The Russian ‘penalty': India's move to tank up on discounted oil from Russia faces fresh scrutiny from an unhappy Trump

Indian Express

2 days ago

With the West's effort to target Russia's oil revenue gathering steam over the past few weeks, India's significant Russian oil imports are now being subjected to a more aggressive stance by Western powers. After threatening 'biting' secondary tariffs of 100 per cent on buyers of Russian exports, US President Donald Trump on Wednesday announced a 25 per cent tariff on Indian goods from August 1, alongside an additional but unspecified 'penalty' for India's defence and oil imports from Russia.
Earlier in July, the European Union announced a sanctions package, widely seen as the most comprehensive effort yet by the EU to restrict Russia's revenue stream, placing a ban on import of fuels into Europe if made from Russian oil in third countries like India. Among other steps, the EU also sanctioned Russian oil giant Rosneft-backed Nayara Energy that operates the 20-million-tonnes-per-annum Vadinar refinery in Gujarat. A few weeks ago, concerns surfaced in India over a controversial bill in the US that proposes 500 per cent tariffs on countries that continue to trade with Russia. NATO Secretary General Mark Rutte had also said that countries like India, China, and Brazil could be hit very hard by secondary sanctions if they continued to do business with Russia.
These renewed efforts from the West — exerting pressure on Russia's top trade partners to cut down on imports from the country — are clearly targetted at forcing the Kremlin's hand into ending the war in Ukraine. For Trump, who wants the three-year-old Russia-Ukraine war to end within days, this is an opportune time to pressurise countries like India and China over their Russian imports, given the sensitive trade negotiations that these countries are holding with the US.
Over the past nearly three-and-a-half years, India has openly defended its higher purchases of Russian crude, arguing the primacy of its critical energy needs in its priority. India depends on imports to meet around 88 per cent of its crude oil needs, and Russia has been the mainstay of India's oil imports for nearly three years now. Russian oil flows to India have so far remained robust, despite criticism from sections of the West and actions by US and its allies against Russia's oil trade. India has, time and again, maintained that it is willing to buy oil from whoever offers a good price, as long as the oil is not under sanctions. Russia has been offering discounts on its oil, its crude is not technically under sanctions, and is only subject to a price cap imposed by the G7 countries and their allies.
This time, however, with a mercurial Trump administration visibly frustrated with Moscow, the threat of an additional tariff component as a penalty for India's booming trade with Russia could potentially lead to a dampening of Russian oil supplies to India.
'Everyone is scrambling to decode Trump's latest tariff move, but let's be clear, this is a tariff, not a sanction on India's Russian oil purchases. The latest rhetoric from Trump also links to India's defence imports from Russia, so the strategic landscape is shifting. This isn't a sanctions regime yet, but the signalling is strong,' said an oil industry expert, adding that the extent of the impact would depend on how serious the Trump administration is in implementing the tariffs and the so-far unspecified so-called penalty.
'It could just be a bargaining chip that he (Trump) wants to use for pressuring Russia and also extracting a more favourable trade deal from India. The next few days and weeks would be critical,' said the expert quoted above. Given how talks between Indian and US negotiators have proceeded so far, an interim trade deal still seems distant and is unlikely to be clinched before September, with October a possible outer deadline. There are indications a sixth round of talks between the two negotiating teams will take discussions forward in August.
It is no secret that Trump has been rather impulsive and unpredictable when it comes to trade tariffs; making sweeping announcements, then pausing and negotiating. The hope in India's oil sector is that the US won't actually implement higher tariffs related to India's oil imports from Russia, as it is in the interest of the US and the global economy that the international oil market remains well-supplied. If Russia is unable to supply its crude, global oil prices are bound to rise due to lower supply being available.
