The dynamics of India-US oil partnership, in 3 charts
Amid threats of reciprocal tariffs by US President Donald Trump, India has reaffirmed its commitment to make the US a leading supplier of crude oil and petroleum products and liquified natural gas during Prime Minister Narendra Modi’s visit to the country. This could lead to a significant shift in the energy basket of India and the US. The US is the top producer of crude oil in the world, while India is the third largest consumer. As such, India can provide a huge market to the US’ abundant oil, which is not always compatible with the latter’s domestic needs.
The US is currently the sixth largest supplier of crude oil and petroleum products to India and its share in India’s total imports stood at 5.7% in April-November 2024. Historically, Iraq and the UAE were the top suppliers of crude oil to India until the Russia-Ukraine war. As Russia faced severe sanctions from the US and the European Union, it began selling oil to India at a discounted rate, becoming the top supplier from 2022-23.
India’s energy deal with the US comes at a time when Russia has seen the largest round of sanctions imposed on it last month, which could impact oil supply to China and India. Against this backdrop, experts said India needed a policy reassessment and increasing importing from the US could help the country diversify its energy sources.
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Price considerations
The US has been a net oil importer of oil as over 70% of its refining capacity runs most efficiently with heavier and sour crude, whereas the oil produced in the country is light and sweet. Despite concerns related to global warming, the Trump administration pledged to increase its domestic crude oil production. However, the plan to increase production capacity will need new consumer markets.
While sanctions on Russia and further restrictions on Iran–-another important supplier–could limit India’s supply, a shift towards the US would be incumbent upon price considerations from freight charges, refining costs, and taxes, among others. “If the landed price (the final price) is not competitive, refiners will hesitate to take up the US crude,” said Ajay Sahai, CEO of the Federation of Indian Export Organizations. “Unless the US considers some kind of tariff concession on their oil, the freight cost may make them uncompetitive,” he added.
Usage compatibility will also be a key factor in the shift towards US oil. “Majority of the US crude production comes from Shale formation and is light and sweet. This is easy to refine crude hence should not be a problem for Indian refineries to use if the landed cost is economical,” said Debasish Mishra, chief growth officer and an energy sector expert at Deloitte South Asia.
Trade-off
India’s reassurance to make the US its top energy partner is largely seen as an effort to avoid tariffs. So far, Trump has threatened to impose tariffs on Canada, Mexico and China among others and on commodities like steel and aluminium. Trump has repeatedly threatened to impose reciprocal tariffs.
India imposes much higher tariffs on imports from the US compared to its Asian peers and is “thus exposed to reciprocal tariffs”, a recent report by Nomura said. India has so far taken a series of steps to avoid increased tariffs from the US: reduced import duties on several items and agreed to take back illegal immigrants to the US. The energy deal is being seen as another step to dodge tariffs with one of India’s top trading partners.
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