India and China Defy US Sanctions on Russian Oil
India and China have continued to purchase oil from Russia, despite threats of secondary sanctions from US President Donald Trump. Both nations have prioritized their energy security and economic sovereignty, with China becoming the largest importer of Russian oil in 2022. India has accused the West of hypocrisy, pointing out that the European Union still imports Russian energy, albeit at reduced levels.
Energy Security and Economic Sovereignty
India’s oil purchases from Russia have grown significantly, from 0.1 million barrels per day in 2021 to 1.9 million barrels per day in 2022. China’s imports have also increased by 50% to 2.4 million barrels per day. According to energy analyst Petras Katinas, India has saved up to $33 billion in energy costs between 2022 and 2024 due to discounted prices from Russia. India’s decision to buy Russian crude oil is underpinned by its priorities of energy security and economic difficulty.
Trump’s New Sanctions Threaten Markets
Trump’s executive order imposing an additional 25% tariff on Indian imports has sparked concerns about the impact on global markets. Oil prices rose by almost 1% following the news, and Indian media reported that the new tax could increase the country’s oil bill by up to $11 billion. India has described the additional tariff as "unfair, unjustified, and inappropriate." The tariffs are set to come into force in 21 days, giving India and Russia time to negotiate with the administration about import taxes.
Potential Consequences of Sanctions
Secondary sanctions would be a significant blow to the Russian economy, which is already struggling due to western sanctions. Russia’s military expenses now exceed 6% of GDP, and real inflation is estimated to be between 15% and 20%, compared to the official 9% value. The new sanctions could trigger a seismic shock in energy prices and trade currents, reminiscent of 2022 when oil prices rose and Russia responded to western sanctions by reducing energy contracts with major economies.
Impact on India and Global Markets
If India were to replace its Russian oil imports, it could take up to a year to reduce its dependence on Russian crude. Higher oil prices would lead to a strong increase in inflation in both the US and worldwide. The US Federal Reserve has estimated that each $10 increase in crude oil prices would increase US inflation by about 0.2 percentage points. Indian companies could face serious effects due to their integration into global markets, including access to the US financial system and exposure to banks, refineries, and shipping companies.
Oil Price Increase and Inflation
If Russia’s 5 million barrels of oil per day were suddenly removed from the market, analysts believe that oil prices could increase again as countries scramble to find alternative supplies. Even if the oil cartel increases production, replacing such a large volume would be exceptionally difficult at short notice due to limited spare capacity and logistical restrictions. Higher oil prices would trigger a strong increase in inflation, with estimates suggesting an increase of around one percentage point for consumers and companies, especially in energy, transport, and food.
China’s Leverage and India’s Vulnerability
China, with its massive trade with the US, could be exempt from the new US measures. China’s economic scale and its chokehold on the supply of rare earth minerals could serve as levers to alleviate Trump’s attitude. India, lacking comparable leverage, is more vulnerable to the effects of the new sanctions. Trump has doubled down on India, saying that the probable effects of his new sanctions on Russia and India would "bring their dead economies together."
India’s Oil Imports and Russia’s Energy Revenue
India’s oil imports from Russia have achieved an 11-month high, with 2.08 million barrels per day in June, making up 44% of the country’s total crude consumption. Russia is aggressively maximizing its energy revenue to replenish its war fund, and Indian refineries continue to buy Russian crude despite dwindling discounts. China’s likely reaction to secondary sanctions seems to be guided by its earlier response, with Chinese banks increasingly refusing Russian transactions and forcing Moscow to rely on opaque agents and third-party problems.
Conclusion
India and China’s continued purchases of Russian oil have defied US sanctions, prioritizing their energy security and economic sovereignty. The new sanctions imposed by Trump threaten to disrupt global markets, leading to increased oil prices and inflation. India’s vulnerability to the effects of the sanctions is greater than China’s, due to its lack of comparable leverage. As the situation unfolds, it remains to be seen how India and Russia will respond to the new sanctions and their potential consequences for global markets.
