The United States' tariff threat against major buyers of Russian oil could put pressure on important oil supplies for India and China, while disruptions in Gulf oil supply have tightened the global market.
Delegation of Authority to Trump for Imposing Tariffs
The U.S. House of Representatives has granted President Donald Trump the authority to impose tariffs on any of the five major buyers of Russian oil or gas that "intentionally" order a new shipment. The rate of these tariffs could increase by up to 100 percent. This law was passed with a vote of 262 to 159, and a White House official stated that Trump intends to sign it. The tariffs may take effect 30 days after approval.
Implications of Tariffs for the Oil Market
This threat itself could accelerate purchases. Rachel Ziemba of Ziemba Insights has suggested that "paradoxically, this could encourage more purchases from Russia to anticipate future risks sooner." This may reinforce Russia's role as a key supplier for Asian buyers. According to Sumit Raitolia, a senior analyst at Kpler, "Russian crude has effectively become an important supply line and acts as a hedge against Middle Eastern supply disruptions."
Kpler data shows that total Russian exports in August decreased to 6.79 million barrels per day, down from a peak of 8 million barrels per day in May. The share of Russian crude oil in India's imports was 18.7 percent in February and has gradually approached 50 percent over time.
Impact of Tariffs on Indian Exports
The new tariffs may harm Indian exports. Electrical goods, including smartphones and electronic components, have been the largest segment of India's exports to the United States in the first half of 2023. Additionally, China's crude oil imports from Russia have decreased by 15 percent since February, but its share of the country's total imports has increased.
Meanwhile, the oil market is currently under pressure, with Brent crude prices above $100 per barrel. The Indian Ministry of External Affairs has emphasized in response to this action that "India is committed to ensuring energy security for its 1.4 billion people" and will take all necessary measures to protect its commercial and economic interests.
Washington's position on this matter is somewhat ambiguous. At the onset of the Iran war, the government temporarily allowed India to acquire Iranian crude oil for the first time in seven years. Nick Kwiatowski, a researcher at Chatham House, emphasized that "the White House is likely to be cautious in imposing tariffs in the short term," as this action could tighten supplies and put more pressure on the global economy.
