India has chosen to bear a 25% additional tariff on its exports to the US rather than halt purchases of Russian oil. At first glance, this seems counterintuitive. Why protect refiners' big profits when thousands of export-sector jobs are at risk? The answer lies less in economics than in international politics and strategic bargaining.
When Donald Trump announced the penalty earlier this month, New Delhi initially signalled refiners to pause Russian purchases. But as the 21-day window progressed, it became clear GoI had no intention of bowing. Officials hoped Trump might back down. He didn't. Toward the deadline, India solidified its stand: conceding on oil would only trigger further US demands.
The penalty, India concluded, was not about depriving Russia of war funding, but about pushing India to accept contentious trade terms, particularly opening its farm markets to American produce. From a purely energy perspective, India could have walked away from Russian barrels without much pain. Global markets are well-supplied, Brent crude has hovered between $65 and $70, and Russian oil is not under sanctions.
If India stopped buying, refiners would lose the now-thin $1.50 a barrel discount (down from $15 in the early war days), but could easily source alternatives. Buyers elsewhere would replace India with little disruption. Any price spike would be minor and temporary. Already, refiners have booked lower Russian volumes for September loading, suggesting some rebalancing is underway without price impact.
Indian refiners, meanwhile, are hardly struggling. Reliance's oil-to-chemicals operating profit rose 11% y-o-y in April-June to ₹14,500 cr. State-run refiners Indian Oil, BPCL and HPCL posted combined net profit of ₹16,184 cr, 2.5x last year's, thanks to discounted crude and unusually high retail margins. Pump prices have remained high and frozen for a couple of years, even as international prices softened, ensuring refiners and their shareholders - including GoI - pocketed the gains. In short, refiners have the cushion to absorb incrementally higher crude costs.
This weakens the claim that Russian oil is indispensable for India's energy security. Or that a halt would send global oil prices soaring.
Cheaper Russian oil benefits a few strong refiners. But the unprecedented US tariff would hit numerous small exporters and their low-wage workers. Exports worth $60 bn would effectively face tariffs of 50% or more. Labour-intensive sectors like textiles and gems and jewellery could see exports collapse by as much as 70%, according to Global Trade Research Initiative (GTRI).
Exporters' revenues, forex inflows and jobs would all shrink. Layoffs in export hubs could snowball into political trouble, especially if migrant workers return home to Bihar ahead of assembly elections. Alternative markets may cushion some impact. But redirecting such large volumes is no easy task. Measures like tweaking GST or extending government support to exporters may provide relief, but won't fully offset the blow.
Washington has framed the penalty as a fairness issue. Treasury secretary Scott Bessent said that China's purchases of Russian oil rose only modestly - from 13% to 16% of its imports - while India's share jumped from 1% to 42%. He argued India had pocketed $16 bn in excess profit by buying discounted oil and reselling refined products.
To drive the point home, he implied much of this windfall accrued to India's richest families - a reference to Mukesh Ambani, whose company runs the world's largest refining complex. This cast the Russian oil trade as profiteering by a few, rather than a matter of national energy security.
India's stance, therefore, is less about oil, and more about setting precedent. Standing firm signals that India will not be strong-armed, even if that means near-term pain. The weak spot in India's stance is that its arguments - about energy security and price stability - are shaky. What strengthens its hand is something different: recognising the penalty as a blunt bargaining tool, not a moral crusade.
By daring Washington to sanction Russian oil directly and enforce it globally, India could expose US hypocrisy and limits of its economic coercion. China would keep buying at deeper discounts, just as it does with Iranian oil. But falling Russian exports would lift global prices and US pump costs - colliding head-on with Trump's pledge of cheap energy for Americans.
When Donald Trump announced the penalty earlier this month, New Delhi initially signalled refiners to pause Russian purchases. But as the 21-day window progressed, it became clear GoI had no intention of bowing. Officials hoped Trump might back down. He didn't. Toward the deadline, India solidified its stand: conceding on oil would only trigger further US demands.
The penalty, India concluded, was not about depriving Russia of war funding, but about pushing India to accept contentious trade terms, particularly opening its farm markets to American produce. From a purely energy perspective, India could have walked away from Russian barrels without much pain. Global markets are well-supplied, Brent crude has hovered between $65 and $70, and Russian oil is not under sanctions.
If India stopped buying, refiners would lose the now-thin $1.50 a barrel discount (down from $15 in the early war days), but could easily source alternatives. Buyers elsewhere would replace India with little disruption. Any price spike would be minor and temporary. Already, refiners have booked lower Russian volumes for September loading, suggesting some rebalancing is underway without price impact.
Indian refiners, meanwhile, are hardly struggling. Reliance's oil-to-chemicals operating profit rose 11% y-o-y in April-June to ₹14,500 cr. State-run refiners Indian Oil, BPCL and HPCL posted combined net profit of ₹16,184 cr, 2.5x last year's, thanks to discounted crude and unusually high retail margins. Pump prices have remained high and frozen for a couple of years, even as international prices softened, ensuring refiners and their shareholders - including GoI - pocketed the gains. In short, refiners have the cushion to absorb incrementally higher crude costs.
This weakens the claim that Russian oil is indispensable for India's energy security. Or that a halt would send global oil prices soaring.
Cheaper Russian oil benefits a few strong refiners. But the unprecedented US tariff would hit numerous small exporters and their low-wage workers. Exports worth $60 bn would effectively face tariffs of 50% or more. Labour-intensive sectors like textiles and gems and jewellery could see exports collapse by as much as 70%, according to Global Trade Research Initiative (GTRI).
Exporters' revenues, forex inflows and jobs would all shrink. Layoffs in export hubs could snowball into political trouble, especially if migrant workers return home to Bihar ahead of assembly elections. Alternative markets may cushion some impact. But redirecting such large volumes is no easy task. Measures like tweaking GST or extending government support to exporters may provide relief, but won't fully offset the blow.
Washington has framed the penalty as a fairness issue. Treasury secretary Scott Bessent said that China's purchases of Russian oil rose only modestly - from 13% to 16% of its imports - while India's share jumped from 1% to 42%. He argued India had pocketed $16 bn in excess profit by buying discounted oil and reselling refined products.
To drive the point home, he implied much of this windfall accrued to India's richest families - a reference to Mukesh Ambani, whose company runs the world's largest refining complex. This cast the Russian oil trade as profiteering by a few, rather than a matter of national energy security.
India's stance, therefore, is less about oil, and more about setting precedent. Standing firm signals that India will not be strong-armed, even if that means near-term pain. The weak spot in India's stance is that its arguments - about energy security and price stability - are shaky. What strengthens its hand is something different: recognising the penalty as a blunt bargaining tool, not a moral crusade.
By daring Washington to sanction Russian oil directly and enforce it globally, India could expose US hypocrisy and limits of its economic coercion. China would keep buying at deeper discounts, just as it does with Iranian oil. But falling Russian exports would lift global prices and US pump costs - colliding head-on with Trump's pledge of cheap energy for Americans.
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