Tariffs set to impact India’s petroleum product exports to the US

New Delhi: As the US has announced an additional 27% tariff on imports from India, petroleum products exports to the country are set to witness a major impact going ahead, said sector experts. A bulk of the petroleum exports to the US from India comprises petrol or gasoline, which currently attract import duty of 14%.

According to Deepak Mahurkar, leader, oil & gas at PwC India, the tariffs may lead to an increase in trade deficit for India. "The 27% duty on imports of petroleum products into the US from India of about $6 billion in 23-24 (FY24) will significantly get affected. The trade deficit on just the account of petroleum crude at about $5 billion will further widen."

US is among the top buyers of petroleum products from India. Post Russia's invasion of Ukraine and halt of oil supplies from Russia to the West, India became a key source of refined petroleum products from countries like the Netherlands and the US as India increased it intake of Russian oil due to deep discounts being offered.

Also read | Trump's Venezuelan oil tariff threat to have little impact on India, experts say

India's annual petroleum product exports to the US is around $5-6 billion.

Latest data from the Petroleum Planning and Analysis Cell (PPAC) shows that India’s petroleum product exports grew by 3.7% in volume terms, reaching 59.0 million tonne (MT) during April–February, compared to 56.9 MT in the same period last fiscal.

However, despite the rise in volumes, the value of these exports declined by nearly 7% to $40.4 billion during the period under review, down from $43.4 billion in the corresponding period of last year.

It is the private refining companies – Reliance Industries and Nayara Energies – which export products from India.

Mahurkar added: "If India decides to apply reciprocal tariffs, which seems unlikely, crude, LNG and ethane like feedstocks will be costlier. That may force importers to look for alternative sources or raise end product prices to pass on burden to customers."

Also read | We want FTA with India and it will be fair to both: New Zealand envoy

India's crude capacity

The development comes at a time when India is looking at expanding its crude refining capacity and become and refining and petrochemicals hub.

India current oil refining capacity stands around 257 million tonne per annum (MTPA) which the government aims to expand to over 309.5 MTPA by the end of this decade.

However, overall energy trade of India would not be impacted as the Trump administration has not announced secondary tariffs of 25-50% on countries buying Russian oil as he had threatened in case Russia doesn't reach and agreement with Ukraine. In case it is implemented India would be severely impacted as Russia has emerged as the top supplier of oil to India post the Russia-Ukraine war. Currently, Russian supplies comprise about 36% of India's total oil import bill.

Also read | Collateral damage: Indian refiners feel the heat of US sanctions on Russian oil

Last month Mint reported that that oil and gas imports are emerging as a key factor in the ongoing bilateral trade talks between the US and India and to assuage Trump and the US, India plans to increase the share of Western Texas Intermediate or WTI crude in the country’s import basket, which could even entail setting of 'tariff rate quota' for oil imports from the country.