The U.S. President has unveiled plans to impose additional tariffs on Indian goods, criticizing India’s continued trade relations with Russia. The 25% import tariffs will take effect in August, as stated by the President on social media channels last Wednesday. This move has been described as a ‘penalty’ for India’s purchases of fuel and weaponry from Russia. Earlier in the month, the President served a warning to Russia to halt its aggressive actions in Ukraine or face ‘secondary tariffs’ affecting its allied trading nations.
U.S. legislators have been recently debating a piece of legislation that could lead to an even harsher set of measures. The proposed bill endorses the imposition of tariffs as high as 500%. A study from the Finland-based Centre for Research on Energy and Clean Air revealed that India has now become the largest purchaser of Russian crude oil when measured by volume, while China still holds the top spot in terms of monetary value.
Amidst escalating tensions, the Indian government remains defiant against the U.S. trade threats. The country’s Foreign Secretary condemned the threats as examples of ‘double standards’. However, political observers believe that India, despite being an Asian economic giant, may not hold sufficient influence in this confrontation.
India touts a trade surplus with the U.S., its most significant export market. Interestingly, similar intimidations from the U.S. have previously yielded results. In 2019, during the initial stages of the President’s tenure, India discontinued its oil imports from Iran in response to U.S. sanctions related to Iran’s controversial nuclear program.
Nevertheless, the recent pressurizing measures aimed at Russia’s trade allies may not necessarily deliver the desired blow to Russia’s economy, according to insights from a U.S.-based investment research firm. In the past, when faced with Western sanctions due to its ongoing conflict in Ukraine, Russia initiated a ‘shadow fleet’ of oil tankers. Essentially these were third-party intermediaries, tasked with ensuring seamless oil delivery to its clientele.
Observers opine that there may be business interests within India that, despite initial statements of defiance, would prefer a compromise. One geopolitical strategist suggested that these interests might find it beneficial to partially enforce sanctions, secure some relief from the U.S., and negotiate a trade deal.
India’s reliance on Russian crude oil is a long-standing practice. This dependence increased after Russia’s full-scale incursion into Ukraine in 2022, when Russia began offering oil at reduced prices. Currently, over a third of the crude oil imported by India originates from Russia. Nevertheless, the Indian Petroleum Minister has noted that India also sources oil from nearly 40 other nations.
A public policy school’s professor of economics argues that the key casualty of these developments is likely to be the diplomatic relations between the U.S. and India. In the past months, bafflement has been widespread among Indians due to the unanticipated courses of action and assertions by the U.S. administration.
This includes measures such as cancellation of student visas, deportation of Indian immigrants lacking legal residency in the U.S. while handcuffed, and claims of intercession in ceasefire negotiations between India and Pakistan, effectively contradicting the official Indian position.
If India were to cease its trade associations with Russia, it could lead to an escalation in oil prices. This potential rise is expected to impact the already strained average Indian consumer. Multiple research studies indicate that most of India’s population doesn’t have a significant margin for discretionary spending.
Therefore, whether an increase in oil prices amidst these circumstances will make a significant impact on the current Prime Minister’s political fate, remains uncertain. As an economist pointed out, in the past, fluctuations in external elements, such as oil prices, have not typically been seen as a factor within the purview of the local administration.
In Indian politics, electoral outcomes have often been influenced more by domestic issues like the pricing of staple food items, exemplified by onions, rather than international trade matters. Understanding the President’s move within these contexts, it’s not far-fetched to say that finding an agreeable solution would require skilled negotiating and delicate management of varied interests.
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