With US President Donald Trump doubling the tariff on Indian items to 50 per cent, economists assume India can afford to cut back its buy of Russian oil because of the narrowing of the low cost on provide and diversify its sourcing.
From round 2 per cent previous to the invasion of Ukraine in February 2022, the share of Russian oil in India’s oil imports has elevated sharply to 35-40 per cent, with Indian refiners lapping up discounted Russian oil that was shunned by developed nations. Nonetheless, the tariff warfare instigated by Donald Trump – initially with a concentrate on addressing the US’ commerce deficit with different nations – has seen the imposition of so-called secondary tariffs on India for its buy of Russian power and defence tools. On July 30, Trump threatened a 25 per cent on India and a further unspecified ‘penalty’ for its Russian commerce. On Wednesday, the penalty was revealed to be an extra 25 per cent tariff on Indian items that can come into impact on August 27.
Based on Barclays economists led by Aastha Gudwani, the acquisition of discounted Russian oil helped decrease India’s oil import invoice by round $7 billion-10 billion in 2024 to $186 billion.
“As of now, the low cost on oil imports from Russia having narrowed to round $3-8/barrel decrease than Center japanese grade. Media stories counsel that Indian refiners can be pushed to pivot in direction of conventional West Asian suppliers and new gamers resembling Brazil to make up for misplaced Russian provides, with value will increase round $4-5/barrel. With world oil costs in 2025 to date settling round $9/barrel decrease than 2024, such a diversification of oil provide sources is unlikely to harm India’s oil import invoice,” they added.
In the meantime, Nomura economists Sonal Varma and Aurodeep Nandi estimate the implied low cost on Russian crude oil for Indian refiners declined to round $2.2 per barrel in 2024-25 from over $12 per barrel in 2022-23. As such, if India chooses to cut back its buy of Russian oil, India’s annual import invoice might solely rise by round $1.5 billion, they calculated.
Morgan Stanley economists have been in settlement, estimating that the low cost India received on Russian crude oil in 2024-25 was solely $2-3 per barrel.
Permutations’ secondary affect
To make sure, Indian refining firms started reducing their buy of Russian oil even previous to Trump’s risk of a ‘penalty’. In July, India’s crude imports from Russia averaged 1.6 million barrels per day, as per knowledge from Kpler, a worldwide commerce knowledge and analytics agency, down 24 per cent from June.
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Nonetheless, a transfer by India to obtain extra oil from international locations aside from Russia may push up costs globally, which might elevate the import invoice. Whereas troublesome to estimate, Nomura economists assume that given India imported 1.8 billion barrels of oil in 2024-25, India’s annual import invoice may rise by round $1.8 billion for each $1 improve in world crude costs.
“Domestically, the federal government will possible hold pump costs fixed, which suggests there may be more likely to be minimal inflation and progress affect from any shift in oil procurement. This additionally implies that the final word value of any transition will almost certainly must be borne by public sector oil advertising firms, and ultimately by the federal government if it must compensate them for these under-recoveries at a later stage,” Nomura mentioned, including that it didn’t see a “main upside threat” to the Indian authorities’s fiscal deficit goal of 4.4 per cent of GDP for the present fiscal.
In the meantime, diminished demand for Russian oil from Indian refiners, particularly state-run ones, is already starting to mirror in costs, with Homayoun Falakshahi, head of crude oil evaluation at Kpler, stating on Wednesday that personal refiners have been “nonetheless scooping barrels, however at a decrease tempo. 4 Aframaxes are presently ready to discharge at Jamnagar and Vadinar”. An aframax is a kind of oil tanker.
Based on Falakshahi, India’s negotiations with the US may result in New Delhi agreeing to lift its oil and gasoline purchases. The power commerce between the 2 international locations is price round $7.5 billion a yr.
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“This has already began to be the case, with the nation’s imports of US crude on the rise these days to a median of 225 kbd (thousand barrels per day) since Could, almost twice as a lot the degrees from early 2025. Indian refiners may realistically improve their consumption of US crude by one other 100 kbd to earlier highs of ~300 kbd in 2021,” Falakshahi mentioned. Nonetheless, he added he was sceptical that India will be capable of fully cease the import of Russian oil.