Trump’s penalty risk places India in a bind over Russian oil

India is navigating a tough balancing act after U.S. President Donald Trump threatened a “penalty” over its continued imports of Russian oil — a commerce that New Delhi seems reluctant to finish anytime quickly.

Regardless of Trump telling reporters Friday that he “heard” India would halt purchases, officers in New Delhi have remained noncommittal. International ministry spokesperson Randhir Jaiswal stated that the nation decides its vitality import sources “based mostly on the value at which oil is accessible within the worldwide market and relying on the worldwide state of affairs at the moment.”

“The Indians should be having some confusion” following Trump’s risk — a reversal from the extra tolerant method taken below the Biden administration, Bob McNally, president of consulting agency Rapidan Vitality Group, advised CNBC’s “Squawk Field Asia.”

“Now we’re flipping round and saying, ‘What are you doing taking all this Russian oil?'” McNally stated.

In March 2022 — a month after Russia launched its full-scale invasion of Ukraine — Daleep Singh, a former U.S. deputy nationwide safety adviser for worldwide economics within the Biden administration, reportedly stated that “buddies do not set crimson traces” and “there isn’t a prohibition at current on vitality imports from Russia.” 

“What we might not wish to see is a speedy acceleration of India’s imports from Russia because it pertains to vitality or some other exports which can be at present being prohibited by us or by different points of the worldwide sanctions regime,” Singh stated.

On July 30, Trump introduced that India would face a 25% tariff starting Aug. 1, together with an unspecified “penalty” for purchasing Russian oil and navy gear.

However analysts counsel that India, which is the third-largest vitality client on the earth, is not blinking for now. Reuters reported that there are not any fast adjustments deliberate to India’s long-term contracts with Russian suppliers, citing two nameless Indian authorities sources that didn’t want to be recognized as a result of sensitivity of the matter.

Russia has turn out to be the main oil provider to India because the conflict in Ukraine started, rising from slightly below 100,000 barrels per day earlier than the invasion, or a 2.5% share of whole imports, to greater than 1.8 million barrels per day in 2023, or 39%. In accordance with the Worldwide Vitality Company, 70% of Russian crude was exported to India in 2024.

India’s vitality minister Hardeep Singh Puri defended New Delhi’s actions in a July 10 interview with CNBC, saying that it helped stabilize world costs and was even inspired by the U.S.

“If individuals or nations had stopped shopping for at that stage, the value of oil would have gone as much as 130 {dollars} a barrel. That was a state of affairs wherein we have been suggested, together with by our buddies in the USA, to please purchase Russian oil, however throughout the worth cap.”

Russian oil exports had been capped at $60 per barrel in December 2022 by the Group of Seven nations, representing the world’s prime economies, whereas the European Union had lowered the value cap to simply above $47 per barrel in July.

Nonetheless, stress is mounting. Vishnu Varathan, Managing Director at Mizuho Securities, stated that the U.S. threats current a “clear and current hazard” to India. He stated that New Delhi is more likely to stay non-committal on oil purchases because it assesses the trade-offs of this “Russia possibility” as a bargaining chip.

India might want to scour the worldwide marketplace for comparable oil bargains with Russian oil, Varathan, who can be the top of macro analysis for Asia ex-Japan, added.

New Delhi may discover options, together with Iran — if an exemption from the U.S. could be negotiated — in addition to just a few different producers “both inside or outdoors of the OPEC+ which were pressured by the U.S,” Varathan stated.

The OPEC+ bloc had agreed on Sunday to lift output by 547,000 barrels per day in September, as considerations mount over potential provide disruptions linked to Russia.

India goes to face a tricky alternative, Rapidan’s McNally stated.

“Trump is critical. He is pissed off with Putin… India goes to have a tricky option to make, but it surely’s exhausting to see them persevering with to import that 1,000,000 and a half barrels [of] Russian crude if Donald Trump decides to actually put the entire relationship on the road over it.”