India Won’t Stop Buying Russian Oil. Now It’s Paying the Price.

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1:50President Donald Trump has been cranking up the pressure on India. a country the U.S. has courted as a strategic counterweight against China. Last week, Trump announced a 25 percent tariff on India, a higher rate than many other major economies in Asia. But he didn't stop there. This week, he threatened to raise the levy even higher. His message to India is clear. Stop buying Russian oil. If you look at India's purchase of Russian oil, it is substantial. It's about 1.7 million barrels a day from Russia. Shudi Ranjan Sen is a Bloomberg reporter based in New Delhi. He's covered Indian government and politics for nearly three decades.

2:33Shudi says India has a simple rationale for its purchases of Russian crude. India's position has been very, very clear. The purchase of energy is dictated by the markets. So wherever there is cheap oil or cheap energy, India will buy it. Trump's threats to India come just days ahead of an August 8th deadline for Russia to reach a truce with Ukraine. Here's Trump speaking to reporters about the consequences for Russia if there isn't a peace deal by this Friday. Well, there'll be sanctions, but they seem to be pretty good at avoiding sanctions. You know, they're wily characters and they're pretty good at avoiding sanctions.

3:11So we'll see what happens. To pile pressure on Moscow, the Trump administration is now threatening what's known as secondary sanctions. on countries that purchase Russian energy, like India. But for India, these threats feel a bit out of place, given that the country and Russia have cultivated strong and stable ties for the last seven decades. Why has India's ties with Russia come under scrutiny? India also doesn't understand why. Because the ties with Russia are not new. The fact that India has been buying oil ever since the Russian invasion of Ukraine in 2022 is not new. What went wrong is also a question that is foxy Indian officials, diplomats and policymakers.

3:58This is The Big Take Asia from Bloomberg News. I'm Wan Ha. Every week, we take you inside some of the world's biggest and most powerful economies. and the markets, tycoons and businesses that drive this ever-shifting region. Today on the show, India's thirst for Russian oil and its long-standing bromance with Moscow. How that's straining India's relations with the U.S. and making the country a target for Trump.

4:28The U.S. has slapped 25 % tariffs on goods from India. And President Trump this week threatened to substantially raise levies over India's purchases of Russian oil. Bloomberg reporter Shudhi Ranjan Sen says in India, officials are scratching their heads over why India's ties with Russia have become targets for Trump now. There are no clear answers, so to say, within India and the policy circles as well, because people and government officials I've been speaking to are quite taken aback or shocked to see the kind of reaction. It's not at all new. India's purchase of Russian crude, Russian energy is at least two years old.

5:07It starts with Russia's invasion of Ukraine. You know, perhaps it is linked to President Trump's frustration in not being able to get the Russia-Ukraine war to end. And since that has failed, India seems to be an unintended consequence. And as a result of which the entire India-U.S. relationship, now there is a huge question mark over that. How much oil does India buy from Russia and why? If you look at India's purchase of Russian oil, it is substantial. It's about between one third and 40%. But at the same point of time, much of this purchase is spot buying. It is at the moment, depending on the prices, whoever is cheaper.

5:48Before the invasion of Ukraine and before the sanctions or the price gap came in on Russian oil, and more importantly, Europe stopped buying, it was minimal, if at all, India ever bought Russian crude. After the invasion of Ukraine, when Europe stops buying Russian crude and swings towards the Gulf, prices go up and the amount of crude and gas available from the Gulf reduces. India then swings towards Russia, which was then offering a huge discount and continues to offer a discount. And is that such a huge discount that India feels like it needs to go to Russia and at the same time antagonize the U.S.

6:30and the international community, which obviously has sanctions on Russian oil? This is a question that very often has come up in briefings, in policy discussions between reporters and the government. And the assessment that India has is that if India were to stop buying Russian crude, completely shun and abandon it, then the prices of crude more likely will be unsustainable for India and its economic growth and many other countries in the global south. So you're saying that India's demand for crude is so high that if it didn't buy from Russia, it would then elevate the price of oil in the market.

7:10Yeah, yeah. I mean, India is one of the largest importers of crude. I mean, it imports more or less majority, about 80 percent of its requirement. So if these countries, specifically India, where it is stopped, then the prices of crude are going to go up. And that's been the constant refrain and argument that we have seen coming from the government. Are there any signs that India is going to stop buying oil from Russia at this point? No, we don't have anything to say that India is going to stop buying Russian oil. In fact, on the contrary, the government has made it very clear that the decision to buy oil is completely market-driven.

7:47There has been a very uncharacteristic and a very sharp rebuttal that we have seen from India. If you look at the statement that came from India, the statement says the targeting of India is unjustified and unreasonable. So it does feel that it's being singled out for no fault of its own. I want us to step back a little bit. Why is it that the India-Russia relationship is a close one? What are the roots of that closeness and how has that partnership evolved to where it is today? Well, I mean, the India-Russia relationship, if you want to go back and briefly recapture, at one level stretches back to the Cold War.

