Rise in Oil Prices.. and Washington Doubles Tariffs on India Over Russian Oil Purchases

SadaNews - Oil prices have risen slightly after a five-day decline, the longest since May, as investors monitor U.S. efforts to punish buyers of Russian crude and the diplomatic moves led by U.S. President Donald Trump to end the Ukraine war.

Brent crude climbed above $67 a barrel, recovering a small part of an 8.7% loss over the previous five sessions, while West Texas Intermediate crude stabilized near $65.

On Wednesday, Trump doubled tariffs on Indian goods to 50% due to the Asian country's purchases of Russian energy, with the decision set to take effect in three weeks. However, the United States has not taken similar action against China, another major importer of Moscow's oil.

Anticipation for Trump-Putin Meeting

Diplomatically, Trump stated that there is a "very good chance" of a soon-to-happen meeting with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky, in a new attempt to mediate for peace.

He added that "many upcoming sanctions" are related to oil purchases from Russia, which is a member of the OPEC+ alliance.

Crude has seen sharp declines so far in August following three months of monthly gains. Traders are preparing for the possibility of a surplus later this year, as the OPEC+ alliance agreed to bring millions of barrels of supply back to the market.

Trump’s Policies Pressuring Prices

Additionally, there are concerns about an economic growth slowdown, which could result in weaker energy consumption, as the broader trade tariffs imposed by Trump cast a shadow over the market.

Robert Rene, head of commodity and carbon research at Westpac Bank, stated that "the current rise in production and inventories will continue to cap Brent prices around the early $70s, and once a solution is reached for the Russian-Ukrainian war, we expect to see a sharp decline."

He added: "However, it remains to be seen whether the potential meeting between Trump and Putin will take place next week." He said: "If the meeting does not occur, or takes place without an agreement, which means activating secondary tariffs, we may see a sudden spike in prices."

Decline in U.S. Inventories

U.S. data released on Wednesday showed that crude inventories nationwide declined by 3 million barrels last week, with refineries operating at their highest seasonal levels since 2019. However, crude inventories at the key Cushing hub continued to recover from critically low levels, rising for the fifth consecutive week, marking the longest streak of increases since 2023.

In Asia, Saudi Arabia raised crude oil prices for the second consecutive month, signaling its confidence in demand, while the OPEC+ alliance continues to increase supplies. Over the past weekend, the alliance decided to bring back about 547,000 barrels per day of production to the market in September.

Doubling Tariffs on India Over Russian Oil Purchases

In this context, U.S. President Donald Trump imposed an additional 25% tariff on Indian goods yesterday due to its continued purchase of Russian energy, escalating the dispute with a key Asian partner on the eve of the implementation of his wide-ranging tariffs.

The White House stated on Wednesday that Trump signed an executive order setting the new rate, which will be added to the previously announced 25% tax on imports from India. According to the executive order, the increased tariff will take effect within 21 days.

The iShares MSCI India ETF index fell to its lowest level during the session after Trump's announcement, while oil prices surged. The Indian rupee remained steady at 87.91 against the dollar in the offshore market.

Impediment in Trade Talks

Trump’s move came hours after negotiations between Washington and Moscow about the war in Ukraine failed to make any immediate progress. Indian Prime Minister Narendra Modi stated that his country is being unfairly targeted by the United States, defending Russian oil consumption as essential to support the Indian economy. However, that didn't convince Trump.

In an interview with CNBC on Tuesday, the U.S. president said: "They are funding the war machine, and if they are going to do this, I will not be happy."

A spokesperson for the Indian Ministry of External Affairs described Trump's announcement on Wednesday as "unfair, unjustified, and unreasonable," pledging that "the government will take all necessary measures to protect its national interests."

New Tariffs Threaten Trade Relations with Partners

The tariffs on imports from dozens of the United States' trade partners are set to rise starting Thursday, including India, which will face the previous 25% tariff.

These tariffs are a cornerstone of Trump’s efforts to reduce the trade deficit, revive domestic industry, and increase federal revenue. However, they also pose risks threatening the global economy, including rising costs and supply chain disruptions.

Ajay Sahai, the director general of the Federation of Indian Export Organizations, stated that the latest U.S. move represents a "major setback" for Indian companies, noting that "orders are already on hold, and this additional blow could force exporters to lose old customers."

Some governments spent the last hours before the new tariffs took effect pressuring the Trump administration for more favorable terms. The Swiss President Karin Keller-Sutter met with U.S. Secretary of State Marco Rubio on Wednesday in a last-ditch effort to reduce the 39% tariff imposed by Trump.

Trump said he is open to more negotiations but is still facing a heated confrontation with some partners, including India.

Strained U.S.-India Relations

Trump imposed the 25% tariff on Indian goods unilaterally after months of fruitless negotiations with New Delhi.

He also accused Modi's government of failing to ease access for U.S. goods to the Indian market, and criticized India's joining the BRICS group of emerging economies. India has been hesitant to open its markets to U.S. agricultural products, particularly to protect its agriculture and dairy sectors.

Trump's tariff threats collide with the longstanding U.S. goal of strengthening ties with India, the world's most populous country, as a counterbalance to China. This escalation marks a departure from Trump's first term when his relationship with Prime Minister Modi was friendly.

Trump has ramped up his attacks on India in recent days, describing its economy as "dead," its tariffs as "odious," and its people as indifferent to the suffering of Ukrainians. Indian officials also expressed discomfort with Trump's portrayal of his role in resolving the India-Pakistan dispute earlier this year.