New Delhi: The US has asked India to give an assurance, possibly in writing, that it will taper its purchases of Russian oil, and boost imports of American crude before a trade deal between the two nations can be finalized, according to two people aware of the matter.
The Indian team of negotiators is currently in Washington and is scheduled to remain there through this week to try and break the logjam over trade discussions. Earlier this month, assistant US trade representative Brendan Lynch visited New Delhi to bring the talks back on track, stalled after President Donald Trump imposed 50% tariffs on Indian exports, including a punitive 25% for New Delhi’s purchases of discounted Russian oil.
The American side prefers a comprehensive agreement, covering goods, services and investments in one go, rather than taking a sector-by-sector approach, the people cited earlier said on the condition of anonymity.
Energy imports have become the main sticking point in the ongoing talks, which are being steered by US trade representative (USTR) Jamieson Greer, and not by commerce secretary Howard Lutnick, the first person said.
Negotiators from both sides have described the discussions as productive, with talks progressing “well,” though several contentious issues remain, this person added.
Other contentious issues such as agriculture, dairy and genetically modified (GM) crops also figured in the India-US trade talks, this person said. The US has been insisting on deeper market access for its agricultural and dairy exports, areas that remain a red line for India.
A team of negotiators, led by Union commerce minister Piyush Goyal, has been in the US since Monday to “take forward” discussions aimed at achieving an early conclusion to a bilateral trade deal between the two countries.
“The recent relaxation of import duties on cotton and other goods is being viewed by US negotiators as a strategic step that gives India greater leverage in trade discussions,” this person said.
India has waived an 11% duty on cotton imports till the year-end, in a potential signal to the US that it’s willing to make concessions amid the ongoing trade tensions.
Queries sent to India’s ministries of commerce and external affairs remained unanswered till press time.
In response to Mint’s query, the US embassy spokesperson said, “India’s importation of Russian oil undermines US efforts to counter Russia’s harmful activities.”
“By imposing a 25% tariff, President Trump aims to deter countries from supporting the Russian economy through oil revenue and impose serious economic consequences on Russia for its ongoing aggression,” said the spokesperson.
While oil dominates the agenda, the US is also keen on encouraging more Indian investments in American manufacturing and infrastructure, a factor it hopes to bake into the agreement, said the second person.
Visas, particularly H-1B, a politically sensitive issue, are unlikely to be mixed into the trade discussions at this stage, this person said, adding that the matter is not specific to India but applies to all countries, and since Indians form the largest applicant pool, they end up receiving the bulk of these visas. Last week, the US introduced a one-time $100,000 fee for companies filing new H-1B visa applications.
India has sharply increased purchases of Russian crude since the Ukraine conflict, taking advantage of discounted prices. Russian oil, which accounted for less than 0.2% of India’s imports before the war broke out in early 2022, now makes up 35-40% of the country’s crude intake, making Moscow the top supplier, ahead of Iraq and Saudi Arabia.
India’s crude oil imports from the US averaged around 310,000 barrels per day (bpd) during the April-August period, up 80% from a year ago, according to data from Brussels-based Kpler Analytics.
India’s purchase of Russian oil has risen to 2 million bpd in August, as refiners continue to prioritise economic considerations in their sourcing decisions.
As much as 38% out of an estimated 5.2 million bpd of crude oil imported in the first half of August came from Russia, according to Kpler, a global real-time data and analytics provider.
Imports from Russia at 2 million bpd were up from 1.6 million bpd in July. The increase in Russian flow was at the cost of purchases from Iraq, which declined to 730,000 bpd in August, and Saudi Arabia, which fell to 526,000 bpd from 700,000 bpd last month.
The discounts, however, have narrowed from a high of $40 per barrel to just $1.5 last month. Discounts this month have risen to over $2 per barrel.
Mint reported on 4 August that India’s state-run oil marketers are in joint discussions with US firms to secure cooking gas supplies beginning next year. The companies—Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd—are likely to sign near-identical contracts with the selected partners.
Trade experts believe India should maintain its purchases of discounted Russian oil. Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), noted that such crude has been instrumental in helping India control inflation and sustain macroeconomic stability amid global market turbulence.
“India should resist external pressure and remain steadfast in its Russia strategy. Purchasing discounted Russian oil has enabled the country to control inflation and preserve economic stability in an unpredictable global environment,” Srivastava said.
“Purchase of crude from various sources is compared by the purchaser on relative economics basis product yields, price, freight cost, etc. The proportion of Russian crude purchased by India increased after FY22 (fiscal year 2022) owing to discounts provided. Accordingly, till the time Russian crude is available at a discount, the economics will tilt in its favour over other sources,” said Prashant Vasisht, senior vice-president and co-group head, Icra Ltd.
Trump has claimed that Indian purchases of Russian oil are fuelling the Ukraine war. He has also called on the European Union (EU) to impose tariffs of 50-150% on Chinese goods over its continued purchases of Russian oil, and has previously suggested that the EU should target India as well.
However, EU nations are unlikely to risk an economic rupture with China, their largest supplier, given annual trade worth €732 billion and their heavy dependence on Chinese machinery, electronics, active pharmaceutical ingredients (APIs) and solar equipment.