India Evaluates Impact of US Tariff Hike on Exports and Russian Oil

Government Initiates Study on Impact of US Tariff Hike on Indian Goods and Russian Energy Imports

The Government of India has commenced a comprehensive evaluation of the expected impact stemming from the recently announced increase in United States tariffs affecting Indian goods and India’s ongoing imports of Russian energy. This study follows indications from US authorities, under the current Trump administration, that Indian exports to the American market could soon face a substantially higher tariff regime, and that imports of Russian oil by India may be subject to additional penalty tariffs. The ongoing assessment covers economic, trade, and strategic implications for the country, as well as possible administrative responses to mitigate negative effects for Indian businesses and consumers.

US Announces 25% Tariff Hike, Potential Penalties on Russian Energy Imports

The 25 percent tariff announcement by the United States places India alongside several other emerging markets such as Vietnam, Indonesia, and China, all of whom currently face elevated tariff barriers to their exports in the US market.^[1] Of particular note, the new US measures include the possibility of strengthening tariff penalties specifically targeting Indian imports that are linked to Russian energy, especially crude oil. While the US move has not been framed as a sanction regime, the signaling from Washington strongly suggests intent to leverage trade policy to influence India’s ongoing energy partnership with Russia.^[2]

According to industry experts, the actual extent and application of these tariffs, particularly the so-called “Russian penalty,” remain subject to clarification.

“Everyone is scrambling to decode Trump’s latest tariff move, but let’s be clear, this is a tariff, not a sanction on India’s Russian oil purchases. The latest rhetoric from Trump also links to India’s defence imports from Russia, so the strategic landscape is shifting. This isn’t a sanctions regime yet, but the signalling is strong,”

stated an oil sector executive familiar with the ongoing discussions.^[2]

Administrative Response: Government Study and Consultation Process

In the wake of the announcement, India’s Ministries of Commerce and Industry, External Affairs, and Petroleum & Natural Gas have initiated a multi-layered study to thoroughly assess:

• The direct and indirect impact on key export sectors, including textiles, gems and jewellery, marine products, automotive components, and pharmaceuticals.
• Effects on Indian public and private sector energy importers that have entered into long-term contracts with Russian producers.
• The potential for increased input costs for Indian industry reliant on relatively discounted Russian energy.
• Strategic risks to India’s energy security and existing supply diversification policies.

High-level discussions are underway with industry representatives, sectoral regulators, and diplomatic missions to receive feedback and policy suggestions. The findings are set to inform India’s negotiating stance with US and other key trading partners in forthcoming diplomatic and trade dialogues.

Possible Economic and Sectoral Impact

The impact of a blanket 25 percent tariff escalation is anticipated to affect Indian exporters in a fashion similar to their Southeast Asian and Chinese counterparts, eroding price competitiveness in the critical US market.^[1] India exported goods worth billions of dollars to the US in the last fiscal year with the country ranking among India’s top trading partners. Sectors such as:

• Ready-made garments and textiles
• Gems and jewellery
• Pharmaceuticals and chemicals
• Engineering goods, including automotive parts
• Marine products

are particularly sensitive to minor fluctuations in tariff rates due to their already narrow operating margins. Many exporters would be compelled to either absorb the increased costs, pass them on to buyers (impacting demand), or explore alternative markets.

The potential penalty tariff on Russian energy imports is projected to be even more disruptive should it be set at the speculated 100 percent mark, though clarity on the modality and time frame for such a measure is yet to emerge.^[1] India currently imports a substantive share of its crude oil requirements from Russia, significantly increasing this share following the commencement of hostilities in Ukraine and the imposition of Western sanctions on Moscow.

Domestic energy market participants, including state-owned refiners and private companies, have so far maintained a “wait-and-watch” approach, sustaining robust Russian oil flows into India. Should an explicit penalty be implemented, India may need to rapidly rebalance its energy basket towards suppliers in the Middle East, Africa, or the Americas, which could drive up domestic fuel costs and disrupt supply stability.^[2]

Implications for Government Policy and International Trade Strategy

The ongoing tensions around the US tariff hike represent a significant turning point for India’s external trade policy, particularly at a time when securing new and diversified markets forms a central plank of the national export strategy.^[4]

Prior to the US announcement, India had been engaged in advanced negotiations to finalize a fresh trade agreement with Washington, which industry observers expected could be concluded as early as October with a prospective tariff ceiling of 15 percent for Indian goods.^[1] The latest developments, however, have introduced a new urgency and complexity to these negotiations, as India weighs the risks and rewards of a rapid interim deal versus pressing for broader concessions over a longer period.

Additionally, the linkage of tariffs to energy and defence imports from Russia introduces broader strategic considerations for Indian policymakers. While the measure is not a formal sanction, it marks an evolution in US policy signaling, requiring India to carefully balance its long-held objectives of energy security, non-alignment, and independent foreign policy.

