Trump Targets Indian Oil Imports from Russia
On August 6, President Donald Trump issued an executive order imposing a 25% tariff on Indian goods and services, adding to the 25% tariff that he established in April. The White House argued that Russia’s actions in Ukraine threaten U.S. national security and that India’s “reselling of [Russian] oil on the open market, often at significant profit, further enables the Russian Federation’s economy to fund its aggression.” The 25% tariff will take effect on August 27. The Trump administration suggested that similar tariffs on other countries could follow, to “pressure the Russian Federation toward a resolution that ends the conflict.”
The tariffs provoked a strong response. India’s Ministry of External Affairs called the measures “unfair, unjustified, and unreasonable,” and said it will take all actions necessary to protect its national interests. Last month, the Indian petroleum minister noted that the United States previously encouraged India and other countries to purchase Russian oil under the $60 per barrel crude oil price cap, and argued that by preventing a stranding of Russian oil, India “contributed to global stability in oil prices.” Now, cumulative tariffs of 50% on Indian goods and services—even with the significant exemptions established in Annex II of the tariff executive order in April—threaten to rupture the “painstakingly built” U.S.-India relationship.
India imported little oil from Russia until 2022, but became an indispensable buyer after Russia’s war on Ukraine, when Moscow was forced to redirect its oil from Europe to other markets. Discounted volumes from Russia were attractive to India, which relies on imports to satisfy almost 90% of its oil demand. Last year nearly 40% of India’s oil imports came from Russia. Importantly, India was not systematically violating sanctions. Indeed, its refiners had the green light under price cap guidance to purchase and refine Russian crude.
India now faces a difficult choice. Political pressure over its oil trade with Russia has been growing for months, including from Capitol Hill. In April, Senator Lindsay Graham introduced a bill that threatened a 500% “secondary tariff” on goods and services from countries that import Russian petroleum products and uranium. Despite this implausible 500% figure, which could sever trade with numerous countries including U.S. allies, Graham’s bill attracted more than 80 co-sponsors in the Senate. The Trump administration likely welcomed this Congressional pressure as it pursued negotiations with Russia, and now Trump has seemingly lost patience with Russian President Vladimir Putin.
The 21 days until the tariffs take effect offer some opportunity for negotiation or de-escalation. Despite their irritation with Washington, Indian policymakers may conclude that the cost of a 50% tariff from the United States would outweigh the benefit of discounted oil imports from Russia. This could take the form of a promise by India to reduce rather than entirely end its crude oil imports from Russia. Already, the warning signs of White House tariff measures led Indian refiners, especially state-owned companies, to reduce their purchases of Russian crude. Imports from Russia fell in July, following a surge in the previous two months. The oil market appears to be skeptical that the tariff will be enacted, and there was almost no impact on Brent crude prices by market close on August 6. But a few elements of this tariff threat are worth noting.
Tariffs on India are a convoluted means to pressure Russia, but they signal a tougher stance in Washington. The Trump administration is reportedly preparing other measures targeting Russian oil exports, including sanctions on the “dark fleet” moving Russian crude oil and products. Such moves would follow expanded European Union sanctions. If enforced more rigorously, designations of individual tankers could start to curtail Russian export volumes.
The Trump administration also may feel it has more latitude to pressure Russia. Eight members of the Organization of the Petroleum Exporting Countries and allied producers (OPEC+) just agreed to raise their production ceiling by 547,000 barrels per day (b/d) beginning in September. This will effectively end the 2.2 million b/d in voluntary production cuts the “Group of Eight” instituted in November 2023. While market fundamentals may be tighter than media coverage suggests, and the market has so far absorbed this additional production with ease, the prospect of OPEC+ supply additions may give the White House some comfort.
This administration is also willing to wade into oil market dynamics in new ways, and has little compunction about tying oil market flows to broader trade and economic agendas. In some ways, this is part of a longer-running phenomenon, as seen with the embargoes and price caps on Russian oil as well as the growth of U.S. energy sanctions in the past decade targeting Iran, Venezuela, and Russia. The shale boom in the United States, with its attendant decline in U.S. oil imports from the Middle East and its massive contribution to non-OPEC supply, has emboldened White House action.
Still, these moves are not without cost. Steep tariffs, embargoes, and other interventions tend to alienate oil importers. In the past few years, the proliferation of energy sanctions has pushed a growing share of global oil trade into the shadows, incentivizing ship-to-ship transfers, illicit shipping practices, and blending to disguise the origin of crudes. Oil traders are a creative bunch, and bad actors have become more adept at evading sanctions. Over the longer term, there are geopolitical considerations at play. In this case, threatening enormous tariffs on the world's most populous country and a rising power is a strategic risk, especially at a time when many countries feel pressured by Washington to choose between the United States and China. But for now, the Trump administration is using this threat against India to gain leverage on Russia, and calculating that India will have to accede to its demands.
To date, Trump has taken few actions to ratchet up pressure on Russia, but a policy change is underway. The market may be too complacent about potential disruptions to Russian exports.
About the Author
Ben Cahill is Director for Energy Markets and Policy at the Center for Energy and Environmental Systems Analysis, University of Texas at Austin.
