India’s Oil Dilemma Amid Tariff Tangle

With only four more months left, we can now safely say that 2025 is the year of tariffs, trade wars and tensions – most originating since Donald Trump took over as the US President.

And as we enter August, global trade just got a lot more heated for India with the US imposing an additional 25% tariff on Indian goods, citing India’s surging imports of discounted Russian crude oil. This move, effectively doubling some duties to as high as 50%, marks the sharpest downturn in US-India trade ties in quite some time.

The Issue at Hand

50%? Yes, there is now a US tariff of 50% on most Indian goods. Trump announced an extra 25% tariff as “punishment” for India’s continued imports of Russian oil, on top of a previous 25% duty. The first 25% rate became effective on August 7, 2025, and the additional 25% will be implemented 21 days later, so the full 50% rate takes effect near the end of August 2025.

It follows India’s significant increase in oil purchases from Russia since 2022. The pivot to Russian crude has been swift and massive: Russia accounted for nearly 36% of India’s total crude oil imports in 2024, up from just ~2% before the Ukraine war (2022). At one point in 2024, Russian oil made up over 40% of India’s monthly crude supply, a historic high.

India Oil Imports from Russia in 5 Years

So, what happens when a trade war brews over oil? Let’s break down.

The Oil Math: Why India Buys from Russia

Deep Discounts: After the Ukraine war, Russia offered oil at $15–$20 below global prices to attract buyers, giving India a chance to save billions and stabilise domestic fuel prices. Indian officials argue this prevented prices from rising above $120 per barrel.

Flexible Payments: Western sanctions made dollar payments difficult, so India paid in alternative currencies like Rupees, Dirhams, and Yuan, bypassing US restrictions. This flexibility made Russian oil easier to buy than OPEC supplies. 

From 0% to Top Supplier: Russia has surged from supplying less than 1% of India’s oil pre-2022 to 36% in 2024. Notably, India and China now buy the bulk of Russia’s oil exports. India alone accounted for roughly 41% of Moscow’s total crude exports in 2024.

Why Not Switch Suppliers? It’s not so easy. Replacing 1.5 million barrels a day is challenging, as alternatives are either more expensive or limited by OPEC’s supply cuts. Even though switching is logistically possible, no alternative offers the same price advantage, making it financially challenging for India to cut ties with Russia.

Buying from the Middle East or the US would likely mean paying market price or premiums, instead of discounts. So, India would take a financial hit – higher import bills, potential fuel inflation at home – if it pivots away from Russian crude. 

Economic Impact

Trump’s tariff move has wide-ranging impacts on India’s economy and markets.

Blow to Indian Exporters: Indian goods worth nearly $87 billion were shipped to the US in 2024, and $56 billion so far in 2025. “Nearly 55% of our shipments to the US will be affected,” warns the Federation of Indian Export Organisations. 

Key sectors in India face the heat: Textiles, apparel, footwear, gems & jewellery, and automotive parts are among India’s top exports to America; many of these are price-sensitive industries. Suddenly, imposing an extra tariff could erode their competitive edge in the US market.

Calling the tariff a “serious setback”, Narender Singh, smallcase Manager & founder GrowthInvesting, said, “For exporters in places like Surat and Gujarat, this move could mean cancelled orders, margin pressure, and job uncertainty.”

Impact on GDP: If exports to the US plunge, it could drag down India’s GDP growth by a few tenths of a per cent this year. 

Robin Arya, another smallcase Manager and Founder of GoalFi, added, “Our analysis shows approximately 55% of India’s $86.5 billion US exports face these crushing tariffs, particularly devastating sectors like textiles (45 million workers), gems and jewellery (7% of GDP), and auto components. Indian exporters now face a 30-35% competitive disadvantage versus regional peers.”

However, analysts noted markets had partly priced in the risk of tariffs, so a full-blown panic was avoided. The government, reading the writing on the wall, signalled it’s “open to talks” during the 21-day window before tariffs take effect, hoping to negotiate a climb-down.

“We believe India stands well-prepared. With 82% of exports directed beyond the US market, our economy demonstrates remarkable diversification. The government’s ₹20,000 crore export support package, enhanced PLI schemes, and accelerated EU-UK FTA negotiations showcase proactive response mechanisms,” 

Quick Stat: The US buys about 18% of India’s exports (worth $80–87 billion annually), making it India’s largest export destination. 

US-India Trade (2020–2025)

Indian Oil Companies: Winners or Losers? 

Paradoxically, the very cheap oil bonanza that benefited Indian refiners is now a point of vulnerability. Companies like Reliance Industries (which runs the world’s largest refinery at Jamnagar) and Nayara Energy (Rosneft-backed) have profited by gorging on discounted Russian crude and exporting fuel (diesel, jet fuel) at market prices. But now they face a double whammy: Trump’s tariffs threaten India’s refined product exports to the US, and new EU sanctions (effective early 2026) that will prohibit the import of petroleum products derived from Russian crude oil, even if processed in third countries.

