India’s Gains from Russian Oil Erased by New U.S. Tariffs
India’s economic windfall from importing discounted Russian crude oil over the past two years is on the verge of collapse as newly imposed U.S. tariffs take effect, reshaping the country’s trade dynamics and forcing policymakers into a difficult balancing act between two of its most important partners.
India’s Savings from Russian Oil Imports
Since early 2022, India has dramatically increased its purchases of Russian oil, taking advantage of steep discounts that emerged after Western sanctions and restrictions on Moscow’s energy exports. Before the conflict in Ukraine, Russian crude accounted for less than 2% of India’s imports; today, it constitutes close to 40%.
According to industry estimates, India has saved at least $17 billion on energy costs thanks to these imports. The discounts, sometimes as steep as 7% below international benchmarks, provided vital relief to the world’s third-largest oil importer at a time of volatile global energy prices. The cost advantage also allowed Indian refiners to stabilize domestic fuel prices, support industrial output, and protect consumers from the full impact of rising global inflation.
The rapid scale-up was led by major refiners such as Indian Oil Corporation, Reliance Industries, and Bharat Petroleum, which adapted their refining complexes to handle heavier Russian grades. This shift not only reduced import costs but also enabled India to expand its exports of refined products, particularly diesel, to international buyers.
The Blow from U.S. Tariffs
That advantage, however, is now being eclipsed by the sweeping U.S. tariffs on Indian exports, announced earlier this month and officially enacted on Wednesday. The incremental tariffs, which reach as high as 50% on select categories, are projected to slash Indian shipments to the U.S. by more than 40%. Trade research groups estimate this could translate into losses of around $37 billion in the current fiscal year.
The hardest hit sectors are expected to be textiles, gems, jewelry, and leather goods—industries that form the backbone of India’s labor-intensive export economy. These sectors employ millions of workers, particularly in states such as Gujarat, Tamil Nadu, and Uttar Pradesh. The tariffs threaten not only export revenues but also large-scale employment, at a time when India is striving to sustain its post-pandemic growth momentum.
Early reports suggest that textile exporters face immediate order cancellations, while jewelry manufacturers anticipate steep declines in U.S. demand. Economists caution that ripple effects could extend across entire supply chains, from raw material suppliers to logistics providers, intensifying the economic blow.
A Complex Strategic Dilemma
The tariffs sharpen India’s strategic dilemma between its longstanding partnership with Russia and its expanding ties with the U.S. The country relies heavily on Russia for defense equipment, nuclear energy cooperation, and discounted crude. At the same time, Washington is a crucial strategic partner, not only for trade and investment but also in security cooperation across the Indo-Pacific.
Indian officials acknowledge that curtailing Russian oil purchases significantly would destabilize the domestic economy while potentially lifting global crude benchmarks toward $200 per barrel, according to internal assessments. Such an escalation would hurt not only India but also global energy markets.
Yet the loss of the U.S. export market threatens to outweigh the financial benefits India has derived from discounted Russian crude. Analysts argue that concessions may be necessary, such as boosting India’s purchases of U.S. liquefied natural gas (LNG) and crude oil, or accelerating deals in technology and critical minerals. Government sources indicate ongoing talks in areas including civil nuclear collaboration and energy security.
Historical Context of India-U.S. Trade Relations
India’s trade relationship with the U.S. has grown significantly over the past three decades. In the early 1990s, after India liberalized its economy, the U.S. rapidly became one of its largest markets for software services, textiles, and manufactured goods. In return, India imported advanced machinery, aerospace technology, and fuels.
Trade volumes have steadily expanded, with bilateral trade surpassing $190 billion in 2023, making the U.S. India’s largest trading partner. Export-oriented industries, particularly in garments, jewelry, and IT services, increasingly depend on the American market for growth.
Tariff disputes, however, are not new. In 2019, Washington revoked India’s preferential trade status under the Generalized System of Preferences (GSP), citing market access issues. The latest measures revive long-standing tensions around trade imbalances and market access challenges, although the scale of penalties this time is unprecedented.
Regional Comparisons
Within Asia, India’s predicament contrasts sharply with that of China and Southeast Asian economies. China’s energy imports from Russia have increased substantially since 2022, but its expansive domestic market cushions it against the fallout from Western trade penalties. Meanwhile, countries such as Vietnam and Indonesia continue to expand exports to the U.S., benefiting from supply-chain diversification efforts by Western firms.
India, however, faces a unique dual dependency: Russian energy on one hand and U.S. export markets on the other. Few other economies in the region straddle such opposing alignments, underscoring the difficulty of maintaining equilibrium in its external relations.
Domestic Economic Pressures
The timing of the tariffs adds strain to India’s economic outlook. Growth remains robust by global standards, surpassing 6% annually, but the recovery is uneven across sectors. Urban demand for technology and automobiles is strong, yet rural income growth remains subdued, limiting retail consumption.
The labor-intensive sectors now under pressure are precisely those that absorb surplus rural labor and help stabilize household incomes. If export orders collapse, job losses could rise sharply, raising political and social risks in the months ahead.
Moreover, the tariffs come amid rising input costs, including higher freight charges and currency fluctuations. Exporters already operating on tight margins warn that prolonged U.S. restrictions could force widespread factory closures.
Potential Paths Forward
Policy experts suggest three possible responses for India in navigating the crisis.
- Diversification of Export Markets: Expanding trade with Europe, Africa, and the Middle East may offset some of the shortfall in U.S.-bound shipments, though building equivalent market share will take time.
- Deepening Energy Security with the U.S.: Accelerating LNG and oil import deals with American suppliers could help India demonstrate goodwill while reducing its exposure to Russian energy over the medium term.
- Strategic Negotiations: India could leverage its position as a critical market for both U.S. technology firms and defense contractors in seeking tariff relief through targeted agreements.
Officials stress, however, that Russia’s energy supplies cannot be replaced overnight. Moscow remains India’s largest defense supplier, and its willingness to provide discounted crude is unmatched by other producers. Cutting ties abruptly would be economically and strategically costly.
Reactions from Industry and Public
Indian industry associations have expressed alarm at the tariff escalation. The Confederation of Indian Exporters warned that small and medium-sized enterprises would be hit hardest, as they lack the pricing power to absorb higher levies. Jewelry associations described the measures as a “severe disruption” that could erase years of market-building efforts in the U.S.
Public debate has also intensified, with many questioning Washington’s trade policy approach. Commentators in India argue that the U.S. is applying inconsistent standards by penalizing Delhi’s partnership with Moscow while not applying equivalent measures to other countries with expanded Russian trade ties.
The Road Ahead
India’s current predicament underscores the risks of overdependence on any single partner, whether for energy or export markets. While the growth dividends from Russian crude have been substantial, they are being rapidly negated by the new U.S. trade restrictions.
The challenge now lies in reconciling energy security objectives with the need to sustain export-driven industries. For policymakers in New Delhi, the short-term priority will likely be to protect jobs and stable fuel supplies, even as longer-term strategies aim to diversify both imports and exports.
As the global economic order continues to fragment, India’s experience illustrates the cost of navigating between rival blocs. How it balances relations with Washington and Moscow in the coming months will shape not only its economic trajectory but also its geopolitical standing in an increasingly polarized world.