100% US tariff threat over Russian oil: Why India may not be the biggest loser

The US Senate has overwhelmingly approved a bill that could pave the way for additional tariffs of up to 100% on countries buying Russian energy, putting major buyers such as India and China in focus.

The Lindsey Graham sanctions bill passed the Senate 86-11. It still needs to clear the US House of Representatives and be signed by President Donald Trump before it can become law. If enacted, the measure would give the US president the power to impose additional tariffs on countries that continue to buy Russian energy.

For India, the threat comes at a time when Russian crude accounts for a large share of its oil imports. But Pramit Pal Chaudhuri, India Practice Head at Eurasia Group, argues that India's dependence on Russian oil may be less entrenched than it appears.

India can replace Russian crude with supplies from other producers, although that could come at a higher cost. The bigger question is what happens to global oil and diesel markets if large volumes of Russian crude are pushed out of the international supply chain.

That is where the US and Europe could also feel the impact.

Why is Russian oil important to India?

India's purchases of Russian crude rose sharply after Russia's invasion of Ukraine in 2022. Western sanctions and changes in global oil trade allowed Indian refiners to buy Russian crude at attractive prices while diversifying their sources of supply.

The shift has become even more pronounced in recent months.

According to Reuters, India's oil imports from West Asia fell about 27% to 1.55 million barrels per day between April and June, while Russian crude imports rose 8.3% to 2.26 million barrels per day.

In July, Russian oil imports climbed further to a record 2.64 million barrels per day, nearly 37% higher than in May and accounting for around half of India's total oil imports of 5.24 million barrels per day.

Data compiled by the Centre for Research on Energy and Clean Air also showed that India's Russian crude imports rose 2.1% in July from June, marking a record for the second consecutive month.

These numbers explain why India is in the spotlight. But they do not necessarily mean the country's refining system is locked into Russian oil.

"We never used to buy Russian oil before the Ukraine war," Chaudhuri said.

India's increased dependence was largely driven by price and availability rather than the lack of alternative suppliers.

Can India replace Russian crude?

According to Chaudhuri, India can switch to other sources of crude.

Russian oil is attractive to Indian refiners because of its medium-heavy characteristics and competitive pricing. But similar grades are available elsewhere.

"There is no shortage of oil in the world, so we can switch quite easily to another part of the world," Chaudhuri said.

He pointed to Venezuela as one potential source because it produces crude with characteristics similar to the medium-heavy oil India buys from Russia.

Replacing Russian crude would not, however, be cost-free. Indian refiners could lose some of the price advantage they have enjoyed from Russian supplies. Changes in suppliers could also affect freight costs, crude blends and refining margins.

But there is an important distinction between higher costs and an inability to replace supply.

India has multiple sources of crude and a large refining industry capable of processing different grades. It already imports oil from the Middle East and other regions.

So, if Russian supplies become unavailable because of US sanctions or tariffs, India has options.

Why could cutting Russian oil hurt the West?

India's role in the Russian oil trade goes beyond buying crude for domestic consumption.

Indian refineries also process Russian crude into petroleum products, including diesel, which are exported to international markets.

Russian medium-heavy crude can be blended with lighter Gulf crude before being processed in Indian refineries. The resulting refined products can then be sold in markets including Europe and the US.

This creates a potential unintended consequence for Western sanctions.

If Indian and Chinese refiners sharply reduce their purchases of Russian crude, Russia could lose major buyers. But global markets could also lose access to a significant source of crude and refined petroleum products.

The impact could be particularly significant for diesel.

Europe relies heavily on diesel for trucks, industrial activity and other parts of the economy. Chaudhuri pointed to reports that Europe is already assessing the possibility of a diesel shortage during winter if Russian crude and refining capacity are removed from the global supply chain.

A disruption could therefore tighten fuel markets far beyond India.

This is the central complication for Washington: the harder it pushes to remove Russian oil from global markets, the greater the risk of higher energy costs for Western consumers and businesses.

Why would US consumers feel the impact?

The US is the world's largest hydrocarbon producer, but domestic production does not completely protect American consumers from global oil-market shocks.

Oil is traded in a global market. If a significant volume of crude is removed from international supply, prices can rise globally, including in the US.

"Global oil prices are generally linked together," Chaudhuri said.

Diesel could pose an additional problem.

According to Chaudhuri, US crude production is weighted towards lighter, sweeter crude, while the country does not have enough diesel production capacity to completely insulate itself from global refined-product markets.

A major disruption to Russian oil flows could therefore push up diesel prices in the US as well.

For Washington, that creates a difficult trade-off. A measure intended to increase pressure on Russia could also raise fuel costs for American consumers.

Could the tariff become leverage in India-US trade talks?

The Russian oil issue could also become part of the broader India-US trade relationship.

India and the US have been negotiating a trade agreement, with differences over tariffs and market access complicating the talks. Chaudhuri believes Washington could potentially use the Russian oil issue as an additional source of leverage.

"Yes, would America potentially use this as part of the FTA? I think that is perfectly possible," he said.

If India wants relief from punitive measures linked to Russian oil purchases, Washington could seek concessions from New Delhi on other trade issues.

But the economic risks could constrain how aggressively the US uses the threat.

If restrictions sharply reduce Russian oil flows and push up global crude and diesel prices, the resulting increase in fuel costs could affect the US economy as well.

Why might India get an exemption?

India has previously received exemptions from US pressure over Russian oil, according to Chaudhuri.

One reason could be the potential impact on global prices. If Russian oil disappears from the market while supplies are already being disrupted elsewhere, a sharp reduction in available crude could push prices significantly higher.

That would affect not just India but US consumers and businesses.

The timing could also matter. If restrictions that materially increase petrol and diesel prices were imposed close to the US midterm elections in November, higher fuel costs could become politically sensitive for the White House.

Chaudhuri therefore believes Washington may have an incentive to avoid measures that cause a sharp rise in American fuel prices.

For India, that creates room to negotiate an exemption while the legislation moves through Congress.

What happens next?

The Senate vote does not mean that a 100% tariff on India has been imposed.

The bill still needs to pass the House and be signed by the president before the proposed mechanism can move towards implementation.

That gives India time to assess alternative crude supplies, adjust its refining mix and negotiate with Washington.

For US policymakers, the same period provides an opportunity to weigh the potential pressure on Russia against the risk of higher oil and diesel prices at home and in allied markets.

So, who is likely to lose most?

For India, the immediate risk is higher crude procurement costs.

Replacing discounted Russian oil could reduce the advantage Indian refiners have enjoyed since the Ukraine war. Changes in crude quality, freight costs and refining economics could also put pressure on margins.

But India has alternatives. Its refining system is not dependent on Russian crude, and it can adjust its sourcing if the economics change.

The bigger uncertainty is what happens to the global market if India and China significantly reduce their Russian oil purchases.

Russia could lose major buyers and face greater difficulty selling its crude. But global markets could also lose a significant volume of crude and refined petroleum products.

That could push up oil and diesel prices in Europe and the US.

The result is a potentially difficult trade-off for Washington: a policy designed to punish Russia and pressure its biggest buyers could also raise energy costs for the US and its allies.

For India, therefore, the 100% tariff threat is serious, but it is not necessarily a case of having no alternatives. The eventual impact will depend on what happens to the bill in Congress, whether India secures an exemption and, most importantly, how global oil prices respond to any disruption in Russian supplies.