India Caught Between Tariffs and Oil Price Risks

The US Senate is considering a law that would allow the President to impose tariffs on countries importing Russian energy, potentially as high as 100%. India and China are the two largest buyers of Russian oil. To avoid this tariff, India could stop buying Russian crude or continue to buy it and absorb the tariff.

In the first scenario, if India stops buying Russian crude but other countries keep buying, oil prices may not rise. However, if all targeted countries stop buying Russian crude, global supply would decrease by 12%, leading to a 60% increase in oil prices. This could add $42.5 billion to India's import bill.

In the second scenario, absorbing a 100% tariff on US goods imported into India could lead to a 39% decline in exports, resulting in a loss of around $34 billion.