The 50% misfire: How Trump made Russian oil cheaper for India - And Putin a winner

President Trump's recent doubling of US tariffs on Indian goods, aimed at curbing India's Russian oil purchases, has backfired, making Russian crude significantly cheaper and more appealing to Asian buyers. This has led to India's Russian oil imports soaring to 37% of its total crude intake, while China also ramped up purchases, further entrenching Moscow's oil in the Asian market and bolstering the shadow fleet. The policy has inadvertently strengthened economic and diplomatic ties between India, Russia, and China, creating a policy dilemma for the US where further pressure risks higher global oil prices.

Analysis

The US administration's strategy of doubling tariffs to 50% on Indian goods to curb Russian oil purchases has proven counterproductive, inadvertently strengthening Russia's position in Asian energy markets. Rather than isolating India, the policy has intensified a price war, with Russian Urals crude now trading at discounts of up to $7 per barrel below Middle Eastern grades. This has made Russian oil highly attractive, causing India's intake to grow to 37% of its total crude imports, up from 1% four years ago. Concurrently, China has absorbed the surplus, with October orders for Urals crude increasing tenfold from September. This rerouting of trade has boosted Russia's total seaborne exports to a seven-week high of 3.49 million barrels per day and fostered a booming black market logistics network, evidenced by a quadrupling of the 'shadow fleet' since 2022. The policy's primary effect has been to strengthen economic and diplomatic ties between India, Russia, and China, while paradoxically helping to suppress global oil prices. A Citi analysis suggests that a successful halt of these flows could have pushed oil to $100 a barrel, highlighting a policy contradiction where effective enforcement would likely lead to higher inflation and fuel costs for Western consumers.

Key Decisions for Investors

• The sustained flow of discounted Russian crude to Asia is acting as a significant cap on global oil prices, and investors should adjust energy price forecasts to account for the resilience of this parallel market, which mutes the impact of traditional supply-side shocks.
• Monitor the deepening economic and diplomatic ties between India, Russia, and China, as this emerging bloc, strengthened by the tariff policy, could lead to long-term shifts in global trade routes and challenge the dominance of the US dollar in commodity settlements.
• The current situation presents a policy dilemma for Washington, where stricter enforcement could trigger a spike in oil prices and inflation; therefore, investors should remain cautious about assuming aggressive Western intervention that could remove these barrels from the global market.