US Tariff Threat on Russian Oil Could Hit India's Economy, Warns CareEdge

The United States' fresh threat to impose 100% tariffs on nations purchasing Russian oil could significantly strain the Indian economy, according to Sachin Gupta, Chief Ratings Officer at CareEdge Ratings. The impact would likely be felt through elevated crude prices, rising inflation, and a widening current account deficit (CAD).

Gupta noted that if India is compelled to cut its reliance on Russian crude while the Strait of Hormuz remains disrupted, global oil supply could tighten severely, potentially driving prices beyond $100 per barrel. In a worst-case scenario, crude could climb to $110–120 per barrel, which would have substantial repercussions for India's external and domestic economic indicators.

This warning comes amid heightened geopolitical uncertainty, with the Iran conflict and Hormuz disruption already clouding global energy supply prospects. India's dependence on Russian oil has grown recently, with such imports accounting for roughly half of the country's crude purchases in July, Gupta said.

"If indeed these 100 per cent tariffs continue and say in a scenario that India and China are not able to wean themselves away from Russian oil and the US is forced to levy these 100 per cent tariffs, then it will certainly have a significant impact," Gupta remarked.

He explained that if India and China significantly reduced or halted Russian oil imports while the Hormuz disruption persists, nearly 30% of global oil supply could be effectively affected, exerting strong upward pressure on prices. "If indeed this thing becomes a reality, our sense is then crude can suddenly go beyond USD 100," he added.

A sharp rise in crude prices would likely widen India's current account deficit considerably. Gupta estimated that at $110–120 per barrel, the CAD could "easily double" from last year's level solely due to higher oil costs. He also flagged inflationary risks, noting that the government might eventually need to pass on higher fuel costs to consumers, dampening domestic demand.

While the government could manage crude prices up to around $100–105 per barrel, pressure on oil marketing companies would intensify beyond $110, Gupta said. However, he acknowledged India's demonstrated flexibility in sourcing crude from new countries and its commitment to energy security. The ultimate challenge, he stressed, would not be the availability of alternative crude but the price at which such supplies can be secured.