How US Tariff Threats on Russian Oil Could Affect India’s Economy
“China and India must buy their oil and gas from someone else,” warned Democratic Senator Richard Blumenthal of Connecticut, after the House voted to approve a proposal giving the President the power to levy up to 100 percent tariffs on countries continuing to buy Russian oil and gas. The passage of this resolution in the House means the President’s signature remains the only hurdle left for the bill.
For India, the discussion is not just about Russia, and the India-US relationship. It is also about a critical economic vulnerability energy security. After all, oil is an input into so many aspects of the economy, from transporting goods to manufacturing, farming and even retailing.
India needs to prepare itself for the possibility of a disruption to its oil supplies, without necessarily being in thrall to any one oil supplier.
US Tariffs on Russian Oil and India’s Dependence on Russian Crude
India’s purchases of Russian crude surged after the invasion of Ukraine began in February 2022. As Western countries imposed sanctions on Russia, Russian energy firms found new buyers in India. This has made Russia one of India’s largest oil suppliers, with crude from Russia accounting for nearly 33 percent of India’s crude oil imports, as of eight months of FY26, according to Kepler data.
India’s dependence on Russian crude has varied between periods of lower and higher availability, with Indian refiners buying oil from other suppliers when the supply of Russian crude was constrained. As recently as June 2026, Russian crude made up over half of India’s total crude imports after a shortage of supply from West Asia and large discounts on Russian crude.
India is not dependent on Russia, but Russia is an important player in India’s oil import portfolio.
One reason for this is price. Russian crude has often been cheaper than other crude, with a discount of up to $2-$5 a barrel as of June 2026. For refiners buying hundreds of thousands of barrels, even a small difference in price makes a big difference.
How US Tariffs Could Affect India’s Economy
The American tariff threat, therefore, poses two challenges to India: replacement of discounts with higher prices, and replacement of availability with scarcity.
India is the world’s third-largest oil importer and is highly dependent on international oil prices. If India has to buy cheaper Russian crude, any disruption to these supplies could lead to increased prices.
While petrol and diesel prices are determined by a variety of factors including international crude prices, refining, distribution, taxes, exchange rates and more, persistent increases in crude oil prices will have an impact. After all, petrol and diesel are used in transportation, and transportation is used for practically everything. A more expensive barrel can lead to more expensive bus fares, more expensive food and more expensive flights.
Inflation can be the second shock absorber. The Reserve Bank of India knows that as an importer of most of its oil, India is vulnerable to crude oil prices. Increased transportation and logistics costs can lead to increased prices of everything from food to air travel. If this takes place at the same time as inflation from other causes, families may find themselves paying significantly more for day-to-day items than they have in the past. Energy insecurity does not just affect the government or the oil industry, it affects ordinary Indian families.
The question is not just how much oil India buys from one source, but how much an individual household in Jaipur will have to pay when the barrel becomes more expensive.
Higher oil prices can affect not just the Indian economy, but the Indian currency as well, unless there is a corresponding decrease in imports, or an increase in exports, or both. The resulting impact on the current account can subsequently feed back into the currency. A weaker Rupee means imported crude is more expensive in local currency terms.
This is why having multiple sources of oil is more important than relying on a single source. India’s goal should not be to shift from being dependent on one supplier to another, but to ensure that its overall energy security is not compromised due to the actions of any one supplier.
Refiners have greatly benefitted from the availability of cheap Russian crude in the past few years. Reliance’s Jamnagar and Indian Oil’s Paradip refineries are among the many that increased their purchases of Russian oil in June this year. A disruption to this supply would therefore entail an economic cost, in addition to the national security cost.
Refiners would have to look elsewhere to procure alternative grades of oil, ranging from the Middle East to the US, Africa and Latin America. Not all grades are the same, and different refineries are equipped to process some grades rather than others. This presents its own set of logistical and economic challenges.
It is not that India cannot replace Russian oil, but that there will be costs and compromises in doing so. India has shown that it can diversify its oil imports, as seen in the increased purchases of American crude in the period mentioned above.
The point is that India should not put itself in a position where such a choice has to be made.
India’s Options for Strengthening Energy Security
The first step for India is to use diplomacy to mitigate the damage. While it is entirely possible that the resolution will come up before the legislature again, and the President will have to deal with it, it is important for New Delhi to engage with Washington on this issue. The aim should be to negotiate exemptions and other safeguards for India’s energy security, while keeping the overall economic ties with the US intact. At the same time, it is important for India to keep other options open.
