How Trump's Russia Oil Sanctions Could Hit India: Higher Inflation, Costlier Fuel & Pressure on the Rupee

India's biggest economic challenge may not come from tariffs alone. It could come from oil.

As the United States moves closer to imposing punitive tariffs on countries that continue buying Russian crude, economists say the biggest risk for India lies in what happens next to global energy markets.

If India is forced to cut Russian oil imports while supplies remain constrained by geopolitical tensions in West Asia, crude prices could surge sharply, bringing higher inflation, a wider current account deficit and fresh pressure on the rupee.

The warning comes as the US Senate approved legislation that could impose tariffs of up to 100 per cent on countries purchasing Russian crude and natural gas, including India and China.

According to CareEdge Ratings Chief Ratings Officer Sachin Gupta, the immediate concern is not merely access to crude but the price India may eventually have to pay for it.

He noted that Russian crude accounted for nearly half of India's oil imports in July. If India and China are forced to reduce those purchases while disruptions continue around the Strait of Hormuz, almost a third of global oil supplies could effectively come under stress.

In such a scenario, Gupta warned, crude prices could climb beyond USD 100 a barrel, and in an extreme case even touch USD 110-120.

That, he said, would have significant consequences for the Indian economy.

A sustained spike in oil prices would widen India's current account deficit, increase import costs and eventually feed into domestic inflation. While the government may be able to absorb some of the pressure if crude remains around USD 100-105 per barrel, Gupta believes prices beyond USD 110 could force higher fuel prices and squeeze both consumers and oil marketing companies.

He added that India has demonstrated considerable flexibility in sourcing crude from multiple suppliers over the years. The larger challenge, therefore, may not be finding oil, but securing it at affordable prices.

Bank of Baroda Chief Economist Madan Sabnavis believes the proposed US legislation also raises the stakes for India's ongoing trade negotiations with Washington.

"It becomes even more critical how we negotiate a deal with the USA," he said, expressing hope that the ongoing talks would produce a workable solution.

Sabnavis noted that crude prices are currently relatively stable at around USD 80 per barrel, limiting the immediate economic impact. However, he cautioned that any renewed escalation in geopolitical tensions or disruption to oil supplies could quickly change that equation.

Higher import costs, he said, would increase pressure on the rupee while widening India's current account deficit. Although foreign currency inflows, including FCNR deposits, could provide some cushion, they would not fully offset the impact of significantly costlier oil imports.

For now, economists see the proposed US sanctions as a developing risk rather than an immediate economic shock. But if geopolitical tensions intensify and energy markets tighten simultaneously, India's biggest economic concern may no longer be tariffs. It may be the price of the barrel.

(With inputs from ANI)