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President Donald Trump on Monday announced he would reduce tariffs on Indian goods in exchange for, among other things, a promise to stop buying Russian oil.
That will be a tall task: India has been importing roughly 1.5 million barrels of Russian oil each day — even months after Trump placed tariffs on Indian goods as punishment — according to Kpler, a global trade data provider. Russian oil makes up more than a third of India’s overall imports.
Trump said in a social media post that he spoke Monday morning with Indian Prime Minister Narendra Modi, who agreed to replace the country’s Russian crude imports with oil from Venezuela and the United States. Venezuelan oil is of the same quality as Russian oil — heavy, sour and perfect for making derivatives like fuel oil and diesel, which India’s refineries are already set up to process, noted Rob Thummel, senior portfolio manager at Tortoise Capital.
It’s not clear, however, how long that transition may take. Venezuela’s oil infrastructure is dilapidated and requires about a decade of work and tens of billions of investment dollars to return it to the more-than-3 million barrels a day output it had achieved before the country’s Socialist government took control in 1999.
India also buys more oil from Russia than Venezuela produces.
“Fully replacing Russian oil with oil from Venezuela or the US will take significant investment,” said Rob Haworth, senior investment strategy director at U.S. Bank Asset Management. “But. over time, this may create additional challenges for the Russian economy.”
India is a major purchaser of Russian oil, which has been sanctioned by most Western countries because of Russian President Vladimir Putin’s war with Ukraine. China buys significantly more Russian oil than India — and unlike India, China hasn’t faced additional tariffs for purchasing Russian oil. Turkey is a distant third.
India’s need for Russian oil
Indian government officials have defended purchasing Russian oil previously, calling it essential to the country’s energy security. India is the world’s third-largest consumer of oil, and Russia is a close-by seller. India relies on its crude to support its fast-growing economy, fueled by the world’s largest population.
And Russian oil has traded at a significant discount – roughly $16 a barrel – to OPEC or US crude, making it hard for India to quit, noted Robert Yawger at Mizuho Securities. Even after this agreement with the United States, Yawger said he expected India may flout sanctions and purchase Russian oil, as it has throughout the past several years.
“There’s been a zillion different ways they have been able to outflank sanction authorities,” Yawger said. “They’ll find a way to go dark fleet and get those barrels moved.” (Dark fleets are ships that use murky tactics to transport oil for pariah states.)
But as oil prices have come down over the past several months, the difference in price between sanctioned oil and non-sanctioned oil eroded, allowing India to make a change.