BREAKINGVIEWS-Trump’s India trade slap misses Russian oil target

By Yawen Chen

LONDON, Aug 7 (Reuters Breakingviews) - Punishing India for buying Russian oil is a blunt weapon aimed at the wrong target. Donald Trump’s decision to whack an extra 25% tariff on U.S. imports from the Asian country is potentially painful for New Delhi. However, it’s unlikely to disrupt the flows that keep President Vladimir Putin’s war machine humming. Like some of the U.S. president’s previous trade measures, the noise may exceed the impact. That explains why oil investors are unbothered.

At first glance the move, which the White House announced in an executive order on Wednesday, looks like a major escalation. India has become one of the largest buyers of Russian crude since the West imposed sanctions on Moscow following the invasion of Ukraine. It imports about 1.7 million barrels per day (mbd), often exporting refined products like diesel and jet fuel to customers in Europe and elsewhere. By threatening to double the tariffs on most Indian goods, Trump is taking a hard line on a key enabler of the Kremlin’s war effort – and putting others on notice.

But the punch is poorly aimed. The tariff is already a watered-down version of the 100% levy Trump once threatened, while a three-week grace period before it takes effect offers a window for a deal. More importantly, the extra levy does not directly affect flows of Russian oil. It will however raise prices for American buyers, who spent $87 billion on Indian goods last year.

Trump is hoping Indian Prime Minister Narendra Modi will pressure large private refiners like Nayara Energy and Reliance Industries RELI.NS to shun Russian oil. Even then, the black stuff could still flow onto the market via other routes – most likely through China. Refiners in the People’s Republic have capacity to absorb an additional 1 mbd of Russian crude, JPMorgan analysts calculate. The U.S. could respond by imposing similar additional tariffs on China, the top buyer of Russian fossil fuels including pipeline gas. But Trump is trying to de-escalate tensions with Beijing, mindful of the country’s near-monopoly on exports of crucial rare earth minerals.

Putin has more to fear from the European Union’s less splashy but more surgical approach. In its 18th sanctions package unveiled in July, Brussels lowered the price cap on Russian oil, targeted more of Moscow’s “dark fleet” tankers, and sanctioned foreign entities helping it evade restrictions. It banned imports of refined petroleum products made from Russian crude in non-EU countries. Western traders, wary of enforcement challenges, have already started avoiding certain sellers. These steps strike closer to the mechanics of how Russia earns oil revenues.

Stopping Russian oil exports, which reached 4.7 mbd in June according to the International Energy Agency, would have a serious effect on the global market. Yet the price of Brent crude was largely unmoved at around $67 a barrel following Trump’s announcement. It suggests the president’s blunt tariff will miss its target.

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CONTEXT NEWS

U.S. President Donald Trump on August 6 issued an executive order imposing an additional 25% tariff on Indian goods citing New Delhi’s continued imports of Russian oil.

“I determine that it is necessary and appropriate to impose an additional ad valorem duty on imports of articles of India, which is directly or indirectly importing Russian Federation oil,” Trump said. The additional duties are due to go into effect 21 days after the order was issued.

Brent crude futures were up 45 cents, or 0.7%, at $67.32 a barrel by 0730 GMT on August 7, while U.S. West Texas Intermediate (WTI) crude was up 47 cents, or 0.7%, at $64.82.