However, the timing of Trump's announcement — just a couple of days before US's new tariffs are set to kick in — means the threat cannot be taken lightly. There are already indications that Indian refiners are stepping up efforts in diversifying their crude supply sources, and turning to other geographies to secure non-Russian oil supplies, according to industry sources. Refiners are understood to be awaiting word from the Indian government on the matter.
If India indeed decides to cut down on its appetite for Russian crude under US pressure, industry insiders and experts expect New Delhi to negotiate a potential wind-down period for reducing supplies, as replacing nearly 2 million barrels per day (bpd) of Russian oil supply overnight is impossible, and it would take at least three-four months to substantially cut down on Russian oil volumes. Moreover, while it is possible to move away from Russian oil, the same cannot be said for India's imports of Russian-made military equipment as there are significant dependencies on that front. India's trade negotiators surely have their task cut out.
With much of the West shunning Russian crude following the country's February 2022 invasion of Ukraine, Russia began offering discounts on its oil to willing buyers. Indian refiners were quick to avail the opportunity, leading to Russia — earlier a peripheral supplier of oil to India — emerging as India's biggest source of crude, displacing the traditional West Asian suppliers. While the discounts have varied over time, Russian oil flows to India so far have remained robust despite Western pressure and limited sanctions on Russia's oil trading ecosystem. Booming oil trade with Russia has also catapulted the country to the list of India's biggest trading partners.
According to India's official trade data, oil imports from Russia were at 87.4 million tonnes in the financial year 2024-25, accounting for almost 36 per cent of India's total oil imports of 244 million tonnes. Prior to the war in Ukraine, Russia's share in India's oil import basket was less than 2 per cent. In 2024-25 The value of India's oil imports from Russia was over $50 billion, or 35 per cent of India's total oil imports worth $143 billion.
India's Russian oil imports rose to an 11-month high in June, further cementing Moscow's continued dominance in New Delhi's oil import basket. According to tanker data, Russian crude accounted for a massive 43.2 per cent of India's total oil imports in June, outweighing the next three suppliers — West Asian majors Iraq, Saudi Arabia, and the United Arab Emirates — put together. In June, India imported 2.08 million barrels per day (bpd) of Russian crude, the highest since July 2024, and higher by 12.2 per cent on a month-on-month basis, according to vessel tracking data from global real-time data and analytics provider Kpler.
If the US indeed goes ahead with higher 'penalty' tariffs, India would be pushed to cut down oil imports from Russia and increase imports from other suppliers, primarily its traditional West Asian suppliers like Iraq, Saudi Arabia, and the United Arab Emirates, which would push up the cost of imports by a few dollars a barrel. India is also expected to sustain its diversification efforts by tapping additional crude oil volumes from Africa, Latin America, and the US to optimise refinery economics, balance geopolitical exposure, and enhance energy security. Geopolitical shifts, freight economics, and refinery economics are expected to continue shaping India's crude sourcing decisions and diversification strategy.
According to Petroleum Minister Hardeep Singh Puri, the massive market share of Russian crude in India's oil imports doesn't mean that India is dependent on Russia for oil, and other suppliers can quickly come in to replace Russian volumes if there is any major disruption. 'I don't feel any pressure in my mind. India has diversified the sources of supply… I'm not worried at all. If something happens, we'll deal with it…there is sufficient supply available,' Puri had said at an event earlier in July. He added that India in recent years has expanded its crude sourcing slate from 27 countries to around 40 countries.
So far, despite threats from the US, Indian refiners have adopted a wait-and-watch approach, while keeping Russian oil flows into India robust. All that might change, or not, depending on how far Trump is willing to go beyond his tariff rhetoric, and how India decides to respond, all in the midst of a tense trade deal negotiation.
Sukalp Sharma is a Senior Assistant Editor with The Indian Express and writes on a host of subjects and sectors, notably energy and aviation. He has over 13 years of experience in journalism with a body of work spanning areas like politics, development, equity markets, corporates, trade, and economic policy. He considers himself an above-average photographer, which goes well with his love for travel. ... Read More