India Caught in Tariff Storm

Difficult Choice for India: Penalty on Exports to US or Grapple with the Burden of a Significantly Higher Oil Import Bill

- Arunima Bharadwaj

US President Donald Trump on Wednesday announced a 25% tariff on India with additional penalties for buying Russian oil. While the size of the penalty is yet to be known, any bid to avert it could come at a huge fiscal cost for India.

Any cut in the purchase of discounted oil from Russia would potentially increase the country's oil import bill and widen its trade and current account deficits by significant margins. The task for the country is to choose between two negatives: a penalty on potentially all of its exports to the US and the costs of cutting Russian oil purchases.

While the amount of penalty is unspecified, Indian refiners are likely to diversify their crude sourcing with a gradual shift towards WTI and the Middle East crude, industry players believe.

The European Union (EU) has recently imposed sanctions on the Indian oil refinery of Russian energy giant Rosneft and lowered the oil price cap, as part of a new raft of measures against Russia over its war in Ukraine.