India will have to pursue multiple suppliers in order to ensure that it is not dependent on any one supplier. This is especially important for a country which imports huge quantities of oil. The aim must be to establish a diversified portfolio, rather than have all eggs in one basket.
India has begun building strategic reserves of petroleum, with the first phase of strategic petroleum reserves (SPR) having a combined capacity of 5.33 million tonnes at Visakhapatnam, Mangalore and Padur. The government has also approved the creation of an additional 6.5 million tonnes of strategic reserves at Chandikhol in Odisha and Padur in Karnataka.
Strategic reserves cannot provide a solution to India’s energy security needs, but they can buy time during a crisis. And in matters of energy security, time is money.
India’s long-term solution to its energy security dilemma must lie in domestic alternatives. The government will have to encourage and promote the development of domestic sources of energy, ranging from solar to wind to nuclear to batteries to electric vehicles to public transport and hydrogen. Energy security requires energy alternatives.
It is important to remember that India’s dependence on oil will not disappear overnight. Many aspects of the economy will continue to rely on hydrocarbons in the years to come, including transport, petrochemicals, aviation and various other industries. Nevertheless, every barrel of oil replaced by a cleaner and more reliable domestic alternative is a step closer to energy security.
In the short term, the government will have to balance its books while managing the impact of an increase in oil prices on the economy and the people. If prices rise, there will be pressure on the government to provide relief, especially to poorer families who spend a larger proportion of their income on transport and other essentials.
Some form of price control or subsidy may be necessary to prevent unrest among the population. At the same time, the government should not commit itself to long-term subsidies that can put an unsustainable burden on the exchequer. Temporary tax breaks or other measures may be a good way to provide relief without damaging fiscal policy in the long run. The government will also have to ensure that essential transport is protected, while not coddling the rich and powerful.
It should also be careful not to mask the economic damage for too long. A subsidy may cushion the blow to the family man, but it comes at the cost of the taxpayer.
Some people will be more affected than others. Families with low incomes will find themselves spending a much larger proportion of their earnings on transport, since petrol and diesel are an integral part of transport. Farmers will be affected by higher diesel prices, since they rely on diesel for tractors, irrigation and transport, among other things.
Transporters and logistics companies will also be hard-hit, and may increase their prices in response. Manufacturing companies may be forced to pass on higher transportation and energy costs to consumers. Airlines will be affected by higher prices of jet fuel, though jet fuel prices are linked to international crude prices.
Indian refiners will be affected by the loss of cheap Russian crude. Exporters to the US will face additional challenges, as the combination of higher tariffs and higher prices may hurt their competitiveness in the American market. In effect, there may be a price impact on both the import and export sides of the economy.
The Long-Term Challenge for India’s Energy Security
The current situation provides an opportunity for India to think through its energy security policy in a comprehensive manner. India cannot rely solely on domestic production for its energy needs for decades to come, and it also cannot afford to be completely dependent on any one supplier. Energy security has more to do with strategic reserves, alternatives to oil, and a diversified portfolio than with self-sufficiency in energy production.
India’s reliance on Russia for oil does not mean that India has to sever its strategic ties with Russia in order to achieve strategic autonomy. On the other hand, India’s growing dependence on the US for oil imports should not blind India to the dangers of overreliance on any one foreign power. The ability to choose is what gives strategic autonomy its teeth.
The threat of tariffs by the US is an inconvenience to India, which has to balance its need for cheap energy with the need to maintain stable energy security in a fractured world.
India has to negotiate with the US, secure its commercial ties with Russia and other suppliers, and promote and build strategic reserves, alternatives and absorbers of shock in order to manage the situation.
India also has to understand that its vulnerability to the whims of external suppliers is not just a matter for economists and policymakers. It trickles down to the common man, in the price of his bus fare, his groceries, and his exports.
For India, energy security is not just about having enough barrels of oil, but about ensuring that the decision of a foreign government to slap tariffs on Russian oil does not decide how much an Indian farmer has to spend on transporting his produce, or how much an Indian business has to pay to keep its operations going.
The ability of India to withstand the economic damage of such a decision will determine how strategically autonomous it is in its foreign policy.
Comments