An unreasonable Bill: Tariffs on Russian oil importers make no sense

A proposed US Bill targeting buyers of Russian oil could disrupt India's energy security and trade, even as West Asia tensions threaten global oil supplies

A Bill unveiled this week by United States (US) senators — it reportedly has bipartisan support — proposes to impose a 100 per cent tariff on goods coming from the five largest buyers of Russian oil and gas. The Bill is clearly aimed at India and China. The original Bill, led by Senator Lindsey Graham, who recently passed away, had proposed a 500 per cent tariff. Although the Bill is said to have the support of President Donald Trump and it empowers him to waive the sanctions, the proposal does not make sense. The implicit assumption behind such proposals is that they will reduce Russia’s exports of oil and gas, thereby denying it funds for prosecuting the Ukraine war. The assumption is incorrect, and the Bill comes at the worst possible time.

 

The imposition of higher tariffs last year on India for importing Russian oil, along with the so-called reciprocal tariff, did not end the war. Any such move will only complicate the geopolitical situation. The current West Asia crisis, which is affecting the supply of oil and gas, is entirely a creation of the US. The world is paying a heavy price for it. The ceasefire between the US and Iran has unravelled very quickly, though it is not entirely surprising. What the war did was to block the Strait of Hormuz, which enables the flow of about one-fifth of global oil supply. The resumption of strikes from both sides has again practically closed the strait. Although the strikes this time, according to reports, are fairly targeted, unlike the last round of the conflict, things can always change.

 

In fact, the situation could become far more complicated this time. Oil prices have already climbed more than 10 per cent over the past few days. Large parts of the stockpile from emergency reserves across the world have already been used. Thus, if the supply remains disrupted, it could lead not only to a sharp increase in oil prices, but also affect availability. Thus, it is unclear what the US lawmakers and the administration expect from large energy importers such as India and China. Are these countries expected to live with energy shortages? Notably, one reason why oil prices did not increase to the extent many had expected in the last round of the Iran conflict was that China substantially reduced its imports. Although not much is known about Chinese stocks, it is reasonable to argue that they will not last forever.

 

It is also worth noting that the continuation of the Ukraine war is partly because of global and American indifference. Ukraine has no choice but to defend itself, but serious efforts are not being made to end the war — either by the US or by other major powers, including Europe. India has had no role in initiating either the Ukraine or the Iran war, so why is it expected to suffer? The Indian government has the responsibility to secure energy supplies and is doing exactly that. Once the Strait of Hormuz is opened and the war ends, imports from Russia will automatically come down. And once the Ukraine issue is addressed, Russian oil will no longer remain a concern. Both West Asia and Ukraine need serious diplomatic engagement. Instead of sponsoring Bills to impose tariffs, US lawmakers must ask why wars funded by the American people are not being resolved. Meanwhile, Indian policymakers need to be alert. India is negotiating a trade agreement with the US and must convey its position convincingly. Like last time, the US will be reluctant to impose higher tariffs on China because of its ability to retaliate strongly. It is India that needs to guard its interests.