The U.S. has put a 25% extra tax on Indian exports, making the total levy 50%. This is a big problem for India’s economy and politics. India’s continuous purchase of cheap Russian oil, which is meant to put pressure on Russia over its war in Ukraine, is the immediate cause of this action. Experts argue that this makes things hard for New Delhi since it has to choose between its economic connections with Russia and its much more important commercial relationships with the U.S.
The Difficulties of India’s Oil Trade with Russia
India didn’t buy a lot of oil from Russia for a long time. Instead, it got most of its oil from Middle Eastern countries like Saudi Arabia and Iraq. After Russia invaded Ukraine in 2022, things changed a lot. India started buying crude oil at a big discount after the G7 countries put a price restriction on Russian oil. This saved India about $3.8 billion last fiscal year. This change has made Russia the main supplier, providing about 37% of India’s total oil imports. India is now one of Russia’s two biggest customers, along with China.
At first, the U.S. was somewhat okay with this plan. Last year, officials from the U.S. Treasury even said that the price cap was a way for allies like India to buy Russian oil at lower prices without affecting the global market. But the Trump administration has taken a quite different stance, which surprised India.
A Problem in Politics vs. Economics
Experts point out that there is a big difference between how much money India makes from Russian oil and how much trade it does with the U.S. The savings from cheap Russian oil are in the billions, but India’s overall exports to the U.S. were a far bigger $87 billion in 2024. Warren Patterson, who is in charge of commodities strategy at ING Groep NV, said that it’s evident that you can either save a few billion dollars on oil discounts or risk a much bigger export market.
But the choice isn’t just about money. Analysts like Vandana Hari of Vanda Insights say that putting tariffs on India is a way to get to Russian President Vladimir Putin, but New Delhi doesn’t appreciate this idea. Shilan Shah from Capital Economics says that the decision to stop buying Russian oil is more political than economic. Right now, the cost of switching suppliers isn’t a big deal because there is enough of oil available and prices are low. He adds that the real problem is that India doesn’t want to look like it’s giving in to what the U.S. wants.
Indian Oil Companies Don’t Know What to Do
Indian oil buyers are confused since tariffs were suddenly put in place. The government hasn’t given clear orders on what to do next, and some state-run oil corporations are said to be waiting on the sidelines, not making any new spot agreements for Russian oil. A bill in the House that follows the President’s request to get rid of the missions is different from one in the Senate that keeps them. This is a very important time because the government will make a definitive choice that would affect India’s oil trading policy and its ties with two of the most powerful countries in the world.