India has saved billions of dollars by increasing imports of cheaper Russian oil after the outbreak of the war in Ukraine, but punitive tariffs imposed by the United States on Tuesday will quickly wipe out those gains, with no easy solutions in sight, Reuters reports.
Analysts estimate that India has saved at least $2022 billion since the beginning of 17 by increasing its imports of Russian oil. US President Donald Trump's decision to impose additional tariffs of up to 50 percent on Indian exports could reduce exports by more than 40 percent, or almost $37 billion, in this fiscal year alone, from April to March, according to an analysis by the Global Trade Research Initiative (GTRI) in New Delhi.
Reuters reports that the effects of the tariffs will last and could seriously weaken Prime Minister Narendra Modi politically, given that thousands of jobs are at risk in sectors that employ a large number of people, such as textiles, gems and jewelry.
India's response in the coming weeks could reshape its decades-long partnership with Russia and reexamine its increasingly complex relationship with the United States - a relationship that Washington sees as crucial to countering China's growing influence in the Indo-Pacific, analysts say.
"India will need Russia for years to come for its military hardware, cheap oil when it is available, geopolitical support on the continent and political backing on sensitive issues," said Happymon Jacob, founder of the Delhi-based Council for Strategic and Military Studies. "That is why Russia is an indispensable partner for India."
However, he added: "Despite the difficulties in Delhi-Washington relations under Trump, the US remains India's most important strategic partner. India simply does not have the luxury of choosing between one or the other, at least for now."
Two Indian government sources said New Delhi wants to improve relations with Washington and is open to increasing purchases of American energy, but is hesitant to completely stop importing Russian oil. Talks with the United States are ongoing, India's foreign minister told reporters on Tuesday, adding that officials from both countries are holding virtual meetings on trade, energy security, including nuclear cooperation, and exploration for key minerals.
Global oil prices could triple to around $200 a barrel if India, the world's third-largest oil consumer and importer, stops buying Russian oil.
Russian oil now accounts for nearly 40 percent of India’s total oil purchases, up from a negligible share before the war. Analysts say any sudden cut in imports would not only look like a capitulation to pressure, but would also be economically unsustainable. The bulk of India’s purchases are led by billionaire Mukesh Ambani’s Reliance Industries, which operates the world’s largest refinery complex in Modi’s home state of Gujarat.
Global oil prices could triple to around $200 a barrel if India, the world's third-largest oil consumer and importer, stops buying Russian oil, according to internal Indian government estimates seen by Reuters. It would also lose the discount of up to XNUMX percent that Russian oil offers compared to global stock market prices, the British agency said in an analysis.
In an unusually strong statement this month, India accused the United States of double standards for singling it out for importing Russian oil while continuing to buy Russian uranium hexafluoride, palladium and fertilizer. New Delhi says other countries that have also increased their purchases of Russian oil, such as China, have not been punished.
US Treasury Secretary Scott Besant has accused India of profiting from a surge in Russian oil purchases, calling it unacceptable. He told CNBC last week that, unlike India's surge in Russian oil imports after the war in Ukraine, Chinese purchases have increased from 13 percent to 16 percent.
India's foreign ministry said the import of Russian oil "is intended to ensure predictable and affordable energy costs for Indian consumers. This is a necessity forced upon us by the global market situation."
New Delhi warns that halting Russian oil imports, which currently stand at around two million barrels per day, would disrupt the entire supply chain and lead to a sharp rise in domestic fuel prices. It also said that the previous US administration under Joe Biden supported India's purchases of Russian oil to keep global prices stable.
Russia has said it expects India to continue buying its oil.
Modi has not directly addressed the tariffs, but has repeatedly pledged support for Indian farmers, which is being interpreted as a veiled response to Trump's demands that India open up its vast agricultural market.
Farmers are a key voter base, and Modi faces tough elections in the rural state of Bihar later this year. He has also promised a significant cut in the goods and services tax by October to boost domestic demand.
In a flurry of diplomatic activity aimed at multipolarity, senior Indian officials have traveled to Russia in recent days, while Modi is set to visit China this month for the first time in more than seven years. India-China relations began to improve 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 the summit of the Shanghai Cooperation Organization, a regional security bloc, which begins on Sunday. But sources say India remains cautious in its relations with China and is not yet considering a trilateral summit of the three leaders, as Russia had hoped.
Experts say other countries could follow India's example of responding to US tariffs.
"The key lesson for other countries is that if India is a rising power, economically and militarily, under enormous pressure from the United States, they themselves have even less capacity to withstand American pressure," said analyst Jacob.
"Furthermore, some might interpret the current dynamics as a sign that China could potentially serve as a counterweight, especially given Trump's unpredictable and aggressive geopolitical moves."
International relations experts say Trump's recent moves have pushed US-India relations into perhaps their worst phase since US sanctions imposed on India over its nuclear tests in 1998. In addition to trade, the dispute could also affect other areas, such as work visas for Indian IT professionals and the outsourcing of services.
And even if India manages to eventually eliminate some of the tariffs, numerous repercussions will remain, especially in trade, the analysis points out.
"Competitors like China, Vietnam, Mexico, Turkey and even Pakistan, Nepal, Guatemala and Kenya could benefit, potentially excluding India from key markets even after tariffs are lifted," said GTRI founder and former Indian trade official Ajay Srivastava.
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