No Putin Oil? Bad News, For Trump

Aug 1, 2025, 20:33 IST

If India stops buying Russian energy, it won’t lose much because the price advantage per barrel vis-à-vis Brent is down to two dollars or so. But were India & China to stop buying from Russia, global oil prices will likely jump, hurting everyone, US consumers included

This appeared in the Times of India on 2 August 2025 (link)

The White House executive order amending import tariffs ends a period of significant global economic uncertainty. The 25% duties on imports from India are likely to hurt, especially as they are higher than for peers. However, the impact on India’s economy is likely to be much lower than the rise in duties paid by Indian exporters, as most of the tariff burden so far has been borne by US importers and consumers.

But the US threat to penalise India for buying Russian oil and armaments, which is yet to be announced, is a separate matter. Can this put India at a significant disadvantage? Not really.

Despite Russia accounting for more than a third of India’s oil imports last year, the India-specific impact is unlikely to be significant, in our view. Here’s why.

The price gap between Brent (the grade of crude oil closest to India’s benchmark) and Urals (Russian oil grade) has narrowed to just five dollars per barrel, close to pre-war levels.

In the immediate aftermath of sanctions on Russia in 2022, this had widened to more than thirty dollars. It has progressively narrowed, falling to twenty dollars in 2023, and around ten dollars last year.

Once adjusted for the higher cost of insurance and the somewhat longer shipping route for Russian oil to reach India, the gap in landed price is not more than two to three dollars per barrel. Annualised, that means a saving of around one to two billion dollars a year.

The calculation is simple. Imports of 1.5mn to 2mn barrels per day from Russia (30% to 40% of India’s crude oil needs) mean 550mn to 730mn barrels per year. A saving of two to three dollars per barrel means one to two billion dollars annually. For a four-trillion-dollar economy, that is not meaningful.

Despite such small numbers, Western media and politicians have for the past three years pilloried China and India as culprits for the continuing Russia-Ukraine war, and even declaimed that the two are benefitting from the misery of Ukrainians.

It is easy to spin this story. China and India account for nearly three-fourths of seaborne Russian crude.
Russia produces around 9.5mn barrels per day. After accounting for domestic consumption, it exports around 7mn barrels equivalent of oil and refined products, of which around 4.5mn barrels are crude oil exports. Slightly less than 4mn barrels are shipped by sea, and a bit less than half of that now comes to India. However, specific gains for India are insignificant, as we saw above.

What if India and China were to stop buying Russian crude and switch to other sources? Global oil prices would rise. Current global demand weakness, rising OPEC supply and elevated oil inventories can provide a cushion, but a ten to fifteen dollars per barrel price increase is possible.

Whereas the demand-supply of dollars in India (called the balance of payments, or BoP) is capable of absorbing swings in the oil import bill of a few billion dollars, a twenty to twenty-five billion dollars increase, as would be likely if oil prices rise by ten to fifteen dollars per barrel, can create some stress.

However, such an increase would be stressful globally, significantly raising the risks of stagflation, and adding to political pressures in US too, where fuel prices would rise at the pumps.

Oil prices have already risen by more than five dollars per barrel since the US administration began talking of controls on Russian oil exports again.

The Biden administration had learned its lesson after initial attempts to gain negotiating leverage to end the Russia-Ukraine war via sanctions on Russian oil. It appears the current administration is going through the same learning curve.

While the US is one of the most successful economies in human history, its policymaking, especially at turning points, tends to be chaotic, and often error-prone, before self-correcting.

The starting point of Trump’s current term was in no way as chaotic as that of FDR (Franklin Roosevelt), on whose inauguration day in 1933, among other things the US banking system was shut to stall a banking contagion. But there are distinct parallels.

FDR’s election promises of restoring agricultural commodity price levels back to levels seen in 1926 saw him experimenting with a range of America-first policies that in hindsight appear ridiculous (like FDR setting gold prices every morning from his bed). Only much later, and via trial and error, did the team arrive at solutions that worked.

The current administration is also likely to go through a similar learning curve as they go about delivering on their election promises like ending the Russia-Ukraine war, weakening the dollar and reviving US manufacturing.

As tariffs have now been set, it is likely that in the next few months evidence emerges on most of the burden falling on US consumers – some importers had been absorbing tariffs in the last few months as they were unclear of final rates.

If inflation is seen as sticky, the dollar may strengthen as well, forcing a course correction on economic policies. Similar lessons are likely on oil sanctions too.