Since black market dynamics make crude even more affordable for New Delhi, the White House’s most recent attempt to penalize India for purchasing sanctioned Russian oil has failed. After Indian refiners emerged as significant purchasers of Moscow’s crude since the start of the war in Ukraine, President Trump last week doubled India’s tariff rate to 50%. The action, intended to reduce purchases, instead triggered a chain of events that lowered India’s costs and strengthened Russia’s standing in global oil markets.
A federal appeals court recently overturned the “Liberation Day” tariffs on U.S. trading partners, but it permitted the tariffs to remain in effect until mid-October while it considered a potential Supreme Court appeal. That window alone has shaken the oil market.
U.S. tariffs on India makes Russian oil cheaper
The higher tariffs initially alarmed Indian refiners, who shifted orders to the Middle East and dumped banned Russian cargoes. Quickly, opportunistic Chinese buyers intervened. “Orders for Russia’s Urals crude that will be delivered in October increased almost 10-fold compared with levels for September,” said Tom Reed, VP at Argus Media.
In response, Moscow lowered the price of Urals crude in an effort to regain India. When compared to Oman crude, the discount increased to $7 per barrel, which was too alluring for Indian refiners to pass up. The purchases were authorized by New Delhi, and operations are now returning to normal. India now pays $1 less for a barrel of Urals as of Friday than it did prior to the White House’s initial threat of the higher tariff.
Washington’s crackdown has had the unintended consequence of making already cheap Russian oil even more alluring. Kpler data shows that sanctioned crude currently accounts for 15% of the world’s supply.
India and China’s profits
India and China have profited. China now imports a third of its crude from sanctioned suppliers, up from 23 percent in 2021. According to Homayoun Falakshahi, head of oil analysis at Kpler, India’s share increased from 1% to 37% in just four years.
In addition to energy, Washington might be using tariffs as leverage in more general trade negotiations. According to Citi, the new tax could reduce India’s growth by 0.8 percentage points. The United States has pushed New Delhi to open its agricultural market. Instead, New Delhi is moving closer to Beijing and Moscow. This week, Prime Minister Narendra Modi traveled to China for the Shanghai Cooperation Organization summit, and India’s foreign minister and Moscow reached an agreement to increase bilateral trade by 50% over the next five years.
Featured Image Credit: Jan-Rune Smenes Reite; Pexels: Thank you!
