Singh speaks on Operation Sindoor at the Air Chief Marshal LM Katre lecture, in Bengaluru on Saturday.(ANI) During an event on Saturday, Air Chief Marshal Amar Preet Singh said that the one large Pakistani aircraft destroyed during Operation Sindoor was taken down from a distance of 300 kilometres, the longest-ever recorded surface-to-air kill. He had also confirmed that India shot down five Pakistani fighter jets during Operation Sindoor – India's response to April 22 terror attack in Jammu and Kashmir's Pahalgam. Also Read | 'Your turn will come': What PM Modi told Naval chief soon after India-Pak ceasefire "It is significant as there is no publicly available information of a surface-to-air missile bringing down such an asset at a distance of 300 kms or beyond," the senior military official told PTI on condition of anonymity. Another official told PTI that the strike dealt a 'massive psychological, strategic and tactical blow' that will be difficult for Pakistan to overcome. Also Read | 'In Operation Sindoor, we played chess': Army chief on military operation against Pakistan "The kill showed we can reach every corner of Pakistan," he said, while adding that the induction of Russian S-400 air defence missile systems helped India enhance its air dominance. According to PTI, the officials also pointed out how India managed to hit multiple Pakistani installations while jamming its communication systems. India's Operation Sindoor India launched Operation Sindoor in the early hours of May 7 when the military hit nine terror camps inside Pakistan and Pakistan-occupied Kashmir (PoK), killing more than 100 terrorists. It was New Delhi's direct military response to the April 22 Pahalgam terror strike that killed 26 people. The operation triggered four days of strikes and counterstrikes with drones, missiles and long-range weapons before the two sides reached an understanding on stopping all military action on May 10.
Time of India
24 minutes ago
- Time of India
Ex Intel directors advocate massive shake up as Trump guns for CEO Tan
Academy Empower your mind, elevate your skills In a rare joint statement, four former Intel board members have called for a major restructuring at the chipmaker. Charlene Barshefsky, Reed Hundt, James Plummer, and David Yoffie urged shareholders to call for spinning off Intel Foundry—its manufacturing arm—into an independent company, with its own CEO and board, to restore competitiveness and address national security statement to Fortune comes close on the heels of US president Donald Trump calling for Intel CEO Lip-Bu Tan to resign immediately, over his Chinese ex-directors emphasised that the decision on Tan's future rests with Intel's board and shareholders, but argued that only a decisive break from the current structure could reverse years of underperformance. Intel has cycled through four CEOs in seven years with limited progress, they has two main businesses—the Foundry, which fabricates chips for Intel and third parties, and Intel Products, which produces processors for personal computers and servers, networking equipment, and software. While both verticals are vital for computing, the Foundry's advanced semiconductor manufacturing capabilities are critical to US national security and have been at the forefront of trade talks between Trump and his Chinese counterpart, Xi four ex-directors said separating the chip fabrication unit would make it more agile and competitive against rival TSMC. They also urged that remaining CHIPS Act funds be directed toward the new entity to boost its capabilities and attract orders from US chip design a move, they argued, would strengthen America's position in producing cutting-edge chips for commercial and defence needs, providing a viable alternative to TSMC and ensuring the nation retains control over critical semiconductor supply chains. The former directors called on shareholders to press for the split as the necessary step to secure Intel's future and the country's technological Thursday, Trump posted on Truth Social platform that Intel CEO Tan is 'highly conflicted', referring to his connections with Chinese companies, and and demanded his immediate Trump's salvo, Republican senator Tom Cotton sent a letter to Intel Chairman Frank Yeary expressing concern over Tan's investments and ties to semiconductor firms that are reportedly linked to the Chinese Communist Party and the People's Liberation Army. He enquired whether Tan had divested his interests in these companies to eliminate any conflicts of to demand for his resignation, Tan said he has "always operated within the highest legal and ethical standards". In a message to Intel employees, Tan clarified that there was misinformation circulating about his past roles at Walden International and Cadence Design Systems and that he's always followed proper standards.