8:23And if you look at the 1971 war between India and Pakistan, which is a watershed in ties, the United States sided with Pakistan. On the contrary, you saw Soviet Russia at that point of time coming out in support of India. That kind of sealed the relationship. So in some ways, did the U.S. support of Pakistan then push India into Russia's arms? Very definitely. India has been a nation that had avowed non-alignment, but it has leaned on Russia. Then Soviet Russia, and now Russia, is one of the countries that have helped India in its process of industrialization. in the sense it has helped set up steel plants.

9:06It has helped India set up nuclear power plants. It has helped India in agriculture. It has helped India in space research. For seven decades, India has managed to keep a strong and stable relationship with Russia while balancing its relationship with China and the U.S. After the break, can India keep juggling those balls in the air? And what's at stake for Prime Minister Narendra Modi and U.S.-India ties?

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12:12The U.S. is penalizing India's purchases of Russian oil and weapons with a 25 % tariff rate, plus an additional penalty that's not yet disclosed. The U.S. is India's largest trading partner and biggest export market for goods and services. Bloomberg's Shudi Ranjan Sen says that the tariffs could hurt India's economy, and Prime Minister Narendra Modi's bracing the country for a possible hit. Trade and tariffs will have an issue because there's a cascading effect on the economy. The sectors that are likely to be affected are the sectors that are dependent on exports, and therefore then has a very negative impact on the growth of the Indian economy.

12:55What we have seen is the government trying to move in ahead of time and take remedial measure. Recently, we heard the prime minister when addressing a political rally telling Indians that you need to buy local stuff. And that is important because that's a way to keep the economy going should it be hit by the tariffs, by the penalties. So India has already started looking at how do you keep the economy going, protect the economy. What does this turn of tone mean for Modi now that the U.S. is criticizing India heavily and slapped a very high tariff? This kind of setback or an unraveling of a high-profile relationship between Prime Minister Narendra Modi and President Trump is going to be costly.

13:45Because Prime Minister has marketed this to his followers, to his voters, saying that it is because of his government's policies and his own diplomacy. And India is on such a sweet spot with the United States. Now, if everything went to turn sour, there is going to be political costs. There is going to be questions. Questions are already, in fact, being asked by the opposition. And what about the other personal stakes for Modi? Is it important for him to be able to provide cheap energy for the country? And if that doesn't come through, is he in danger? See, if cheap energy is not there or if energy becomes costlier than what it is already, energy is already quite costly in India.

14:25If it becomes even more costlier, that's going to have an impact on the economy. That's going to have an impact on the inflation. That's therefore going to have an impact on or decide how the central banks easen up money or tighten money control, which is then going to have an impact on investments, jobs, and then it is going to cascade down to unemployment and money in the hands of people. So very, very definitely energy is going to have an impact. And India as a country is very sensitive to inflation. And I wonder if that's a big reason driving India's defiance, that it's not going to step down from buying Russian oil at this point.

15:02Yes, because that is definitely one of the reasons that India is defiant in the sense it doesn't want to immediately comply with the United States and stop buying Russian oil because it does impact the economy, it does impact the economy very negatively and the consequences of which are manifold. And therefore, as a political leader, Prime Minister Modi would want to protect his votes, his constituency, his ability to win elections. China, of course, also has close ties to Russia. Does India feel like it's being picked on in that the U.S. hasn't gone after China? People in India pointing out the fact that the U.S.

15:40hasn't done anything about China, hasn't threatened China because of its Russian ties or its purchases of Russian oil. If you look at the broad figures, China-Russia's trade is over$200 billion. In comparison to India-Russia trade is not as big. So it's very clear that the China-Russia trade relationship is much deeper, much bigger. But why has China been left out? Why has India been singled out? It's very obvious that China has more leverage. And one of these leverages could be the rare earth. So the leverages that China has is bigger, higher, and therefore the United States may not have gone after China, whereas India is a softer target.

16:24Still, India has had a knack for doing this geopolitical balancing act between Russia, China and the U.S. for decades now. Can India still continue to juggle and keep those balls up in the air, especially with these higher stakes now at play? Well, India has been able to juggle, and that is something in the past we have seen. Foreign Minister Subramaniam Jayashankar taking great pleasure in saying that India's diplomacy can juggle multiple balls at the same point of time. But President Trump has injected a lot of unpredictability in foreign policy. Now, Shruti, how do you think this might all play out?

17:01Very difficult to say how this is going to play out. At the moment, it looks all, you know, the relationship looks to be at a bad place. But this is not the first time India relations with the United States have gone through bad patches. And they've always recovered. They're both mature democracies. If past is any indicator, this will also pass. This will not be the defining, so to say, the defining moment or the defining event of the India-US relationship.

17:39This is The Big Take Asia from Bloomberg News. I'm Wan Ha. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening. See you next time.

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