How Trump tariffs could impact India's oil purchase from Russia: Explained

Russia makes for around a whopping 37 per cent of India’s total oil imports, making it one of its two top buyers along with China

India finds itself in a tight spot as it faces United States’ crushing 50 per cent tariffs, half of which are a punishment for doing business with Russia. While the US move comes as a strategy to pressurise Russia into stopping the war with Ukraine, it is India which is at the receiving end too, analysts say.

Moving away from purchasing oil from Russia may have political repercussions for India as it could be seen as giving into the US’ pressure. (AP)

Understanding India’s oil trade with Russia

In the last fiscal year, India saved around $3.8 billion on its oil purchases on discounted prices from Russia, according to Investment Information and Credit Rating Agency (ICRA), reported Bloomberg. However, its exports to the US in 2024 touched around $87 billion, a far bigger figure.

India was never a big Russian oil purchaser traditionally, and even until 2021, and mostly depended on the Middle-East, the report said.

That changed in 2022 when Russia invaded Ukraine and the Group of Seven (G7) nations placed a price cap on Russian oil at $60 per barrel, aiming to curb Moscow’s oil revenues. India was allowed to buy under this cap, which made the Russian oil available at discounted prices, and went on to increase its oil purchase from Russia, added the report.

This came at the expense of its traditional oil suppliers such as Saudi Arabia, Iraq and Nigeria.

Today, Russia makes for around a whopping 37 per cent of India’s total oil imports, according to Kpler, a data analytics firm, making India one of Russian crude’s two top buyers along with China.

Officials have said the move to increase oil imports from Russia was aimed at avoiding a supply shortage and to keep prices from inflating too much.

Until recently, the US seemed comfortable with this approach. While visiting India last year, US Treasury officials said the price cap was “a mechanism for India and other partners to access Russian oil at discounted prices” and did not express any intention to curb India’s Russian oil purchase. However, Trump’s distance from this position has caught India off-guard, say experts.

What experts say

“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,” Bloomberg quoted Vandana Hari, founder of consultancy Vanda Insights, as saying.

Looking at the difference between how much India benefits from Russian oil purchase and how much it exports to the US, Warren Patterson, head of commodities strategy at ING Groep NV in Singapore, said, “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… 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?”

Can India stop purchasing oil from Russia?

At present, the crude prices are below $70 and global supply is ample, the report said. In May, Indian buyers were paying only $4.50 less per barrel for Russian crude compared to the oil it imported from Saudi Arabia. This was a huge drop from 2023, when the discount exceeded $23 a barrel.

This means that theoretically India could move away from Russian oil imports without much hurt.

According to Shilan Shah of Capital Economics, the cost of shifting suppliers away from Russia is “not actually that big”.

“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,” he said.

How are Indian oil buyers reacting

The Indian oil company executives are unsure at the moment on where to purchase the oil from, since no clear instructions have been given so far by the government, the Bloomberg report said.

State-run oil companies, which usually buy Russian oil through spot deals, are “already staying on the sidelines”, people familiar with the matter told Bloomberg on condition of anonymity.

(With inputs from Bloomberg)