Fresh 100% US tariff threat could add to India's inflation, CAD pressures: CareEdge
New Delhi, August 8
The fresh threat of 100 per cent US tariffs on countries buying Russian oil could put significant pressure on the Indian economy, particularly through higher crude prices, inflation and a widening current account deficit, Sachin Gupta, Chief Ratings Officer at CareEdge Ratings, said.
Gupta said that if India is forced to reduce its dependence on Russian crude while the Strait of Hormuz remains disrupted, global oil supplies could come under severe pressure, potentially pushing crude prices beyond USD 100 per barrel. In a worst-case scenario, crude could rise to USD 110-120 per barrel, he said, which could have a significant impact on India's external and domestic economic indicators.
His comments come amid the fresh US threat of imposing 100 per cent tariffs on countries continuing to purchase Russian oil, at a time when the Iran conflict and disruption in the Strait of Hormuz have already created uncertainty over global energy supplies. India has increased its dependence on Russian crude in recent months, with Russian oil accounting for around 50 per cent of the country's crude imports in July, according to Gupta.
"If indeed these 100 per cent tariffs continue and say in a scenario that India and China are not able to wean themselves away from Russian oil and the US is forced to levy these 100 per cent tariffs, then it will certainly have a significant impact," Gupta said.
He said that if India and China were to significantly reduce or stop Russian oil imports while the Hormuz disruption continues, nearly 30 per cent of global oil supply could effectively be affected. This, he said, would put strong upward pressure on crude prices.
"If indeed this thing becomes a reality, our sense is then crude can suddenly go beyond USD 100," Gupta said.
A sharp rise in crude prices could, in turn, significantly widen India's current account deficit. Gupta said that if crude reaches around USD 110-120 per barrel, India's current account deficit could "easily double" from last year's level, solely on account of higher oil prices.
He also warned of an inflationary impact, saying that at such crude price levels, the government could eventually be required to pass on higher costs at fuel pumps, affecting domestic demand.
Gupta said the government could manage crude prices up to around USD 100-105 per barrel, but beyond USD 110, pressure on oil marketing companies could increase significantly. However, he noted that India has shown flexibility in sourcing crude from new countries and would continue to prioritise energy security.
He said the ultimate challenge for India would not necessarily be availability of alternative crude but the price at which such supplies can be secured.
— ANI
Reader Comments
Our politicians need to think long-term. If US tariffs hit us, it's the common people who'll pay more for petrol, and inflation will eat into our budgets. We're already struggling with rising prices. Something needs to be done before it's too late!
The US wants to control the world's energy market but doesn't care about developing countries like India. We need to strengthen our ties with Russia, China, and the Gulf countries to ensure we're not held hostage to US demands. Energy security first!
Interesting analysis from CareEdge. This is genuinely a difficult position for India diplomatically. While I understand the US perspective on sanctioning Russia, India has legitimate energy needs for its growing economy. A balanced approach is essential, and I hope our government navigates this wisely.
This is worrying news for the Indian economy. If crude goes to $120, everything will become costly - from vegetables to transportation. The government needs to prepare for this now, not later. Also, we need to seriously push for renewable energy alternatives to reduce our dependence on oil imports. 🌿💪
As an economics student, this article highlights the real-world consequences of geopolitical tensions. India's reliance on 50% Russian oil makes this a critical challenge. However, I hope our policymakers have contingency plans - maybe ramping up domestic production and diversifying to African and Latin American sources could help.
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