India Faces Geopolitical Dilemma as US Imposes Tariffs on Russian Oil Imports

Strategic Insights -

India buys about 90 per cent of its crude oil from overseas, with 2mn barrels a day coming from Russia. US President Donald Trump has imposed an additional 25 per cent tariff on India unless the country stops buying Russian oil. However, India's prime minister, Narendra Modi, faces a practical challenge in re-engineering the energy supply mix of the world's third-biggest oil importer. Analysts say that India could pivot towards non-Russian barrels, but a sudden halt of purchases could bring "a significant tightness into the market", potentially pushing the price of crude to over $80 a barrel.

Key Takeaways:

  • India imports about 5mn barrels of oil a day, of which 2mn come from Russia, making it the biggest market for Russian seaborne crude since 2023.
  • US President Donald Trump has imposed an additional 25 per cent tariff on India unless the country stops buying Russian oil.
  • Replacing Russian barrels in full is no easy feat due to the technical challenge for Indian refineries of switching to different crude.
  • Indian purchases of Russian crude have already begun to fall, with July volumes dropping more than 500,000 barrels per day from June.
  • India's intake of US crude has grown to 225,000 barrels per day since May, nearly doubling, with room for adding a further 100,000 barrels per day in the near term.
  • Analysts note that the drop in Russian crude imports is more pronounced among Indian state-run refiners, while private operators have also begun reducing exposure.
  • India could mandate that private refiners switch to other crudes and restrict Russian oil for domestic consumption to protect domestic prices.
  • A sudden halt of Indian purchases of Russian oil could affect global markets, potentially pushing the price of crude to over $80 a barrel.

Statistics:

  • India imports 5mn barrels of oil a day, 2mn of which come from Russia.
  • Indian refineries operate by the book and Russian oil has never been the direct subject of sanctions, unlike that of Iran and Venezuela.
  • The economics of Russian crude, which continues to trade at a discount, remain compelling, providing a buffer for New Delhi to keep inflation in check and rein in fuel subsidies.
  • India exports about 1.4mn tonnes of refined oil per day, some of which contains the cheaper Russian crude.
  • Russia produces 10 per cent of global production and has been the world's third-biggest oil exporter since 2023.
  • The US tariff on Indian imports of Russian oil is 25 per cent.

Sources:

  • Ship tracking data compiled by Kpler.
  • Sumit Ritolia, lead Kpler analyst.
  • Shilan Shah, Capital Economics.
  • Premasish Das, head of analysis of oil markets in Asia at S&P Global Commodity Insights.
  • A person in India's oil sector.
  • A person familiar with the thinking at Reliance.
  • DLN Sastri, director of oil refining and marketing at the Federation of Indian Petroleum Industry.
  • Tom Wilson, Additional reporting by Tom Wilson in London.