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🎧 For more insights on this topic, listen to our special Columbia Energy Exchange episode, “Unpacking the US-India-Russia Tariff Triangle“, where Richard Nephew, Tatiana Mitrova, and Shayak Sengupta discuss the latest developments.
US tariffs on India for purchasing Russian oil may stem more from frustrations in US-India trade negotiations than from a concern about funding Russia’s war in Ukraine.
India has justified Russian oil imports based on reasons both economic (large demand and oil price sensitivity) and geopolitical (national interest to secure supply).
If the tariffs go into effect (which is by no means certain), India will need to decide whether to continue importing Russian oil and face higher American tariffs on its exported goods or pay a potentially higher price for oil in a tighter market.
Tariffs may not be as effective as sanctions in targeting the actual players who would be most likely to take steps to reduce Russian oil purchases, namely Indian refiners or intermediary banks, based on the direct consequences of sanctions versus countrywide impacts from tariffs.
Why has the Trump administration put an additional 25% tariff on India for its Russian oil imports?
Fishman: The fact that President Donald Trump has singled out India—Russia’s second-largest oil buyer—while sparing China—the largest—is strong evidence that his motivation stems more from frustration with the slow progress in US-India trade talks than anything to do with Russia. That’s reinforced by his decision to let last Friday’s “ceasefire or sanctions” deadline for Russia pass without action. The executive order he signed technically authorizes tariffs on other Russian oil buyers, but the White House’s actions speak louder than words. Remarkably, we’ve still seen zero new sanctions on Russia since January 20.
Sengupta: Some in India have understood these tariffs as retribution for and a conflation of a number of issues that have caused tension between the Trump administration and the Modi government. These include: India pushing back on Trump’s public statements claiming credit for mediating the recent conflict between India and Pakistan, the lack of trade concessions to open India’s agricultural market to American exports, and an attempt to put pressure on Russia to end the war in Ukraine.
Mitrova: The 21-day deadline for the new India tariff functioned as political leverage ahead of the US-Russia Alaska summit, signaling “deal-or-escalate” while keeping options open on ceasefire and sanctions relief.
Why is India importing Russian oil?
Sengupta: Beyond its historically close relationship with Russia, the reasons for India’s large increase in imported Russian oil are largely economic and to a lesser extent geopolitical. As the third largest importer and consumer of oil in the world, India’s economy and national fiscal budget are especially sensitive to oil prices, with the country importing nearly 90% of its oil supply. Given India’s large demand, costlier oil imports increase inflation and depreciate the Indian rupee, which makes any imports, not just oil, more expensive. More expensive oil is also more likely to increase the Indian government’s fiscal deficit: India provides subsidies for oil products to poorer consumers and the Indian government adjusts fuel taxes to keep price stability for consumers.
Geopolitically, India has justified its imports as a national interest to secure energy for its large population (many of whom consume energy at per capita levels below global averages) and to preserve its strategic autonomy from Western pressure. However, Indian refiners and the government have not passed all the benefits of this cheaper oil to consumers. Fuel taxes in India have been kept high despite cheaper Russian oil.
Mitrova: Beyond cheaper barrels and macro stability, high-complexity Indian refineries have exploited price arbitrage: buying discounted Russian crude, refining it into diesel and jet fuel, and re-exporting these products—often to Europe, which remains short on diesel after the embargo on Russian refined products. In the first half of 2025, Russia supplied India with about 1.75–1.8 million barrels per day (mb/d), or 35%–40% of its crude imports. Even as discounts narrowed to about $1–$3 per barrel (bbl) this summer, the economics have worked due to strong product cracks (a refining margin measure).
Indian state refiners have paused some spot purchases from Russia, switching to US, Gulf, and West African grades—a tactical hedge rather than a structural shift. Private refiners like Reliance, Nayara, and HPCL Mittal continue buying Russian crude under term contracts.
What has US policy been toward imports of Russian oil, especially India’s?
Fishman: The Biden administration actually encouraged India to buy Russian oil. When the EU—once Russia’s biggest customer—banned Russian crude imports in December 2022, those barrels had to go somewhere to avoid a market problem, and many landed in India. The G-7 price cap of $60 placed on Russian barrels was designed to keep Russian oil flowing while slashing the revenue Moscow earned per barrel. In my view, it’s long past time for the US to push countries like China and India to scale back purchases, but neither former president Joe Biden nor Trump has been willing to risk the oil price spike that could follow.
Can India reduce its imports of Russian oil? What are the alternatives?
Sengupta: In short, yes, given the higher potential costs associated with steep tariffs by the United States on Indian exports. But none of the choices faced by Indian decision-makers are cost-free politically and economically, and all come with second-order effects.
On one hand, India could choose to reduce imports of discounted Russian oil. The discount between Russian and non-Russian crude has narrowed in recent months, so the direct effect would be minimal relative to India’s total oil import bill. This would put upward pressure on prices for non-Russian oil, further increasing not just India’s oil import bill but the price of oil the United States and Europe pay. Politically, the Indian government could face domestic backlash for bowing to US pressure and jeopardize its bilateral ties with Russia.
On the other hand, India could continue Russian oil imports and face steep tariffs from the United States on about half of its exports, as stipulated by the Trump administration’s recent executive order. The costs of these tariffs on the Indian economy are likely even higher than the direct costs associated with redirecting oil purchases away from Russia. Politically, this option also risks further straining India’s relationship with the United States, which has emerged as India’s most important new partner strategically and economically, with cooperation expanding in defense and technology in recent years.
