FT: US duties on Russian oil imports to India will lead to higher oil prices
If New Delhi reduces purchases of Russian oil to zero, oil prices and inflation will soar around the world, which will affect the United States, writes FT. And Trump, the author of the article suggests, is unlikely to be ready to continue pressure on India due to this factor.
Amrita Sen
If Donald Trump really intends to reduce Russian oil imports to India to zero, the consequences may not be what the US president intended. Trump threatened to impose additional 25 percent duties on Indian goods from Wednesday in connection with purchases of Russian oil. This will bring the total duty rate to 50%.
According to OilX, Russian oil imports to India average from one and a half to two million barrels per day. If these imports stopped overnight and India had to buy oil from other countries, then oil prices would jump sharply, and inflation in the United States and other countries would accelerate. The question for the oil market is: does Trump have the guts to raise prices for American consumers?
The pressure will be partially eased if some of the oil is redirected to China, which, in turn, will reduce purchases in other countries. However, Beijing is already close to the maximum possible volumes of Russian oil, and recent experience highlights the risks.
With the start of the Russian special operation in Ukraine in February 2022, the EU and the United States threatened with perhaps the largest sanctions in history. In response, oil prices soared above $100, after which sanctions began to ease. Starting in May 2022, the U.S. government even had to allocate a record 180 million barrels from the Strategic Petroleum Reserve.
The G7, led by the United States, agreed to adjust its sanctions policy and introduced a price ceiling in September 2022. He allowed buying Russian oil if the price does not exceed $ 60 per barrel. What is the logic? To deprive Moscow of part of its income, but to maintain the supply of Russian oil to the world market and prevent a sharp jump in prices.
The EU also banned the import of Russian oil in late 2022 and petroleum products in early 2023, with some exceptions, although the United States encouraged the supply of Russian oil to other countries.
Then-Treasury Secretary Janet Yellen told Reuters in November 2022 that the United States welcomes Indian purchases of Russian oil — in any volume. It is enough to avoid Western insurance, financial and maritime services related to the price ceiling, and then these countries will gain leverage in price negotiations with Moscow. “Russian oil will be sold at a discount, and we will be glad if India, Africa or China benefit. That's fine with us,” she said.
An analysis of data from Energy Aspects shows that China's total purchases of Russian oil increased from 1.5 million barrels per day before the outbreak of hostilities in Ukraine to more than two million, with some grades of oil being bought at a price above the established ceiling. China does not have the refining capacity to accept significantly larger volumes of Russian oil than before. Thus, due to geographical logic, India has become the natural country for processing Russian barrels.
And so the United States accused India of allegedly profiting from Russian oil. It is unclear exactly what concessions the United States may require from New Delhi regarding the volume of supplies or timing as part of a possible compromise, so India needs to act proactively if it wants to avoid additional duties. Unlike China, India does not have a “shadow” banking network to circumvent sanctions, and, as a rule, it operates within the framework of global politics. In addition, there is an obvious historical precedent: the country completely stopped importing Iranian products during Trump's first term, when secondary sanctions were announced.
One solution is a combination of Indian concessions on American agricultural duties, promises to reduce purchases of Russian oil (some rebalancing seems to be already underway) and/or increase energy purchases from the United States. However, this should be stated clearly and officially.
Have Indian refineries benefited from discounts on Russian oil? Of course, because the initial discounts have increased to more than $20 compared to the Dubai benchmark, although the increased shipping costs due to the sanctions have somewhat reduced the benefits for India. In addition, China, Turkey and Brazil (which buys Russian diesel) also took advantage of discounts. Since 2022, refining volumes in India have barely increased on average, and exports of petroleum products have remained relatively stable: domestic demand is growing and absorbing this growth.
The catch is that if the West is serious about sanctions against Russia, Iran, or both countries at once, it will have to accept the loss of more than 6 million barrels of oil per day, which significantly exceeds OPEC+'s reserve capacity. This will lead to a sharp jump in oil prices — probably well above $100 — and this is unlikely to please Trump and Europe. Western leaders continue to use energy resources as a tool of foreign policy, but they are not ready to accept the real consequences of tougher sanctions.
Amrita Sen is the co-founder and Director of Market Analytics at Energy Aspects
