US President Donald Trump imposed an additional 25% tariff on Indian goods over its purchase of Russian energy, the White House said Wednesday, hours after talks between Washington and Moscow over the war in Ukraine failed to yield a breakthrough.
The new levy — which will stack on top of a 25% country-specific tariff set to be implemented overnight — will take effect within 21 days, according to an executive order signed by Trump.
“They’re fueling the war machine. And if they’re going to do that, then I’m not going to be happy,” Trump said Tuesday in an interview with CNBC, referring to India’s purchases of Russian energy.
The move threatens to further complicate U.S.-Indian relations and comes shortly after an Indian government source said Prime Minister Narendra Modi would visit China for the first time in over seven years later this month.
In tariff rankings, India now matches Brazil at the top with 50 per cent, followed by Switzerland at 39 per cent, Canada and Iraq at 35 per cent, and China at 30 per cent.
US' latest attack
India’s importation of Russian Federation oil undermines U.S. efforts to counter Russia’s harmful activities, said a statement by the White House.
India’s subsequent reselling of this oil on the open market, often at significant profit, further enables the Russian Federation’s economy to fund its aggression, it added.
“By imposing a 25% tariff, President Trump aims to deter countries from supporting the Russian Federation’s economy through oil imports and impose serious economic consequences on the Russian Federation for its ongoing aggressions.”
Exempted items
Exemptions remain in place for items already covered by sector-specific tariffs, including steel and aluminium, as well as potentially affected categories like pharmaceuticals.
55% of India's exports to be impacted
US to impose an additional tariff is "extremely shocking" and will impact 55 per cent of India's exports to America, FIEO said.
"This move is a severe setback for Indian exports, with nearly 55 per cent of our shipments to the US market directly affected. The 50 per cent reciprocal tariff effectively imposes a cost burden, placing our exporters at a 30–35 per cent competitive disadvantage compared to peers from countries with lesser reciprocal tariff," Federation of Indian Export Organisations (FIEO) DG Ajay Sahai said.
He added that many export orders have already been put on hold as buyers reassess sourcing decisions in light of higher landed costs.
"For a large number of MSME-led sectors, absorbing this sudden cost escalation is simply not viable. Margins are already thin, and this additional blow could force exporters to lose long-standing clients," Sahai said.
With this high tariff, the domestic exporters will have to look for alternative markets, he said.
India caught in a bind
While the government has given oil companies a free hand to plan crude purchases keeping commercial viability in mind, refiners may look to boost imports from the US and other non-OPEC suppliers as a balancing act, three sources with knowledge of the matter told PTI.
After the latest tariff order, refiners would be adopting a cautious approach to Russian imports, they said, adding the government has so far not told them to stop or go slow on purchases from Moscow.
Soon after Trump's executive order, officials went into a huddle, discussing possible fallout and alternatives, PTI said.
India's crude oil imports
India buys about 88 per cent of its crude oil, which is converted into fuels like petrol and diesel, from overseas. Russian oil made up for hardly 0.2 per cent of all crude oil that India imported till 2021. After Moscow invaded Ukraine, Russian oil was available at a discount to international benchmarks due to Western sanctions, and was quickly lapped up by Indian refiners. Russia is now India's largest oil supplier.
India imports about 5 million barrels of oil a day, of which 1.6 million came from Russia in July.
Sources told PTI that discounts on Russian oil have shrunk to less than USD 2 per barrel, not offering much economic benefit for buying from Moscow.
But it will be near impossible to swiftly unwind the Russian imports given the volumes India now buys, they said, adding Middle East suppliers, which were the main source in the pre-Ukraine war era, may see a resurgence with the largest volumes.
India is the largest importer of Russian crude ahead of China and Turkey.
The US tariffs follow the European Union ban on the import of petroleum products (fuel) made from Russian crude starting in January 2026.
India's Reliance Industries Ltd and Russian oil giant Rosneft-backed Nayara Energy Ltd will be those hit hard by the sanctions. The two, particularly Reliance, were the biggest exporters of fuel from India to Europe.
India, the world's third-largest crude importer after China and the US, began snapping up Russian oil that was available at a discount after some in the West shunned it as a means to punish Moscow for its invasion of Ukraine.
From a market share of just 0.2 per cent in India's import basket before the start of the Russia-Ukraine conflict, Russia overtook Iraq and Saudi Arabia to become India's No.1 supplier, with a share as high as 40 per cent at one point of time.
Last month, Russia supplied more than a third of all crude oil imported by India.
India bought 68,000 barrels per day of crude oil from Russia in January 2022, according to global real-time data and analytics provider Kpler. That month, Indian imports from Iraq were 1.23 million bpd and 883,000 bpd from Saudi Arabia.
In June 2022, Russia overtook Iraq to become India's largest oil supplier. Russian imports peaked at 2.15 million bpd in May 2023 and have varied – depending upon the discount at which the oil was available. But the volumes never slipped below 1.4 million bpd since then, which is more than what India was buying from its top supplier Iraq before the Russia-Ukraine conflict.
G7 countries in December 2022 imposed a USD 60 per barrel price cap on Russian crude. Under the mechanism, European companies were permitted to transport and insure shipments of Russian oil to third countries as long as it is sold below the capped price -- an effort to limit the impact of the sanctions on global oil flows but ensure Russia earns less from the trade.
Last month, the European Union decided to lower the price cap to USD 47.6 and introduced an automatic and dynamic mechanism for its review in the future. The idea is to keep the cap at 15 per cent lower than the average market price.
In addition to stoking India's economy, cheap Russian oil gave refiners lucrative business -- refining that crude and exporting the products to deficit countries.
These included the European Union, which had banned direct crude oil purchases from Russia.
The bulk of the crude that goes to India from Russia arrives at ports in Gujarat, where Reliance Industries Ltd's Jamnagar refinery, the largest in the world, and Nayara Energy-owned India's second-largest refinery, less than 10 miles away at Vadinar, turned them into fuel.
Source Name : Economic Times