Russia and India are looking for ways to continue trading oil, and Russia has offered what it calls a special mechanism to the India side to ensure this—despite U.S. President Trump’s threat to impose an additional tariff of 25% on Indian exports if the country keeps buying Russian oil.
The news about a special mechanism broke earlier this week, with Reuters citing Russian diplomats from the embassy in New Delhi as talking about it but without providing any details. “I want to highlight that despite the political situation, we can predict that the same level of oil import [by India],” Reuters quoted Roman Babushkin, the Russian charge d’affaires at the New Delhi embassy, as saying.
Indian refiners earlier this month began shunning Russian crude on the spot market, after President Trump said India had to stop buying crude oil from Russia. India did not respond well to the threat, with the government essentially saying it would keep doing what was best for India, regardless of the U.S. agenda, even as refiners began contracting U.S. and Middle Eastern oil cargoes.
However, the shunning of Russian oil was short-lived, and Indian oil importers soon resumed purchases, taking advantage of a deeper discount for Russia’s flagship Urals blend, since Chinese refiners have been unable to absorb all additional volumes freed by their Indian counterparts’ temporary turn away from Urals on the spot market.
Related: US National Security Probe Targets Wind Industry
The mechanism that Russia is now offering India perhaps includes an additional discount, to stimulate demand, the Reuters report suggested, as it cited Russian Trade Deputy Commissioner Evgeny Griva as saying that India’s imports of Russian oil were a good bargain for the buyers, with discounts at between 5% and 7%.
Meanwhile, Trump’s trade adviser Peter Navarro earlier this week lashed out at India for buying Russian oil, calling the trade “opportunistic and deeply corrosive of the world’s efforts to isolate Putin’s war economy” in an op-ed for the Financial Times.
India has become the second-biggest buyer of Russian crude since 2022, and Russia has gone from a minor oil supplier to the subcontinent into its top supplier, thanks to those discounts. With India’s dependence on imported oil still over 85% of demand, every discount matters, and refiners have saved quite a lot of money with Russian purchases.
If Indian buyers stop importing Russian oil, the country’s total import bill could swell by $9 billion this fiscal year, the State Bank of India calculated recently, and this will further increase by $11 billion over the next fiscal year.
Interestingly, one energy analyst recalled that it was the U.S. administration that encouraged Indian oil buyers to switch to Russian crude in the first place, to avoid a global price shock after sanctions kicked in back in 2022.
“Joe Biden went to India after the invasion of Ukraine and begged them to take Russian oil, the Indians hardly imported any Russian oil, and they begged India, ‘please take the oil,’ so that crude prices would remain low, and they did. Now we’re flipping around and saying, ‘why are you taking all this oil,’” the president of Rapidan Energy Group, Bob McNally, told CNBC recently in what was a timely reminder of the literal global nature of oil markets and prices.
President Trump also has zero interest in a price shock, which would be the most likely result of a sudden halt in Indian purchases of Russian crude, with some 1.7 million bpd in trade disrupted. It seems, however, that it may not come to that, after all, if Russia and India find a way to continue trading without fear of punishment from the U.S. with that new mechanism.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com