Economic analysts predicted this week that the money India saved by importing huge amounts of discounted Russian oil will be more than wiped out by President Donald Trump’s punitive tariff increase, which took effect Wednesday.
Reuters quoted an analysis from the New Delhi-based Global Trade Research Initiative (GTRI) that found India saved at least $17 billion by purchasing discounted Russian oil after the invasion of Ukraine began in 2022.
On the other hand, Trump’s tariffs – which include a 25 percent general rate plus the 25 percent punitive tariff for buying Russian oil that kicked in on Wednesday – will cost India almost $37 billion in the coming fiscal year.
This hefty price tag might just be enough to prod India to cut back on its Russian oil purchases, although it is unlikely to halt them completely, and New Delhi will not want to jeopardize its longtime diplomatic and military relationship with Moscow.
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“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. That makes Russia an invaluable partner for India,” said Happymon Jacob, founder of the Council for Strategic and Defense Research in New Delhi.
“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,” Jacob told Reuters.
India bought very little oil from Russia before the war began, but after Russia’s other customers stopped buying its products and imposed sanctions over Ukraine, India began gobbling up Russian crude at fire-sale prices.
India now gets about 40 percent of its oil from Russia and faces allegations from its Western allies that its voracious appetite for Russian energy products is funding Vladimir Putin’s war machine.
The government of Prime Minister Narendra Modi rejects these allegations, angrily accusing the United States and Europe of having “double standards” because the Europeans still buy some Russian products.
India has also been pointing out that President Trump’s predecessor actively encouraged the Indians to buy Russian oil after Russia invaded Ukraine, to keep world oil prices stable. India has previously been responsive to U.S. requests to avoid doing business with sanctioned countries, as when Indian refineries stopped buying Iranian oil in 2018 at the behest of the first Trump administration.
“Joe Biden went to India after the invasion of Ukraine and begged them to take Russian oil, the Indians hardly imported any Russian oil, and they begged India, ‘please take the oil,’ so that crude prices would remain low, and they did. Now we’re flipping around and saying, ‘why are you taking all this oil,’” former George W. Bush energy adviser and Rapidan Energy Group president Bob McNally told CNBC on Wednesday.
An oil industry source warned CNBC that if India stops buying oil from Russia, which is the third largest producer of crude in the world after the United States and Saudi Arabia, India will have to shift its demand to other sources – and the result could be global prices jumping to more than $200 per barrel. When the Biden administration urged India to start buying Russian oil, it was worried about a potential increase to $130 per barrel.
SVB Energy International president Sara Vakhshouri hinted to CNBC that Trump’s tariffs were an aggressive “negotiation tactic,” and Trump’s true goal could be getting India to shift a sizable amount of its oil business from Russia to American suppliers.
“India has always coordinated closely on U,S, oil policy, including sanctions on Iranian oil. At the same time, for the Trump administration, energy security, affordability, and reliability are priorities,” Vakhshouri said, sensing the outlines of a deal where India reduces its cash outflow to Russia without entirely eliminating it, and making up the difference with other trade concessions to the United States.
Although India has profited greatly from Russian oil discounts over the past few years, Indian energy officials say the discounts have been greatly reduced — which could be a way of signaling they are open to shifting some of that business away from Russia, but not all of it.
Former Indian ambassador to the U.S. Arun Singh told the Hindu that India’s longstanding friendship with Russia is an issue, at least as much as the dollar value of Russia’s oil discounts.
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“At the global level, Russia is not Iran,” Singh said, alluding to India’s willingness to stop buying Iranian oil six years ago. “We want Russia, as one of the major powers in the international context, to be an important partner of India, and there’s a memory in India of Russia in the past having provided political support [and] defense technology that nobody else was willing to provide.”
“Because of what President Trump has done in India, there’s a resurrection of the old and bitter memories of the U.S. So President Trump and the U.S. may feel that they are putting some penalties on India, high tariffs, I would say that they are putting high tariffs and penalties, less on India, and more on the U.S.-India relationship,” Singh said.
Prime Minister Narendra Modi sent signals along these lines on Friday, when he strongly implied Trump’s tariffs were pushing India to seek a closer relationship with its regional rival China.
“Given the current volatility in the world economy, it is also important for India and China, as two major economies, to work together to bring stability to the world economic order,” Modi said from Japan, as he prepared to depart for the Shanghai Cooperation Organization (SCO) conference in China this weekend.
“Stable, predictable, and amicable bilateral relations between India and China, as two neighbors and the two largest nations on Earth, can have a positive impact on regional and global peace and prosperity,” he said.
Modi plans to meet with both Chinese dictator Xi Jinping and Russian President Vladimir Putin at the SCO summit. He and Putin will then be Xi’s guests at China’s huge military parade on September 3 to mark the 80th anniversary of victory in World War II.
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