India faces a tough choice as the US imposes a 50% tariff on Indian goods over Russian oil trade. With $87B in US exports at stake and shrinking oil discounts from Russia, experts say the issue is now more political than economic.
India is in a difficult situation right now. The United States has imposed a very high 50% import tax (called a tariff) on many Indian goods. Half of this tax is meant to punish India for continuing to trade with Russia. The US is using these high taxes as a way to put pressure on Russia to stop the war in Ukraine. But in the process, India is also getting hurt, say experts.
Understanding India’s Oil Trade with Russia
Last year, India saved about $3.8 billion by buying cheaper oil from Russia, thanks to special discounts, according to ICRA (a rating agency), reported by Bloomberg. However, during the same time, India exported goods worth $87 billion to the United States—a much larger amount compared to what it saved through Russian oil deals.
Experts also point out that India didn’t usually buy much oil from Russia in the past. Until 2021, most of India’s oil used to come from the Middle East, not Russia. Things changed in 2022 when Russia attacked Ukraine. In response, the Group of Seven (G7) countries put a limit on the price of Russian oil—no more than $60 per barrel. This move was meant to reduce the money Russia earns from oil.
Under this rule, India was allowed to buy Russian oil at lower prices. As a result, India started buying more and more oil from Russia, the report said. India’s decision to buy more oil from Russia meant it started buying less from its usual suppliers like Saudi Arabia, Iraq, and Nigeria.
Now, Russia supplies about 37% of all the oil India buys, says data firm Kpler. This makes India one of the biggest buyers of Russian oil, along with China. Officials say that India increased oil purchases from Russia to make sure there’s no shortage of oil in the country and to keep fuel prices from going too high.
Until recently, the United States didn’t seem to have a problem with India buying cheaper oil from Russia. During a visit to India last year, US Treasury officials said the price cap was made to help countries like India buy Russian oil at lower prices. They didn’t say anything about stopping India from doing so. But now, experts say that US President Donald Trump’s sudden change in stance has surprised India and caught it unprepared.
What Experts Say
According to expert Vandana Hari, Trump is clearly trying to put pressure on Russian President Putin. But she told Bloomberg (as reported by Hindustan Times) that doing it by putting pressure on India is not fair, and India is not happy about it.
Warren Patterson, a top expert from ING in Singapore, said something important: If you compare the huge amount India earns by exporting goods to the US (around $87 billion) with the smaller savings from buying cheap oil from Russia (about $3.8 billion), the answer is obvious.
He said, “Will India really risk losing $87 billion in trade with the US just to save a few billion on oil?” — clearly suggesting that India might rethink its oil deals with Russia to protect its larger trade with America.
Can India Stop Buying Oil from Russia?
Right now, oil prices are below $70 per barrel, and there is plenty of oil available in the global market, the report said.
In May this year, Indian buyers were saving only about $4.50 per barrel on Russian oil compared to oil from Saudi Arabia. But in 2023, the discount was much bigger—more than $23 per barrel.
So, experts say the savings from Russian oil are not as big as before, which means India could reduce or even stop buying from Russia if needed.
India Can Shift from Russian Oil
This means that, in theory, India can stop buying oil from Russia without facing major problems. According to Shilan Shah from Capital Economics, the cost of switching to other oil suppliers is not very high. So, India can manage the change if it decides to do so.
It’s More About Politics Than Money
Experts say this issue seems more political than economic.
India doesn’t want to look like it is giving in to Trump’s pressure. Also, India and Russia have had strong trade ties for many years, and India would likely want to keep that relationship going.
How Are Indian Oil Buyers Reacting? – Explained Simply
Right now, Indian oil companies are confused about where to buy oil from, because the government hasn’t given any clear instructions yet, says a Bloomberg report.
Some state-owned oil companies, which usually buy Russian oil through quick, short-term deals, are already being cautious and waiting, according to people who spoke to Bloomberg but didn’t want to be named.
(Girish Linganna is an award-winning science communicator and a Defence, Aerospace & Geopolitical Analyst. He is the Managing Director of ADD Engineering Components India Pvt. Ltd., a subsidiary of ADD Engineering GmbH, Germany. Contact: [email protected] )
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