Have India's Russian crude imports endured amid Trump tariff tantrums?

The battle of nerves continues between India and the US. India seems part defiant and part accommodative of the US diktat even as it prepares to provide financial support to exporters, nudge them to raise competitiveness and pushes local productions to face the tough challenges arising from US President Donald Trump’s 25 per cent tariff and penalty threat for trading with Russia.

Also read: India rebuts US, EU criticism on Russian oil imports following Trump penalty

In a flurry of activity yesterday (August 4), Trump announced plans to significantly increase tariffs on Indian goods, citing the nation's energy ties with Russia. India then issued a strong rebuttal to criticism from the EU, apart from the US, over its import of Russian crude oil, describing the remarks as “unjustified and unreasonable.”

National interest

India has been asserting that it will take “all steps necessary to secure our national interest”. This is followed by advice to domestic exporters to build brands and compete in the global market without relying on subsidies, which is easier said than done and unfair too.

It is the government that reversed the 1991 trade liberalisation beginning in 2014 without apparent provocations and against the tremendous boost it gave to exports and growth.

India raised tariff and non-tariff walls to protect domestic industries against competition and runs several subsidy schemes for them. Such mollycoddling disincentivises competitiveness – both in quality and pricing.

Last Saturday, Prime Minister Narendra Modi pushed for local production by urging people, at a rally in Uttar Pradesh, to buy Indian goods. Meanwhile, Moody’s Ratings warned on Monday (August 4) that a curtailed access to the US market will dent India’s prospects to develop its manufacturing sector, though domestic demand will remain resilient.

Oil imports down, not out

India is not giving up on buying Russian oil yet, despite pressures from both the US and the European Union (EU), which see India’s trade with Russia as funding for the Russian war against Ukraine.

Also read: Trump’s tariff hits Indian textiles: Tiruppur exporters under pressure

Bloomberg reported on Monday morning that at least four tankers delivered millions of barrels of Russian crude at Indian refineries during the weekend. The supply was meant for private refineries of the Reliance Industries and Nayara Energy, as well as for oil PSU ONGC’s Mangalore Refinery and Petrochemicals Ltd (MEPL). It said, more tankers carrying Russian crude were headed for the Sikka and Mundra ports.

This was after another report had said last Friday that at least two of the three vessels headed for India with Russian crude had diverted to China and Egypt, after the US Treasury sanctioned 115 Iran-linked individuals, entities and ships, some of which are involved in transporting Russian oil.

Non-Russian crude

Simultaneously, India keeps buying non-Russian crude. Reports say, the Indian Oil, top oil PSU, bought 7 million barrels of September-arrival crude from the US (4.5 million barrels), Canada (500,000 barrels) and the Middle East (2 million barrels). It also said, neither Indian Oil nor any other oil PSUs like Hindustan Petroleum, Bharat Petroleum and MRPL had sought Russian crude in the past week or so.

Also read: Why Trump tariff could seriously dent Indian economy in multiple ways

Officially, India maintains that it hasn’t asked refiners to stop importing Russian crude and that the energy purchases are driven purely by market forces and price. But this can’t be entirely true.

Maritime intelligence agency Kpler’s data reveal that India’s import of Russian crude fell from 45 per cent of total crude import in June to 33 per cent in July, as oil PSUs like Indian Oil drastically cut supply from the third week of July. Surely, India had a clear foreboding about Trump’s tariff strike as it had failed to secure a deal before the August 1 deadline and was reportedly preparing to face a 20-25 per cent tariff rate.

Cost of dumping Russian oil

Meanwhile, New York Times has quoted (without naming) two Indian officials saying that India would keep buying Russian oil.

This is inevitable. Sumit Ritolia, Kpler’s lead research analyst, told The Federal that Russian oil is here to stay. “I don’t see India stopping Russia's crude supply, though it may trim it down,” he says, explaining that buying non-Russian crude would cost India dearly. He points out that the landing cost of Russian crude is $4-5 per barrel cheaper than non-Russian crude. The higher price would jack India’s oil bill up $4-5 billion a year, which would be very painful, besides bringing high inflation.

Also read: India hasn’t stopped buying Russia oil, say reports day after Trump’s claim

Ritolia also points out that cutting Russian oil supply would put tremendous pressure on global oil prices too, just like it did during the recent Israel-Iran conflict – creating more pain for India. Petroleum and Natural Gas Minister Hardeep Singh Puri had warned a few days ago that choking Russian crude would push oil prices to $130-140 per barrel. The Brent price, which is closest to India’s oil import price, was $68.5 per barrel on August 2.

Experts point out that oil PSUs would not be affected much due to the double pressure from the US and EU, as 75-85 per cent of their products go to meet domestic demand, but Reliance and Nayara, which export a larger part to Europe, would face a double squeeze.

Dramatic shift in positions

The stringent stand taken by the US and EU against trade with Russia now is contrary to their earlier positions, as the MEA's statement yesterday pointed out.

Immediately after the Russia-Ukraine war broke out in February 2022, India began buying Russian crude (0.2 per cent of total crude import until then) even as the US and Europe sanctioned Russia, forcing the latter to offer crude at substantially discounted price. Indian refiners also started paying in China’s Yuan, not in Indian rupee, from June 2023 (to avoid sanctions against the Russian Ruble).

Many saw this as India’s defiance against the sanctions targeting Russia.

But in May 2024, US Ambassador to India Eric Garcetti disclosed at a public function in Washington that India traded in Russian crude with the US consent to keep global crude prices under control. He said, “The US allowed the purchase to take place to ensure the prices did not go up globally.” Later, External Affairs Minister S Jaishankar confirmed that India never targeted the US dollar and that that was “not part of either our economic policy or our political or strategic policy”.

The change in the US and that of the EU happened after Trump came back to power earlier this year.

Countering tariff threat

India is seemingly adopting a multi-pronged approach to address its exporters’ woes, who face higher tariffs than its Asean and Western competitors across sectors.

In addition to nudging them to raise competitiveness, the government is preparing to roll out the Export Promotion Mission (EPM) announced in the Budget, with an outlay of Rs 2,250 crore. It has asked all Exports Promotion Councils (EPCs) for inputs. This comes in response to desperate calls from exporters for relief.

The EPM proposes to frame schemes to facilitate credit, cross-border factoring support and support to MSMEs to handle non-tariff measures in overseas markets.

Affordable credit

Exporters from food processing, marine and textiles have already met Commerce and Industry Minister Piyush Goyal, seeking financial assistance and affordable credit. The government is understood to be considering various relief packages.

MSMEs in particular are facing a credit squeeze as banks are reportedly adopting risk-aversion due to the risk to exports. Even thriving sectors like electronics, pharmaceuticals and automobiles are in panic mode, as are labour-intensive gems and jewellery and textiles that MSEs are involved in.

The RBI’s monetary policy committee (MPC), which began its meeting yesterday, would be keenly watched to see what it does to interest rate, having cut the repo rate by 100 basis points since February this year.

It faces a difficult choice. On the one hand, non-Russian crude imports would put high inflationary pressures, on the other, repo rate has not raised credit outflows. Besides, the US has kept its interest rate steady at the last Fed meeting a few days ago. Rate differentials have a bearing on rupee value and investment flows.