Donald Trump’s recent demand for India to stop buying Vladimir Putin’s oil or face punishing tariffs has put Prime Minister Narendra Modi in a difficult position. With India heavily reliant on Russian crude, finding alternative sources of oil is not a straightforward task.
India currently imports about 90 percent of its crude oil from overseas, with Russia being the biggest market for seaborne crude since 2023. This amounts to around 5 million barrels of oil per day, with 2 million coming from Russia alone. However, replacing Russian barrels with other sources is a complex challenge due to factors such as pricing rigidity, freight volatility, and availability constraints.
Trump’s threat of imposing higher tariffs on India if it continues to buy Russian oil has added pressure on Modi to make a decision. The options facing the Indian prime minister include accepting the tariffs, shifting to other oil suppliers, or negotiating a compromise with Trump to reduce Russian oil purchases without cutting them off completely.
While the Biden administration had previously allowed India to trade with Russia below a certain price cap to control global prices, Trump’s stance is more aggressive. The Kremlin has criticized the US demands on India as “threats,” further complicating the situation.
Despite the economic benefits of buying discounted Russian oil, India’s reliance on it poses risks in the current geopolitical climate. A sudden halt in purchases could disrupt global markets and push crude oil prices above $80 per barrel. As a result, India is exploring gradual diversification options, but a complete disengagement from Russian crude seems unlikely in the near future.
Indian refineries have already started reducing their intake of Russian oil, with private operators showing signs of diversification. The country’s intake of US crude has also increased, providing a potential alternative to Russian oil. However, any decision to stop importing Russian oil will have economic implications and could impact the profitability of Indian refineries.
As Modi navigates this geopolitical dilemma, the global oil market watches closely to see how India’s energy supply mix evolves in response to Trump’s demands. The decision will not only impact India’s economy but also have ripple effects on the broader oil industry.
