Donald Trump has let India off the hook over buying Russian crude, thanks to soaring US fuel prices. India has escaped the immediate threat of punishing 100 per cent US tariffs over its purchases of Russian oil after the US President dropped new sanctions against countries buying energy from Moscow.
The Ministry of External Affairs has not issued a detailed statement about the waiving of the sanctions bill except to say that the US “has given a waiver, so no sanctions for us.”
Trump’s about-turn comes as he struggles to bring down spiralling domestic fuel prices ahead of the US congressional midterm elections, now less than three weeks away. The big factor driving up fuel prices has been the US war with Iran which has squeezed global supplies and disrupted oil shipments through the key Strait of Hormuz.
For India, which imports nearly 90 per cent of its crude needs, the decision is a massive relief. While India’s purchases of Russian oil have slipped due to aggressive competition from China and higher prices, Moscow remains a vital supplier and replacing it would have posed huge difficulties.
After months of threatening countries such as India with severe penalties for buying Russian oil, Trump backed off from the confrontation late last night, signing an executive order waiving the sanctions mandated under the Lindsey O. Graham Sanctioning Russia and Iran Act.
The White House said the decision was in the “national interests”.
The Trump administration has also just authorised Russian diesel imports to ease shortages and cut prices at home.
These moves followed Trump's telephone conversation with Russian President Vladimir Putin a few days ago after which Trump announced the US would be buying Russian diesel to counter shortages that have doubled prices across America.
Trump is desperate to bring down prices before voting takes place in the midterm elections to Congress.
Under legislation signed by Trump last month, Washington was preparing to slap extra tariffs of 100 per cent on goods imported into the US from the five largest buyers of Russian crude oil and natural gas. The penalties were due to take effect on October 18.
Many US lawmakers have slammed Trump’s actions, calling it a financial gift to Putin in his war against Ukraine, which Russia invaded in 2022.
Under the agreement with Trump, Russia has promised an initial 300,000 tonnes of diesel, followed by 500,000 tonnes in November and 1 million tonnes in December. But analysts question whether Russia’s war-damaged refineries can produce these extra quantities, particularly if Ukrainian attacks continue.
According to commodity intelligence firm Kpler, nearly 40 per cent of Russia’s refining capacity is idle, while diesel exports plunged from 706,000 barrels a day in January to virtually zero in September. To help counter shortages, Russia in recent months has been importing refined fuel from India.
Even if Moscow meets its commitments, the diesel volumes would cover only a few days of American demand and are unlikely to make any difference to prices, analysts say.
Before the Ukraine war, India sourced less than 1 per cent of its crude from Russia, with most coming from the Gulf countries, like Iraq, Saudi Arabia and the United Arab Emirates. That changed dramatically when European countries imposed sanctions on Russia and slashed their purchases of Russian energy.
Forced to find new customers, Moscow began offering big discounts, sometimes as much as $40 a barrel below international prices.
Russia swiftly overtook India’s traditional suppliers to become its biggest source of crude oil. The cheaper cargoes helped Indian refiners contain costs and improve their margins, while giving Moscow a major new market..
Indian purchases fell temporarily in January and February this year amid strong US pressure before recovering as refiners resumed buying competitively priced Russian cargoes.
The latest tanker-tracking data shows just how heavily India continues to rely on Moscow.
Russian crude imports averaged 1.82 million barrels a day in September, and Kpler expects purchases to remain at 1.8-million-to-1.9 million barrels a day in October.
That’s considerably below the 2.6-million-barrels-day-peak in June, but still leaves India as Russia’s second biggest oil customer.
There are signs, though, that purchases could decline further in November, because Russian oil is getting costlier.
Indian refiners have reportedly begun cutting orders for November delivery as growing competition from China pushes up prices.
Some Russian Urals cargoes have been offered at premiums exceeding $10 a barrel to Brent, eroding the price advantage that made Russian crude so attractive.
India has been working to diversify its supplies, increasing purchases from countries including Nigeria, Brazil, Venezuela and the United States. American crude accounted for about 5 per cent of India’s imports in September, and it was more expensive than oil available from several other suppliers.
Saudi Arabia, Iraq and the UAE have traditionally been India’s most reliable suppliers, with their proximity helping to keep transport costs lower. In September, the UAE alone supplied about 17 per cent of India’s crude imports.
The Emirates also has an important advantage. Its pipeline from Abu Dhabi to Fujairah allows some crude exports to bypass the Strait of Hormuz. But even that route isn't completely safe as the Iran-backed Houthi rebels in Yemen have shown their ability to strike energy infrastructure throughout the Gulf.
Russian cargoes travelling through the Red Sea and the Bab el-Mandeb Strait have luckily generally been less exposed to attacks by the Houthis than vessels associated with countries the group sees as hostile.