US-India Trade Deal: Switching from Russian to US oil could raise India’s fuel bill by billions, reshaping trade, inflation and key sectors like agriculture and pharma.
Oil storage tanks and pipelines highlight the cost and trade implications of India sourcing crude from the US versus discounted Russian oil under the new trade framework (Photo: File)
US-India Oil Trade Deal: India is at a critical point in terms of its oil sourcing, where politics and economics intersect while Washington presses New Delhi to cut back on Russian oil, the debate has shifted from price considerations to the implications of the costs involved. This is not just about current expenses in terms of fuel, but also about influencing the future of economic policy.
After prolonged talks, India and the United States finally concluded a historic trade agreement, reducing the mutual tariff on Indian exports from 25% to 18% and the agreement was reached after direct talks between Indian Prime Minister Narendra Modi and U.S. President Donald Trump, who publicly linked any reduction in tariffs to India reducing its dependence on Russian oil imports and increasing the purchase of energy products from the United States.
Since 2022, Moscow has been supplying oil to India at heavily discounted prices in order to retain customers despite sanctions by the West. At the lowest point, Russian oil was being sold for about $35 a barrel. Even now, discounts of about $6 to $10 below Brent are still prevalent. This discount advantage increased Russia’s share of Indian oil imports from less than 2% in FY2020 to over 35% in FY2025.
The United States operates its oil game in a slightly different manner and it exports oil to the top-tier markets in other countries, but it also imports oil that is best suited for its refineries, which come from Canada and the Middle East. However, for India, the United States oil is not always the most economical option due to the longer sea routes, higher benchmark prices and a lack of discounting flexibility compared to Russian oil imports.
According to estimates quoted by the State Bank of India, a halt in Russian oil imports may increase the import bill of fuel in India by $9 billion in the current financial year and by $12 billion in the next financial year. If a few nations reduce their purchases of Russian oil imports, international prices may rise by 10%.
Increased fuel costs create ripples in the economy. For agricultural businesses, increased costs will be incurred for fertilizer, transportation, and irrigation, adding to their vulnerability to changes in international prices. The pharmaceutical sector, which is highly export-oriented, will also be affected. A sudden increase in tariffs may reduce profits by 5 to 10 percent, although Indian generics continue to be the backbone of affordable healthcare in the US.
