India Faces 40% Export Drop as U.S. Tariffs Nullify Russian Oil Savings

Since the outbreak of the Ukraine crisis, India has saved tens of billions of dollars by increasing its imports of discounted Russian oil. However, the punitive tariffs imposed by the United States, which took effect on Wednesday, will quickly nullify these gains, and there is currently no simple solution.

Analysts estimate that since the beginning of 2022, India has saved at least 170 billion dollars by increasing its imports of Russian oil. However, the Global Trade Research Initiative (GTRI) in New Delhi stated that the decision by Donald Trump to impose additional tariffs of up to 50% on Indian imports could result in a more than 40% reduction in India's export volume this fiscal year (from April this year to March next year), amounting to nearly 370 billion dollars.

The negative impact of the tariffs will persist and may politically harm Indian Prime Minister Narendra Modi, as labor-intensive industries such as textiles, gems, and jewelry face the risk of losing thousands of jobs.

Analysts point out that India's response in the coming weeks may reshape its decades-long cooperation with Russia and readjust its increasingly complex bilateral relationship with the United States (which views the U.S.-India relationship as key to curbing China's expanding influence in the Indo-Pacific region).

“Over the next few years, India will still need to rely on Russia in many areas: defense equipment supply, affordable oil, geopolitical support on the continent, and political support on sensitive issues,” said the founder of the New Delhi Strategic and Defense Research Commission. “This makes Russia an indispensable partner for India.”

However, he added, “Despite friction between New Delhi and Washington during Trump's presidency, the United States remains India's most important strategic partner. India currently lacks the confidence to choose between the two.”

Two Indian government sources revealed that New Delhi hopes to repair its relationship with Washington and is willing to increase its purchases of U.S. energy, but is not willing to completely stop importing Russian oil. India's foreign secretary said on Tuesday that consultations between India and the United States are still ongoing, and officials from both countries have held online talks on issues such as trade, energy security (including nuclear cooperation), and key mineral exploration.

Currently, Russian oil accounts for nearly 40% of India's total oil imports, up from almost zero before the war. Analysts say that if India were to immediately stop importing Russian oil, it would not only mean that it had yielded to pressure, but it would also be economically unfeasible. India's purchases of Russian oil are mainly led by Reliance Industries, a company owned by billionaire Mukesh Ambani, which operates the world's largest refinery complex in Modi's home state of Gujarat.

India has issued a strongly worded statement accusing the United States of double standards on Russian oil imports — the United States has taken action against India's imports of Russian oil while continuing to purchase Russian hexafluoride uranium, palladium, and fertilizers. New Delhi also noted that countries such as China, which have also increased their purchases of Russian oil, have not been penalized.

India's Ministry of External Affairs stated that importing oil from Russia is “a necessary measure to ensure that Indian consumers have access to predictable and reasonably priced energy, driven by global market conditions.”

New Delhi warned that India currently imports about 2 million barrels of Russian oil per day, and if imports were to stop, it would disrupt the entire supply chain and cause domestic fuel prices to soar. India also pointed out that during the presidency of Joe Biden, the U.S. had supported India's purchase of Russian oil to maintain global oil price stability.

Russia stated that it expects India to continue purchasing its oil.

Modi has not directly commented on the tariff issue, but he has repeatedly promised to support Indian farmers, which is seen as a subtle response to Trump's demand that India open its vast agricultural market.

Farmers are a key voting bloc in India, and Modi will face a tough election later this year in the rural-populated state of Bihar. He has also promised to significantly reduce the goods and services tax (GST) by October to boost domestic demand.

To promote a multipolar world, India has recently undertaken a series of diplomatic activities: several high-level Indian officials have visited Russia in recent days, and Modi is scheduled to make his first visit to China in more than seven years this month. The 2020 border conflict between India and China led to a deterioration in relations between the two countries, but bilateral relations began to show signs of improvement about a year ago.

The Shanghai Cooperation Organization (a regional security alliance) summit will open on Sunday, but sources say that India remains cautious in its relations with China and has not, as Russia hoped, considered holding a trilateral summit of the three countries' leaders.

Experts say that other countries may take India's response to U.S. tariffs as a guide.

“For other countries, the key takeaway is that if a major emerging economic and military power like India faces enormous pressure from the United States, then these countries' ability to resist U.S. pressure may be even weaker,” said analyst Jacob.

“In addition, some countries may interpret the current situation as China potentially becoming a countervailing force, especially given Trump's erratic and hardline approach to foreign policy.”

International relations experts point out that Trump's recent actions may have brought U.S.-India relations back to their lowest point since 1998, when the U.S. imposed sanctions on India for its nuclear tests. In addition to the trade sector, this dispute could also affect other areas, such as the issuance of U.S. work visas for Indian technology professionals and outsourcing services.

Even if India can eventually persuade the United States to cancel some of the tariffs, many negative impacts will persist, especially in the trade sector.

“Competitors such as China, Vietnam, Mexico, Turkey, and even Pakistan, Nepal, Guatemala, and Kenya will all benefit from this, and even if the tariffs are canceled, India may be excluded from key markets,” said the founder of GTRI and former Indian trade official Ajay Srivastava.