State-run oil companies might need government support if forced to buy costlier oil (to avoid passing costs to consumers). On the flip side, any reduction in Russian purchases globally could tighten supply and lift international oil prices, which benefits upstream producers like ONGC (higher realisation per barrel) but hurts downstream fuel consumers (airlines, paint and chemical companies, etc.). 

So the oil & gas sector outlook is mixed: Indian oil marketing companies could face a margin squeeze if cheap crude inflows shrink. 

Many analysts doubt India will completely give in. Energy security is seen as a core interest. New Delhi calls the tariff threat “unjustified and unreasonable”, pointing out that many other countries also import Russian oil for their needs. 

India so far plans no direct retaliation (imposing counter-tariffs would escalate the pain). Notably, Prime Minister Modi is set to visit China soon. In any situation, investors should avoid knee-jerk reactions to each twist and focus on the bigger picture trends.

What it Means for Retail Investors

For everyday investors, this geopolitical tussle can feel complex. Here’s how one can think about positioning a portfolio amid the uncertainty: 

Potential Sector Winners: 

Oil & Gas Sector: Energy companies could see increased volatility but also opportunity. If oil prices climb due to supply shifts or a weaker Rupee, domestic upstream producers (oil explorers like ONGC, Oil India) might benefit from higher revenues. Investors bullish on energy can consider thematic exposure to oil & gas, but should be selective (upstream vs downstream dynamics differ).

Renewable Energy & Energy Independence Plays: The situation underscores why India has been pushing for energy diversification (solar, wind, biofuels). If geopolitical risks threaten oil supplies or raise costs, that only strengthens the case for renewables and electric mobility.           

Currency-hedged Exporters (IT, Pharma Services): A mildly weaker Rupee could actually boost sectors like pharma, business process outsourcing, as these earn mainly in US Dollars but have costs in Rupees. 

Karthick Jongadla, Founder at Quantace Research, adds, “Game-theory logic favours Delhi: already at its lowest payoff, India can credibly threaten mirror duties on American imports. If talks collapse, US firms are at real risk of forfeiting privileged access to the world’s fastest-growing consumer market, while India pivots supply chains and leans on domestic demand.”

Potential Sector Losers

Apart from the export-oriented companies (textiles, garments, auto parts), there are certain other sectors that may face slowdowns or margin pressures from higher tariffs. 

Global Cyclical & Import-dependent Sectors: Cyclical sectors like metals, shipping, and capital goods could suffer from weaker global demand. Companies reliant on imported inputs (electronics, consumer goods, automakers) may see higher costs. If oil prices rise, aviation, logistics, and paint industries could be hit. Watch sectors tied to global trade or commodity prices closely.

Volatility in Financials: Banks may face stress if export sectors struggle, but domestic demand should support local lenders. Monitor central bank actions, especially on interest rates, if inflation spikes. To recall, the Reserve Bank of India held ground on interest rates (unchanged at 5.50%) in the recently ended monetary committee decision as tariff talks took heat. The central bank has also warned that while the headline inflation rate remains within its tolerance target (2%-4%), it can likely edge up to over 4% by the end of FY26.

Currency & Oil Sensitivities: A weakening Rupee may favour export-oriented sectors (IT, pharma), while strengthening could reverse gains. On oil, if Russia continues supplying India, prices may stay moderate, but any disruption could drive prices up, affecting energy stocks and inflation-sensitive sectors. Monitor government policies like fuel subsidies, which could impact sectors and government finances. 

As Mr Singh cautions, “Overall, this development hits at a time when India was building strong export momentum. It not only affects near-term earnings and investment plans for many mid-cap exporters, but also raises fresh questions about our long-term trade strategy. The market reaction has already turned cautious, and unless there’s a policy response or a rollback, the pain could deepen in the coming quarters.”

Portfolio Positioning Tips

In times of geopolitical uncertainty, it’s wise to stick to quality. 

Dr Vikas V Gupta of OmniScience Capital says, “The focus should be on the fundamentals and less on the noise. If you are already not invested in the tariff-exposed sectors then definitely don’t start focusing on them now. Now is the time to focus on the domestic revenue generators which for the scientific investing framework and are supernormal companies at supernormal price.”

Investors could also consider thematic baskets (like those focusing on energy, defence, and consumption) to spread risk within a theme. 

Quantance Research suggests, “Prefer sectors insulated from US goods tariffs—domestic banking, consumption, renewables, telecom. Be cautious on textiles, gems and jewellery, speciality chemicals, low-margin auto ancillaries until clarity emerges.”

To Wrap Up

Trump’s tariff salvo reminds India that its actions on the world stage (like whom it buys oil from) can have real consequences for trade and investment. In today’s interconnected world, a policy decision in Washington or Moscow can hit an investor’s portfolio in Mumbai. That’s why a savvy long-term investor must be macro-aware. 

The question remains: Will India swallow the US tariffs, shift from Russian oil to other suppliers, or try to find a compromise with Trump?

Disclaimer: This analysis is for educational purposes and does not constitute investment advice. Market conditions can change, and past performance is not indicative of future results. Investors should conduct their own research and/or consult a certified financial advisor before making investment decisions.