Russian oil purchase: India prepares for trade punishment from the United States

This chapter in the tariff war imposed by the American president has seriously affected relations between the United States and India, to the point of accelerating the latter's rapprochement with China. The American market is the primary destination for Indian products, worth $87.3 billion in 2024. According to analysts at the financial services group Nomura, a 50% increase in American tariffs "would amount to a real trade embargo," with major consequences for Indian companies "with low added value or reduced margins."

Garima Kapoor of Elara Securities summarizes that no Indian product would be "able to maintain any competitive advantage." Economists estimate that such tariffs would shave 70 to 100 basis points off India's gross domestic product (GDP) and push its growth back below 6%, its lowest level since the Covid pandemic. Economists at S&P anticipate a 1.2% drop in GDP but believe it will remain "one-off" and "will not affect" its long-term outlook. Indian exporters of textiles, seafood, and jewelry have already reported canceling US orders in favor of their rivals in Bangladesh or Vietnam, suggesting significant job cuts.

Only the pharmaceutical and electronics industries, including the manufacturing of Apple's iPhones, have so far been spared the punishment announced by the US authorities. The United States does not seem willing to amend its position. Since the Donald Trump-Vladimir Putin meeting, it has even hardened its stance. Peter Navarro, White House trade adviser, denounced this month that "India is acting as a global laundering office for Russian oil, transforming crude into lucrative exports and providing Moscow with the dollars it needs."

Indian External Affairs Minister Subrahmanyam Jaishankar retorted that Indian purchases helped stabilize oil prices on the markets and had been approved by Washington since 2022. He added that the United States and Europe were buying refined crude oil from India with full knowledge of the facts. "If you have a problem buying oil from India, don't buy it anymore," he told them. "No one is forcing you to do so." According to Jaishankar, the United States had never considered the issue of Russian oil being purchased by India as a problem before Donald Trump's ultimatum.

Any change in Indian policy regarding Russian crude purchases will not be felt until September, experts note, as the bulk of the cargoes sold in August were purchased before the White House's threats. According to experts, New Delhi appears to be in a particularly delicate situation. Nandan Unnikrishnan, an analyst at the Indian think tank Observer Research Foundation, notes that "it will take a lot of ingenuity and flexibility" for India to get out of this situation.

In response to US threats, Indian authorities have begun a rapprochement with their BRICS (Brazil, Russia, China, and South Africa) partners. Minister Jaishankar promised Moscow a reduction in bilateral customs barriers, and Prime Minister Narendra Modi is expected in Beijing later this week. The government is also preparing $2.8 billion in support measures for its exporters and has proposed tax cuts on essential goods to protect consumption.