The tariffs will not take effect for several weeks and there are planned negotiations between the United States and India that could open the door to further discussion of concessions on India’s part. These concessions could include increasing purchases of American oil.
Mitrova: Alternatives are limited: there is no spare 1.8 mb/d of non-Russian crude readily available to India. OPEC+ producers who previously supplied India now sell more to Europe. If India drops Russian barrels, there is no guarantee China will take the surplus and free up other grades for India, thus rebalancing the global market, given Beijing’s deliberate diversification policy. To Russia’s oil sector, the partial loss of the Indian market, while not instantly fatal, would be an unpleasant strategic blow, forcing Moscow into deeper dependence on a small number of politically risky buyers and accelerating the fragmentation of its oil export geography. But it`s important to keep in mind that if the complete loss of Indian volumes triggered a sharp global price rally—for example, a $30/bbl increase—Russia would offset lost sales volumes through higher unit prices on remaining exports.
How do you think this will all play out in global oil markets?
Mitrova: It depends on the geopolitical scenarios:
Either soft enforcement of sanctions or a successful Trump-Putin summit in Alaska that reduces the pressure would limit effects to a temporary widening of the discounts on Russian grades, marginal tightening of Middle East supply, and limited impact on Brent prices.
Stronger sanctions enforcement (for example, following an inconclusive Alaska summit) could lead to a partial, staged reduction in Indian purchases of Russian oil (perhaps in the area of half of current Indian imports, or 0.5–1.0 mb/d), allowing some market adaptation through alternative supply, re-routing, and possible OPEC+ adjustments. This could lift Brent prices by $4–$8/bbl (depending on the speed of adjustment) absent additional OPEC+ backfill or China taking extra Russian volumes and freeing up other suppliers to take their oil to India.
Complete failure of US-Russia negotiations accompanied by ongoing dialogue between the US and India could lead to a total disruption of India’s Russian imports (about 1.8 mb/d). In a comparatively tight market, if OPEC+ or China refused to step in, a sharp loss of Russian supply could trigger rapid price escalation even before actual shortages appear, as traders price in diminished spare capacity.
India openly confronting the US—by, for example, boycotting US goods (as threatened) and maintaining current Russian oil imports—would result in minimal direct oil market impact in the short term, since India’s intake would remain steady.
How do these tariffs differ from traditional US sanctions?
Nephew: I think there are two big differences. First, for at least the last 30 years, US sanctions have tended to focus on targeted industries or activities rather than on entire countries. There are exceptions, such as with Cuba or Iran, but even then, sanctions have become comprehensive by targeting a bunch of different entities or sectors that all add up. So, this is one of the few times in years that we’ve seen economic coercion being applied at a country level. Second, US sanctions have tended to focus on specific consequences, such as denial of banking services or travel bans, rather than on system-wide economic damage.
But, we shouldn’t overstate that these actions are new. Trump first used tariffs instead of more routine sanctions against Turkey for its detention of Pastor Brunson in 2018. Trump has also been threatening to use tariffs similarly in this term of office, most notably targeting those purchasing oil from Venezuela earlier in the year.
Fishman: Any tool of coercive economic statecraft is only as strong as the chokepoint it exploits. US sanctions work by threatening foreign firms’ access to the dollar—used in about 90% of foreign exchange transactions and in the world’s deepest capital markets. Tariffs, by contrast, leverage America’s role as the world’s largest importer, but we account for only about 13% of global imports. That’s why I’m skeptical tariffs can match the pressure of robust financial sanctions; tariffs are a relatively weak tool.
Also, it’s individual Indian refineries choosing to buy Russian oil, so “secondary tariffs” are a poor fit for the problem; they will barely touch the refineries doing the buying while hitting all kinds of unrelated Indian exporters. The EU’s recent targeted sanctions on Nayara Energy—India’s second-largest refinery, co-owned by Russian state oil giant Rosneft—are a far more sensible approach than a blanket 25% tariff.
This highlights the best US approach going forward: threaten secondary sanctions on buyers of Russian oil unless they gradually scale back purchases—and have India wind down imports over 3–12 months, giving producers time to adjust supply and avoid major market disruptions. This was the strategy the US used successfully to drive down Iran’s oil sales.
Nephew: It’s not just the buyers of Russian oil that could or should be targeted, but also the banks involved. One of the most significant innovations in the Iran sanctions effort was restricting access to the revenues from any residual sales. Even if the US cannot drive Russian sales down further, Russia doesn’t have to receive those revenues. By forcing revenues to go into escrow accounts, as with the Iran sanctions effort, Russia might still be incentivized to export its oil and gas while its ability to use those revenues for the war effort would be impaired.
The US imposed tariffs of 50 percent on about half of Indian exports on August 27, following a Trump administration executive order targeting the country for its continued imports of discounted Russian oil.
China’s dependence on the energy supplies that move through the Strait of Hormuz makes it especially vulnerable to any possible closure of the waterway by Iran in retaliation for attacks by Israel and the United States.
CGEP recently hosted a private roundtable conducted on a not-for-attribution basis that focused on key geopolitical issues and oil markets in various hotspots, including the Middle East, Russia/Ukraine, China, and the Americas.
