Trump’s Demand and Its Global Impact

US President Donald Trump’s recent demand for India to halt its Russian oil imports has sparked concerns over potential global economic repercussions. This move threatens billions in Russian revenues and could provoke Moscow to retaliate by disrupting a major US-led oil pipeline, potentially leading to a new global supply crisis. India, the world’s third-largest oil importer, has become the largest buyer of Russian oil since 2022, purchasing up to 2 million barrels per day. This accounts for 2% of the global supply, with China and Turkey also being significant buyers.

The Strategic Importance of Indian Oil Imports

India’s role as a major importer is crucial for Russia, especially after Europe imposed a ban on Russian oil due to its military actions in Ukraine. The Indian route is so vital that any disruption might prompt Russia to close the CPC pipeline from Kazakhstan, where US oil majors like Chevron and Exxon hold significant stakes. Analysts at JP Morgan have highlighted Russia’s leverage in this situation.

Tariffs and Trade Realignment

Trump has threatened tariffs of up to 100% on countries purchasing Russian oil unless Moscow agrees to a peace deal with Ukraine by early August. A 25% tariff on all US goods imports from India is set to begin soon. In response, Indian state refineries have paused Russian oil purchases amid these threats. India’s reliance on Russian oil imports is significant, accounting for $50.2 billion in the 2024-25 fiscal year.

Challenges in Replacing Russian Oil

India’s dependency on various grades of Russian oil means finding alternative sources will be challenging. The country may need to increase imports from the US and Middle East or reduce refining runs, potentially causing a spike in diesel prices, particularly in Europe.

Russia’s Economic Pressures and Potential Responses

Despite international sanctions, Russia has continued selling oil at discounted rates. However, falling global prices have put pressure on its revenues, which dropped significantly in recent months. If India ceases purchases, Russia might need to store oil on tankers or reduce production levels. JP Morgan suggests Russia could redirect some exports to other countries or disrupt the CPC pipeline to impact Western economies.