The Consequences of Trump's Tariff Threats on Russian Oil Imports

The US president's threat to impose additional tariffs on Indian goods from Russia over the country's purchases of Russian oil could have severe consequences for global oil markets. If India were to stop buying Russian oil overnight, oil prices would surge, and inflation would increase in the US and elsewhere. However, the pressure might be eased if some of the oil was redirected to China, which is already close to taking its maximum volume of Russian oil. The US has previously shown willingness to allow India to continue buying Russian oil, but now the country is being singled out for profiteering.

Key Takeaways:

• Indian imports of Russian crude average 1.5-2 million barrels per day, based on OILX data, and a sudden stop in these imports would lead to a massive increase in oil prices.
• The US government released 180 million barrels of the US Strategic Petroleum Reserve in May 2022 to mitigate the impact of sanctions on oil prices.
• The EU and US have previously imposed sanctions on Russia, but they were later watered down, and a price cap on Russian oil was introduced in September 2022 to keep oil flowing while hurting Russian oil revenues.
• China's buying of Russian oil increased from 1.5 million barrels per day before the war to above 2 million barrels per day, with several grades of oil bought above the price cap, according to Energy Aspects.
• India tends to operate within global policy frameworks and lacks a shadow banking network to avoid sanctions, making it harder for the country to comply with US demands without significant concessions.
• A combination of Indian concessions on US agricultural tariffs, a reduction in Russian oil purchases, and increased commitments to buy energy from the US could be a path to a resolution, but it needs to be clearly spelled out.
• If the west is serious about sanctions on either Russia or Iran or both, it will have to contend with the loss of more than 6 million barrels per day of crude, which is larger than OPEC+ spare capacity.

Statistics:

• 1.5-2 million barrels per day: Indian imports of Russian crude
• 180 million barrels: US Strategic Petroleum Reserve release in May 2022
• $100: Oil price surge after Russia invaded Ukraine
• $60: Price cap on Russian oil introduced in September 2022
• 1.5 million barrels per day: China's pre-war buying of Russian oil
• 2 million barrels per day: China's post-war buying of Russian oil
• $20: Initial discounts on Russian oil for Indian refiners versus the Dubai benchmark
• 6 million barrels per day: Loss of crude oil due to sanctions on either Russia or Iran or both

Sources:

• Amrita Sen, co-founder and director of market intelligence at Energy Aspects
• OILX data
• Reuters
• Energy Aspects
• US Treasury Secretary Janet Yellen's interview with Reuters in November 2022