Indian Prime Minister Narendra Modi is facing one of the country's most difficult economic dilemmas in recent years - whether India should continue to buy significant amounts of Russian oil or limit imports to reduce the risk of new US tariffs. The issue has come to the fore again after Washington passed a new sanctions law that allows for tariffs of up to 100% on countries importing Russian oil and gas.
The stakes are particularly high for India. The country is among the world's largest oil importers and relies heavily on foreign supplies to meet domestic demand. Russia has become a key supplier since the start of the war in Ukraine, when Indian refineries began buying Russian crude at a discount to other grades.
However, the new US regime is putting that strategy under pressure. The law gives President Donald Trump broad powers to impose tariffs of up to 100% on major buyers of Russian energy raw materials. India is among the countries that could potentially be affected.
If New Delhi sharply reduces purchases from Russia, it could increase import costs and put pressure on fuel prices in the country. This is a particularly sensitive issue against the backdrop of upcoming local elections and the high political importance of energy prices for Indian households. It is this risk that is among the main reasons the government is cautious about American demands.
On the other side is trade with the US. The US market is the largest for Indian exports, and new high tariffs could affect a wide range of industries and further complicate trade relations between Washington and New Delhi. India has already warned that such measures could harm not only bilateral relations but also the stability of global energy markets.
New Delhi defends its position by arguing that the energy security of a country with a population of over 1.4 billion people requires diversified supplies. Indian authorities insist that purchases of Russian oil are part of a strategy to ensure affordable energy resources, and not political support for Moscow.
The situation is further complicated by turmoil in the Middle East. Prices for Russian ESPO crude have already exceeded $120 per barrel due to increased demand from China and restrictions on other supplies. This means that Russia's advantage as a cheap source of raw materials is also starting to shrink.
At the same time, India's crude oil imports in August fell by more than 11% compared to July to about 19.01 million tons, official data show. On an annual basis, the decline is about 3%.
However, oil costs remain high. India's crude oil imports by value increased by 25.8% year-on-year in August to $16.69 billion, while the average price of the Indian oil basket reached about $90.19 per barrel.
This leaves Modi caught between two strategic dependencies. Continuing purchases from Russia could protect some of India's energy security, but it raises the risk of US trade sanctions. A sharp cut in Russian oil could make energy more expensive and increase inflationary pressures at home.
The Indian government has not yet announced a radical change in its energy policy. New Delhi continues to push for diversification of supplies and a diplomatic solution to the dispute with Washington.