New Delhi, 15 July—In yet another jolt for the Modi government, Trump Administration’s reported moved to scale up US tariffs of up to 100 per cent on countries buying Russian crude oil is likely to hit the country economy hard with oil prices again going wild.
With India and China being two of the biggest buyers of Russian oil, the Indian economy is likely to bear the main brunt of the US move under Donald Trump as China has a resilient economy along with alternate sources of energy.
Trump seems to have lost the control over the dynamics as he is groping in the dark to find ways to claim that the US has emerged victorious over Iran.
After the US had relaxed sanctions against Russia, of India’s oil imports from Russia rose to about 52 per cent in June and now with the renewed threat of imposition of sanctions against Moscow the import bill could have a devastating impact. India’s July purchases look likely to be in the same region if not more.
Energy experts are of the opinion that India currently has very few alternative suppliers capable of replacing Russian crude at the same scale, reliability and pricing. India bought 2.6 million barrels per day from Russia in June.
The Russia Sanctions Bill has bipartisan support in the US Senate but it gives the US President wide-ranging powers to stall the implementation of the tariffs, if deemed to be against a friendly country.
One senator warned that tariffs would be set, “at a level appropriate to discourage China, India and other major purchasers of Russian oil and gas.’
However, the bill specifically will not be used against European countries that import natural gas from Russia. The bill was the brainchild of Republican US Senator Lindsey Graham, who died recently.
Graham had originally wanted tariffs of 500 per cent but that proposal was stalled last year.
One factor that might come to India’s rescue is that Trump may be reluctant to impose tariffs on China which has the power to retaliate strongly.
While the US had given India and others the chance to continue buying Russian crude because it didn’t want to trigger chaos and widespread shortages in the global oil markets but Washington now has very limited options.
The US has already warned that it will be blocking Iranian oil sales which are mainly to China. It goes without saying that also blocking Russian crude would have a huge impact on the market.
After showing signs of settling down in the last two weeks, the oil markets first soared from around $76 to $87 on Monday after Trump dramatically announced he would be charging a 20 per cent toll on every barrel of oil transiting the Strait of Hormuz.
About one-fifth of the world’s oil passes through the Strait.
Before the US-Iran war roughly about 130 ships crossed the strait. A VLCC (very large crude carrier) can carry around 2 million barrels. So, the gigantic revenues this move would have brought in are almost unimaginable.
President Trump’s suggestion that the US should charge ‘security fees’ for passage through the Strait of Hormuz ranks among the most damaging unforced and unintended errors of his presidency,
This became more than evident when Trump recognised he had erred and retreated, saying the Gulf countries like Saudi Arabia, UAE, and Qatar would instead invest billions in the US. This almost instantly brought crude oil prices back to $81.23 where they have stayed on Wednesday.
But now the markets have turned nervy and could stay on edge in the coming months with Iran and the US both keeping their fingers on their triggers despite the supposed peace treaty. Some analysts are even predicting that crude oil prices could climb back to $100 per barrel.
In short term, India seems to be comfortably placed for now for crude oil and even the LPG and LNG situation is better than expected but this comfortable picture has come at quite a cost. Experts said that India has spent more than double what it did during the same time last year to buy its imported crude.
Another threat is also emerging that could blow up the crude oil market in Asia. There are signs that the Houthis might swing back into warlike mode and launch attacks on ships crossing through the Red Sea from the Suez Canal.
If the Houthis go on the warpath that would almost certainly make it almost impossible for Saudi Arabia to use its Red Sea ports of Yanbu and Jeddah. India is currently getting a considerable amount of crude that is loaded from these two ports.
India’s strategic reserve is much smaller than most other of the world’s top economies. And even the US is thought to have depleted its strategic reserve quite heavily to ensure that pump prices did not climb too high.
The only ground for optimism in the coming weeks is that better sense prevails in the US and Iran. How long the US and Iran can sustain a war is the question that has no immediate answers. Though both sides are well aware that a prolonged was would be a disaster not only for Washington and Tehran but there are extremists on both sides who could queer the pitch. And last but not the least is the mercurial and instable character of the US President who doesn’t know what he wants barring the personal economic aggrandisement.
Veteran Journalist and Political Commentator