The government is reportedly deploying a two-track approach:

• Immediate efforts to seek clarity from US counterparts on the specific products and transactions to be affected.
• Simultaneous recalibration of bilateral and multilateral trade outreach to mitigate market losses and seek alternatives, including leveraging existing free trade agreements in the Asia-Pacific and recent inking of the India-UK trade pact.^[3]

Consultations with Industry and Export Promotion Councils

The Ministry of Commerce and Industry has convened meetings with leaders from export promotion councils, the Confederation of Indian Industry (CII), Federation of Indian Export Organisations (FIEO), and other industry bodies to appraise the evolving scenario. Exporters have flagged concerns over the immediate loss of cost competitiveness, especially in labour-intensive sectors. Industry associations are requesting possible fiscal and regulatory support packages should the tariffs be implemented without a negotiated settlement.

The government, through its consultation process, is tracking:

• The number and value of shipments en route or pending approval to the US market that may be subject to retroactive application of tariffs.
• Possible response measures, including expedited certification for new market access in other major economies, and trade facilitation for affected sectors.
• Expansion of credit and insurance guarantees for exporters facing heightened risk of default or cancellation by US buyers.

Officials are also soliciting input on longer-term strategies to stabilize Indian export growth in the context of global economic shifts and increasing trade barriers among major economies.^[4]

Ongoing Energy Security Review and Diversification

In parallel with trade consultations, the Ministry of Petroleum and Natural Gas has commenced a security review to assess available alternatives to Russian crude in the event that the US introduces specific penalty tariffs. According to initial assessments, should Russian imports become unviable, Indian refiners could be required to turn to higher-priced energy from the Gulf, West Africa, or the Americas, with implications for domestic inflation and subsidy outlays.

The review considers:

• The duration of existing supply contracts with Russian entities and their renegotiation flexibility
• The feasibility and comparative pricing of increased imports from other producers, including the potential for short-term spot purchases
• The downstream impact on products such as petrol, diesel, aviation turbine fuel, and petrochemicals
• Possibilities for hedging, strategic reserves, and time-bound price stabilization interventions if the international market experiences volatility

Senior officials are coordinating with both public and private sector stakeholders to collate real-time data on crude imports, refinery output, and market pricing. The government is also engaging international partners to negotiate potential bulk purchase contracts or swap arrangements to bridge any immediate gaps.

Strategic Considerations and Diplomatic Engagements

On the diplomatic front, the Ministry of External Affairs is working with the embassy in Washington and other international missions to seek clear communication from the US administration regarding the intended scope and timeline of the penalty tariffs. Ongoing conversations at the official and ministerial levels aim to:

• Emphasize India’s key role as a stable trading partner and strategic ally in the Indo-Pacific
• Highlight the importance of predictable and rules-based trade policy in current global conditions
• Reaffirm India’s ongoing commitment to energy security, diversification, and responsible compliance with multilateral frameworks

In the event the penalty measures are implemented, the government is expected to explore recourse through international trade bodies, including the World Trade Organization, in line with existing dispute settlement mechanisms.^[2]

Upcoming Timeline and Next Steps

Officials indicate that the next several weeks will be critical as India and the United States are scheduled to hold a sixth round of formal trade talks in August.^[2] The government is working to complete its internal study ahead of these discussions in order to present a consolidated negotiating position backed by empirical sector-wise data.

The multi-ministry review is expected to result in a set of recommendations which may cover:

• Trade negotiation strategies and possible interim arrangements with the US
• Administrative support and incentives for directly affected sectors
• Regulatory or procedural changes to aid in supply chain diversification and new market access
• Financial measures for energy companies facing increased costs or market disruption

Any further administrative notifications or decisions will be made subject to clarity on the US side regarding the application and implementation of the new tariffs and proposed penalties.

Macroeconomic Outlook Amid Global Trade Shifts

The announcement of increased US tariffs comes amid wider global trends involving the rise of protectionism and increasingly complex global supply chains.^[4] India, like several other developing economies, is already dealing with slowing global demand, a volatile energy landscape, and fluctuating cross-border capital flows. The Asian Development Bank recently lowered its forecast for India’s fiscal year 2025–26 growth rate, citing the anticipated economic impact from the escalation in global tariffs.^[3]

The government’s ongoing study is set against the backdrop of these macroeconomic factors. The assessment will take into account not just the short-term implications for trade and energy, but also the long-term impacts on manufacturing competitiveness, employment, and future growth strategies.

Policymakers are likely to use this assessment to recalibrate broader economic objectives, emphasizing resilience and sustainability in trade, industry, and energy policy. The aim is to ensure continued progress toward national development goals, even as the international economic environment grows increasingly uncertain.

Conclusion: Government’s Approach Focused on Evidence-Based Action

While the full impact of the US tariff increase and potential penalty on Russian energy imports will only become clear after the policies are formally implemented, the Government of India’s immediate administrative response is centered on a rapid, evidence-based analysis and ongoing consultation with key stakeholders. The results of this exercise will inform both India’s engagement with the US on trade and its broader medium- and long-term strategies for export growth and energy security. Further updates from the relevant ministries can be expected as consultations advance and international dialogue continues.