ANALYSIS - India’s Russian oil gains wiped out by Trump’s tariffs

Analysts estimate India has saved at least $17 billion by increasing oil imports from Russia since early 2022. U.S. President Donald Trump's decision to impose additional tariffs of up to 50% on Indian imports could slash exports by more than 40%, or nearly $37 billion, this April-March fiscal year alone, according to New Delhi think-tank Global Trade Research Initiative (GTRI).

The fallout from the tariffs will be lingering, and could be politically debilitating for Prime Minister Narendra Modi, with thousands of jobs at risk in labour-intensive sectors such as textiles, gems, and jewellery.

India's response in the coming weeks could reshape its decades-old partnership with Russia and recalibrate its increasingly complex ties with the U.S., a relationship Washington sees as vital to countering China’s growing influence in the Indo-Pacific, analysts said.

"India needs Russia for defence equipment for several more years, cheap oil when available, geopolitical support in the continental space and political backing on sensitive matters," said Happymon Jacob, the founder of Delhi's Council for Strategic and Defence Research. "That makes Russia an invaluable partner for India."

But he added: "Despite the difficulties between Delhi and Washington under Trump, the United States continues to be India’s most important strategic partner. India simply doesn’t have the luxury of choosing one over the other, at least not yet."

Two Indian government sources said New Delhi wants to repair ties with Washington and is open to increasing purchases of U.S. energy but is reluctant to fully halt Russian oil imports. Discussions with the U.S. are ongoing, India’s foreign secretary told reporters on Tuesday, with officials from both countries holding virtual talks on trade, energy security including nuclear cooperation, and critical minerals exploration.

CRUDE AT $200/BBL?

Russian crude now accounts for nearly 40% of India’s total oil purchases from nearly nothing before the war, and analysts say any immediate stoppage would not only signal capitulation under pressure but also be economically unfeasible. Indian purchases are led by billionaire Mukesh Ambani's Reliance Industries, which operates the world's largest refining complex in Modi's home state of Gujarat.

Global crude prices could more than triple to around $200 a barrel if India, the world’s third-largest oil consumer and importer, stops buying oil from Russia, according to internal Indian government estimates reviewed by Reuters. It would also lose the up to 7% discount Russian oil offers compared to global benchmarks.

In an unusually sharp statement this month, India accused the U.S. of double standards in singling it out for Russian oil imports while itself continuing to buy Russian uranium hexafluoride, palladium and fertiliser. New Delhi says other countries that have stepped up purchases of Russian oil, like China, have not been penalised.

U.S. Treasury Secretary Scott Bessent has accused India of profiteering from its sharply increased purchases of Russian oil and called it unacceptable. He told CNBC in an interview last week that unlike India's surge in Russian oil imports after the start of the war in Ukraine, China's purchases had increased to 16% from 13%.

India's foreign ministry has said its crude imports from Russia are "meant to ensure predictable and affordable energy costs to the Indian consumer. They are a necessity compelled by the global market situation".

New Delhi warns that halting Russian oil imports, which is currently around 2 million barrels per day, would disrupt its entire supply chain and send domestic fuel prices soaring. It has said the previous U.S. administration under Joe Biden had backed its purchases of Russian oil to keep global prices stable.

Russia has said it expects India to keep buying oil from it.

Modi has not directly commented on the tariffs but has repeatedly pledged support for India’s farmers - seen as a veiled response to Trump’s demands to open up India’s vast agricultural sector.

Farmers are a key voting bloc, and Modi faces a tough election in the rural state of Bihar later this year. He has also pledged major cuts in a goods and services tax by October to lift domestic demand.

TRILATERAL TIES

In a flurry of diplomatic activity aimed at multipolarity, senior Indian officials have travelled to Russia in recent days, while Modi is set to visit China this month for the first time in over seven years. India-China relations began thawing about a year ago, following a deadly border clash in 2020.

Modi is expected to meet both Chinese President Xi Jinping and Russian President Vladimir Putin at a summit meeting starting on Sunday of the Shanghai Cooperation Organisation, a regional security bloc. But the sources said India is still very cautious in its relations with China and not yet considering a trilateral summit between the three leaders, as hoped by Russia.

Other countries could take their cue from how India reacts to the U.S. tariffs, experts said.

"The key takeaway for other countries is that if India - an emerging major economic and military power - is under immense pressure from the U.S., they might have even less capacity to withstand American pressure," said Jacob, the analyst.

"Additionally, some might interpret the current dynamics as indicating that China could potentially serve as a counterbalance, especially given Trump’s unpredictable and aggressive geopolitical moves."

International relations experts say Trump's recent moves have plunged the U.S.-India relationship back to possibly its worst phase since the U.S. imposed sanctions on India for nuclear weapons tests in 1998. Besides trade, the row could affect other areas like work visas for Indian tech professionals and offshoring of services.

And even if India is able to eventually get some of the tariffs reversed, several consequences will linger, especially in trade.

"Competitors like China, Vietnam, Mexico, Turkey, and even Pakistan, Nepal, Guatemala, and Kenya stand to gain, potentially locking India out of key markets even after tariffs are rolled back," said GTRI founder Ajay Srivastava, a former Indian trade official.