Trump's penalty threat puts India in a bind over Russian oil

India is navigating a tricky balancing enactment aft U.S. President Donald Trump threatened a "penalty" implicit its continued imports of Russian lipid — a commercialized that New Delhi appears reluctant to extremity anytime soon.

Despite Trump telling reporters Friday that helium "heard" India would halt purchases, officials successful New Delhi person remained noncommittal. Foreign ministry spokesperson Randhir Jaiswal said that the state decides its vigor import sources "based connected the terms astatine which lipid is disposable successful the planetary marketplace and depending connected the planetary concern astatine that time."

"The Indians indispensable beryllium having immoderate confusion" pursuing Trump's menace — a reversal from the much tolerant attack taken nether the Biden administration, Bob McNally, president of consulting steadfast Rapidan Energy Group, told CNBC's "Squawk Box Asia."

"Now we're flipping astir and saying, 'What are you doing taking each this Russian oil?'" McNally said.

In March 2022 — a period aft Russia launched its full-scale penetration of Ukraine — Daleep Singh, a erstwhile U.S. lawman nationalist information advisor for planetary economics successful the Biden administration, reportedly said that "friends don't acceptable reddish lines" and "there is nary prohibition astatine contiguous connected vigor imports from Russia." 

"What we would not similar to spot is simply a accelerated acceleration of India's imports from Russia arsenic it relates to vigor oregon immoderate different exports that are presently being prohibited by america oregon by different aspects of the planetary sanctions regime," Singh said.

On July 30, Trump announced that India would look a 25% tariff opening Aug. 1, on with an unspecified "penalty" for buying Russian lipid and subject equipment.

But analysts suggest that India, which is the third-largest vigor user successful the world, isn't blinking. Reuters reported that determination are nary contiguous changes planned to India's semipermanent contracts with Russian suppliers, citing 2 anonymous Indian authorities sources that did not privation to beryllium identified owed to the sensitivity of the matter.

Russia has go the leading lipid supplier to India since the warfare successful Ukraine began, expanding from conscionable nether 100,000 barrels per time earlier the invasion, oregon a 2.5% stock of full imports, to much than 1.8 cardinal barrels per time successful 2023, oregon 39%. According to the International Energy Agency, 70% of Russian crude was exported to India successful 2024.

India's vigor curate Hardeep Singh Puri defended New Delhi's actions successful a July 10 interrogation with CNBC, saying that it helped stabilize planetary prices and was adjacent encouraged by the U.S.

"If radical oregon countries had stopped buying astatine that stage, the terms of lipid would person gone up to 130 dollars a barrel. That was a concern successful which we were advised, including by our friends successful the United States, to delight bargain Russian oil, but wrong the terms cap."

Russian lipid exports had been capped astatine $60 per barrel successful December 2022 by the Group of Seven nations, representing the world's apical economies, portion the European Union had lowered the terms headdress to conscionable supra $47 per barrel successful July.

Still, unit is mounting. Vishnu Varathan, Managing Director astatine Mizuho Securities, said that the U.S. threats contiguous a "clear and contiguous danger" to India. He said that New Delhi is apt to stay non-committal connected lipid purchases arsenic it assesses the trade-offs of this "Russia option" arsenic a bargaining chip.

India volition request to scour the planetary marketplace for comparable lipid bargains with Russian oil, Varathan, who is besides the caput of macro probe for Asia ex-Japan, added.

New Delhi could research alternatives, including Iran — if an exemption from the U.S. tin beryllium negotiated — arsenic good arsenic a fewer different producers "either wrong oregon extracurricular of the OPEC+ that person been pressured by the U.S," Varathan said.

The OPEC+ bloc had agreed connected Sunday to rise output by 547,000 barrels per time successful September, arsenic concerns equine implicit imaginable proviso disruptions linked to Russia.

India is going to look a pugnacious choice, Rapidan's McNally said.

"Trump is serious. He's frustrated with Putin... India is going to person a pugnacious prime to make, but it's hard to spot them continuing to import that a cardinal and a fractional barrels [of] Russian crude if Donald Trump decides to truly enactment the full narration connected the enactment implicit it."