US tariffs, penalties may impact India's oil supplies, lift global prices

Mint

4 days ago

New Delhi: Hiked US tariffs and threats of penalties for energy and defence purchases from Russia, may crimp oil supplies to India while increasing its import bill, said sector experts.
Russian oil makes up 36% of India's total oil imports. A person in the know of the development said that although India has a diversified oil import basket, an immediate shift in import sources would be tough and supplies may be disrupted in the near-term.
An increase in oil prices as a result of fresh western sanctions on Russia may also increase India's oil import bill given India imports more than 88% of its domestic oil requirement.
The exact impact on India's economy will become clear once there is clarity on the additional 'penalty' beyond the 25% tariff announced by US President Donald Trump. The spokesperson for the ministry of petroleum and natural gas did not immediately respond to a mailed query.
Prashant Vasisht, senior vice president and co-group head, corporate ratings, ICRA Ltd said: "Several options exist for India to diversify its crude purchases as Russian crude accounted for less than 2% of Indian crude imports prior to FY2023. However, the potential impact of cutting off Russian oil from the international market would be a significant increase in international oil prices as Russian oil exports account for 7% of the global liquids consumption."
He said a significant spike in crude prices could lead to higher crude import bill and under-recoveries on sale of liquified petroleum gas, petrol and diesel for oil marketing companies.
Vasisht added that a $10-per-barrel-increase in crude oil prices would take up the oil bill by about $13-14 billion. Additionally, domestic gas and LNG imports linked to dated Brent prices would also become dearer thereby impacting all gas consumers such as fertilizer, city gas distribution, he said.
India's crude import bill in FY25 was $137 billion.
A person in the know of the development said that India can increase purchases from West Asia, Africa, Latin America and the US itself, in case it decides to ease Russian oil imports. Although India's import from the US also has picked up this year, it is yet to assume a major share of India's total imports.
At the time of writing the story, the September contract of Brent on the Intercontinental Exchange was trading at $72.76 per barrel, higher by 0.22% from its previous close.
Although India has adequate stock for the near term, supplies are likely to be impacted given that Russian oil comprises the largest share of India's energy imports. India has diversified its sources of oil imports to nearly 40 countries after the crisis in the global markets in 2022 post Russia's invasion of Ukraine.
'The current situation reinforces the wisdom of our multi-alignment approach in an increasingly multipolarworldorder," said Rishi Shah, Partner and Economic Advisory Services Leader, Grant Thornton Bharat.
Earlier this month, after the US President warned of secondary tariffs on countries that import Russian oil, Union minister for petroleum and natural gas Hardeep Singh Puri said India is not worried and will navigate any eventuality as there is enough supply in the market.
Russia has emerged as the top supplier of crude oil to India since February 2022 after western economies sanctioned purchases of Russian energy and Russia in turn offered deep discounts. China and India emerged as its top two buyers. Prior to that, Russian oil comprised only about 2% of India's oil imports.
In a report on Tuesday, Rubix Data Sciences, a risk management and monitoring company noted that the value of Russian oil imports has surged at a 96% CAGR over the past five years.
This shift has helped Indian refiners secure cost-effective barrels, improve margins through discounted grades like Urals and ESPO (Russian oil supplied to the Asia Pacific markets through Eastern Siberia–Pacific Ocean (ESPO), and reduce exposure to vulnerable routes such as the Strait of Hormuz, it said.