India likely to face 500% US tariff over purchase of Russian oil

Trump backs Bill aimed at punishing countries buying Russian crude

India faces the risk of a tariff of at least 500 per cent on its export of goods and services to the United States (US), with President Donald Trump backing a bipartisan Bill aimed at punishing countries that buy cheap crude oil from Russia. 

The proposed measure is part of the “Sanctioning Russia Act of 2025”, which imposes sanctions and tariffs on countries trading in energy with the Eurasian country. 

If put into effect, this could not only jeopardise the trade deal New Delhi and Washington have been negotiating for the past nine months, but also hit India’s services exports, particularly by software companies. 

On Thursday (India time), US Senator Lindsey Graham said Trump had “greenlit” the bipartisan Bill after a “productive meeting” and that he was hoping for a “strong bipartisan vote” as early as next week.

 

“This Bill will allow President Trump to punish those countries who buy cheap Russian oil fuelling (Russian President Vladimir) Putin’s war machine. This Bill would give President Trump tremendous leverage against countries like China, India and Brazil to incentivise them to stop buying the cheap Russian oil that provides the financing for Putin’s bloodbath against Ukraine,” Graham said in a post on X.

 

According to the Bill, the President must increase the rate of duty on all goods and services imported into the US from countries “that knowingly engage in the exchange of Russian-origin uranium and petroleum products to at least 500 per cent relative to the value of such goods and services”.

 

The US has imposed a steep 50 per cent tariff on nearly 55 per cent of India’s merchandise exports since August. That includes a 25 per cent tariff directly linked to New Delhi’s purchase of Russian oil.

 

India has since cut its crude-oil imports from Russia by about 38 per cent in December over November, marking a three-year low.

 

The US is India’s largest trading partner in goods and services combined. According to the US government data, bilateral trade in goods and services in 2024 totalled an estimated $212.3 billion. Of this, trade in goods — exports plus imports — stood at $128.9 billion while the services trade was valued at $83.4 billion.

 

A 500 per cent tariff would effectively shut out India’s goods and services exports to the US. Those exceed $120 billion annually, said Ajay Srivastava, former trade ministry official and founder of the Delhi-based think tank Global Trade Research Initiative (GTRI).

 

“US customs authorities can levy tariffs on goods but there is no legal mechanism to tariff services. Any escalation would therefore likely focus on taxing US firms on payments for Indian services exports,” he added.

 

During April-November, India’s exports to the US grew 11.3 per cent to $52 billion despite the tariffs. This resilience is largely because many exporters have been able to retain their supply chains and because of expectations that both countries will eventually be able to finalise a trade deal.

 

The last round of discussion on the trade deal between the two countries took place in December, after which talks paused during the holiday season. As of now, there is no signal of any virtual or in-person discussions.

 

Harsimran Sahni, head of treasury, Anand Rathi Global Finance, said the impact of the proposal in the bipartisan Bill could extend beyond trade disruption to broader macroeconomic implications for India.

 

“Higher tariffs may slow economic growth by affecting export-oriented sectors, while elevated energy costs could strain inflation management. In response, the government may be compelled to intervene through policy adjustment, including measures to manage supply and demand in domestic markets.” 

Tariff turmoil

• Proposed measure part of the ‘Sanctioning Russia Act of 2025’, which sanctions countries engaged in energy trade with Russia
• Legislation could jeopardise prospects of finalising a trade deal with Washington
• May hit India’s crucial services exports, particularly by software firms
• Experts warn the proposal could extend beyond trade disruptions to broader macroeconomic implications for India