New Delhi: When President Donald Trump slammed India this week for purchasing large amounts of Russian oil, threatening a “penalty” tariff on top of a 25 per cent levy, it came like a lightning bolt. India has been a leading and conspicuous buyer of Russian energy since the invasion of Ukraine three years ago, as most western countries curtailed their purchases or stopped buying altogether.
Attempts led by the US and Europe to inflict fiscal damage on Russia and punish its President, Vladimir V. Putin, had driven the price of oil lower. India saw a bargain and seized on it.
Trump, despite harbouring a long list of grievances over India’s trade practices, had never focused his complaints on the Russian purchases. India even assumed, when Trump was re-elected, that he would relax pressure they had felt from Washington under President Joseph R. Biden Jr and other western leaders to take their side against Russia.
India and Russia have a long commercial history, and the energy trade fit easily within that relationship. Russia has a lot of it, and India needs to import a lot of it.
In the year after Russia invaded Ukraine in February 2022, its oil became very important to India. Early in that year, Russia accounted for just 0.2 per cent of Indian imports of crude oil. After European markets shut their doors to Russia, seaborne exports from Russia to India started scaling up. By May 2023, Russia was selling India more than two million barrels of crude a day, or roughly 45 per cent of its imports, more than to any other country but China.
India has bought a nearly constant flow of Russian oil for the past two years. Prices fluctuated, but each year’s sales have been worth approximately $275 billion. Iraq and Saudi Arabia, traditionally India’s biggest suppliers, have been pushed to the side.
The trade suited everyone involved. Russia got to sell its crude oil, theoretically under a price cap the European Union had set at $60 a barrel, and India bought oil at a discount. Its oil companies refined some for domestic consumption and exported the rest as diesel and other products, some of it to Europe.
Paying less for foreign commodities has been good for India’s economy, helping protect its currency. The surge in Indian buying also earned profits for companies like Mukesh Ambani’s Reliance Group, which runs the world’s biggest refinery, on India’s west coast. Reliance’s stock price grew 34 per cent since the war began, a period in which Exxon Mobil’s has been flat.
Trump’s unexpected attack on India’s purchase of Russian oil could make things trickier for Prime Minister Narendra Modi as he haggles with Trump over broader trade issues. Trump has made clear he is out to erase the $44 billion trade deficit the US runs with India. One way India could do that, Modi’s negotiators believed, would be to start buying American oil or natural gas.
It puts Modi, who guards a reputation at home as uncompromising, in a difficult position. Trump has been diminishing him since June, by claiming credit for India’s ceasefire with Pakistan. The political Opposition is making hay out of Modi’s unwillingness to openly confront Trump. Late on Wednesday, the American President added two further insults, each making reference to oil.
“I don’t care what India does with Russia,” Trump posted to social media. “They can take their dead economies down together, for all I care.”
Trump also claimed that the US was doing a deal with Pakistan, by which American companies would exploit Pakistani oil reserves. Trump concluded, provocatively, that “maybe they’ll be selling Oil to India some day”.
In recent weeks, refineries in India have been buying less Russian oil than usual, according to Kpler, which tracks commodities and shipping data. However, it would be both expensive and logistically challenging for India to completely replace the Russian fuel it has been buying.
That is partly because the country’s refineries are configured for Russia’s oil, which is denser and more sulfurous than many of the alternatives it could buy elsewhere.
“The pivot away from Russia — if forced — will be costly, complex and politically fraught,” Kpler wrote in a note on Thursday. Analysts are warning that a 25 per cent US tariff could dent India’s economic growth, but they still clock it as the fastest-expanding in the world, rivalling Japan’s and Germany’s in total size.
To hear Indian officials tell it, the question of Russian oil never came up during the first four months of back-and-forth negotiations with the Trump administration over tariffs.
Ajay Srivastava, a former trade official and founder of the Global Trade Research Initiative in New Delhi, rejected Trump’s criticism of India’s moves, noting that “discounted Russian oil has helped India manage inflation during global volatility”. He said he believed the punitive tariff was just another bargaining tactic.
“India has avoided the trap of a one-sided deal,” Srivastava wrote in a text message, “and that’s a success”.
New York Times News Service