By K Raveendran
India has spent the past four years demonstrating that energy security can sometimes be protected by refusing to choose sides. Russian crude offered discounts when Western sanctions rearranged the global oil market, Gulf producers remained indispensable despite the new relationship with Moscow, and purchases from the United States and other distant suppliers gave refiners additional flexibility. That carefully constructed arrangement is now being subjected to perhaps its most difficult test.
The immediate challenge comes from two directions. The confrontation between the United States and Iran has made the Strait of Hormuz considerably less dependable just when India might otherwise have turned more heavily towards Gulf crude. At the same time, Washington is threatening to make continued purchases of Russian oil prohibitively expensive for countries that refuse to help tighten the economic pressure on Moscow. Taken together, these developments threaten the two supply corridors that have provided India with its principal protection against high energy prices.
The scale of India’s Russian dependence explains why the American tariff threat cannot simply be dismissed as another negotiating flourish. Russian crude accounted for more than half of India’s oil imports in July, an extraordinary increase from the marginal position Moscow occupied before the Ukraine war. Disruptions to Middle East supplies have actually strengthened Russia’s importance, forcing refiners to buy more Russian barrels even as the political risks attached to those purchases have increased.
A proposed 100 per cent tariff on imports from countries purchasing Russian oil would therefore pose a fundamentally different problem from sanctions on individual Russian producers or tankers. It would attempt to make India pay for Russian crude through its access to the American market. The calculation would no longer concern whether a Russian barrel remained cheaper than Saudi, Iraqi or American crude. New Delhi would have to weigh that saving against potentially much larger losses in merchandise exports to the United States.
Yet there remains a considerable distance between threatening such a measure and implementing it comprehensively. Washington would first have to decide how broadly to apply the penalty. China is also a major buyer of Russian energy and Chinese refiners have been increasing purchases. Applying a 100 per cent tariff across the board would risk opening another powerful front in an already complicated American trade strategy. Selective application, on the other hand, would invite accusations that sanctions policy was being used primarily as leverage in bilateral negotiations rather than consistently to weaken Russian revenues.
There are domestic considerations as well. President Donald Trump is confronting an oil market already approaching the psychologically important $100-a-barrel level. The renewed US-Iran confrontation has reduced Gulf exports, slowed traffic through Hormuz and periodically pushed shipping and insurance costs sharply higher. Measures that suddenly removed significant quantities of Russian crude from international commerce could tighten supply further and translate into higher fuel prices for American consumers.
That is particularly awkward ahead of the US midterm elections. An administration seeking to increase pressure on Moscow has little incentive to engineer an oil shock that would reinforce domestic inflation. The threat against Russian oil purchasers is therefore powerful precisely because Washington may hope that the threat itself produces concessions without requiring the full tariff weapon to be deployed.
Moscow, predictably, has rejected attempts to dictate where its energy can be sold. Russia also has alternatives. China has demonstrated an appetite for additional Russian crude, while the increasingly fragmented global oil trade has become remarkably skilled at rerouting cargoes, changing intermediaries and developing payment and shipping arrangements capable of operating around restrictions.
India consequently has reason to believe that some accommodation will eventually emerge. That has been the pattern throughout the Ukraine conflict. Each tightening of sanctions initially appeared capable of disrupting Russian supplies dramatically; markets then adapted, new trading structures emerged and Russian barrels continued reaching Asian customers, albeit sometimes at greater cost.
The more immediate danger to India may actually lie in the Gulf. The US-Iran confrontation has transformed Hormuz from a theoretical vulnerability into an operational one. Tankers have been attacked, maritime traffic has fallen sharply at periods of heightened tension and Iran has threatened further restrictions. Middle East crude exports have fallen substantially from pre-war levels. Brent has nevertheless remained below or around $100 largely because supplies from the Americas, Russia and other producers have compensated for part of the shortfall and because global demand has been softer than feared.
This is precisely why Russian oil has become more valuable to India, not less. Washington is effectively asking New Delhi to reduce reliance on one of the principal alternative sources available when its traditional Gulf suppliers are facing their own logistical hazards.
India will therefore argue that Russian purchases are not simply an act of geopolitical preference. They have become an element of emergency energy diversification. Cutting them sharply while Hormuz remains unstable would force Indian refiners deeper into Atlantic Basin supplies, lengthening voyages and increasing freight costs at precisely the moment when oil prices are elevated.
There is, however, another side to this changing energy relationship that could provide New Delhi with negotiating room. The United States has become India’s largest individual LNG supplier following the disruption of Qatari and UAE shipments through Hormuz. American LNG accounted for roughly a third of Indian imports in August, consolidating a shift that began when Gulf supply difficulties forced Indian buyers to search urgently for alternatives.
That development creates an unusual interdependence. Washington wants India to reduce purchases from Russia while simultaneously hoping to expand American energy exports. New Delhi has already shown willingness to increase purchases of US LNG, LPG and crude when prices are commercially reasonable. Energy could consequently become part of a broader bargain rather than simply another arena of confrontation.
India can offer increased American energy purchases without formally accepting that Washington should determine its crude suppliers. Additional LNG contracts, greater US crude imports and other energy purchases would help narrow the bilateral trade imbalance, something Trump has repeatedly emphasised. They would also allow Washington to demonstrate that pressure on India was producing tangible commercial results.
The obstacle is price. India is exceptionally sensitive to energy costs. Gas remains a relatively small part of its energy mix partly because imported LNG can quickly become uneconomic for fertiliser producers, power stations and industrial consumers. New Delhi cannot indefinitely substitute expensive American molecules for cheaper alternatives merely to satisfy diplomatic objectives. The same applies to crude. India’s refining system was built around flexibility. The economic advantage comes from purchasing whichever grades provide the best refinery margins. Politically directed sourcing can be tolerated at the margin; making it the organising principle of Indian energy procurement would impose significant costs. (IPA Service)
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