US Imposes 50% Tariff on India Over Russian Oil Purchases: Rupee Hits Record Low, Stock Markets Tumble

On August 6, 2025, US President Donald Trump signed an executive order imposing an additional 25% tariff on Indian goods, raising the total duty to 50%, as a penalty for India’s continued purchase of Russian crude oil. This dramatic escalation in trade tensions has sent shockwaves through India’s economy, with the Indian rupee plunging to a record low of 87.75 against the US dollar and stock markets, including the Sensex and Nifty, witnessing sharp declines. This blog explores the reasons behind the tariffs, their immediate economic fallout, India’s response, and the broader implications for US-India relations.

The Tariff Trigger: India’s Russian Oil Imports

The US tariffs are a direct response to India’s significant imports of Russian crude oil, which constitute 35% of India’s total crude oil needs in 2025, up from just 1.7% in FY20. India, the world’s third-largest oil importer, has relied on discounted Russian oil since Western sanctions disrupted global supplies following Russia’s 2022 invasion of Ukraine. The US claims these purchases indirectly fund Russia’s war efforts, with Trump’s executive order stating, “The Government of India is currently directly or indirectly importing Russian Federation oil,” justifying the additional 25% duty effective August 27, 2025.

India, however, defends its oil procurement as a necessity driven by market conditions to ensure energy security for its 1.4 billion people. The Ministry of External Affairs (MEA) has called the tariffs “unfair, unjustified, and unreasonable,” noting that other major buyers, including China and the EU, face less scrutiny despite similar imports. Foreign Minister S. Jaishankar emphasized, “If you don’t like Indian oil or refined products, don’t buy them. Nobody is forcing you.” India also highlighted that the US initially encouraged such imports to stabilize global energy markets, pointing out the EU’s €67.5 billion trade with Russia in 2024 and the US’s own $3.5 billion trade with Russia despite sanctions.

Economic Fallout: Rupee and Markets in Turmoil

The announcement of the 50% tariff, combining an earlier 25% levy from August 1 with the new penalty, triggered immediate economic repercussions:

• Rupee Plummets: The Indian rupee weakened by 0.2% to 87.75 per US dollar in early trade on August 6, hitting a record low. By August 7, it recovered slightly to 87.67, buoyed by falling oil prices and suspected Reserve Bank of India (RBI) intervention, but depreciation pressures persist. India’s foreign exchange reserves dropped by $9.3 billion to $688.9 billion as of August 1, reflecting efforts to stabilize the currency.
• Stock Market Slump: The BSE Sensex and NSE Nifty dipped sharply, with the Sensex closing down 0.38% on August 6. Export-reliant companies in textiles, gems, and auto components saw significant declines as US buyers began pausing orders, seeking cheaper alternatives in Vietnam and Bangladesh.
• Export Sector Hit: The tariffs threaten 55% of India’s $87 billion exports to the US, impacting labor-intensive sectors like textiles, leather, gems and jewelry, auto parts, and seafood. Industry estimates suggest a $4–5 billion drop in engineering exports alone, with overall GDP growth potentially falling below 6% in FY26, a 0.2–0.5% hit from earlier forecasts of 6.5%.

The Federation of Indian Export Organisations (FIEO) called the tariffs “extremely shocking,” warning of disruptions to supply chains, reduced foreign direct investment, and job losses, particularly in MSME-dominated sectors. AIMIM leader Asaduddin Owaisi labeled the move “bullying” by Trump, predicting severe impacts on Indian exporters and manufacturers.

India’s Response: Defiance and Diplomacy

India has taken a measured yet firm stance against the tariffs. Prime Minister Narendra Modi emphasized protecting national interests, particularly for farmers, fishermen, and dairy sectors, stating, “India will not bow to pressure or compromise the welfare of its farmers... If I have to pay a price for this, I am ready.” The government is exploring a three-pronged strategy:

1. Diplomatic Engagement: The 21-day window before the additional 25% tariff takes effect on August 27 offers a chance for negotiations. Indian officials are open to reducing Russian oil imports if the US ensures price parity and energy security.
2. Market Diversification: Leaders like Shashi Tharoor and Union Agriculture Minister Shivraj Singh Chouhan urged exploring alternative markets in Europe and Asia, leveraging existing free trade agreements, and boosting domestic consumption.
3. Support for Exporters: The government is considering interest subsidies and loan guarantees to mitigate losses for exporters, particularly MSMEs.

Indian refiners have delayed September orders for Russian oil, awaiting clarity on potential secondary sanctions, which could disrupt $9–12 billion in annual import costs if Russia is replaced as a supplier.

Broader Implications: Trade War and Geopolitical Shifts

The tariffs mark the lowest point in US-India relations in over two decades, threatening a bilateral trade relationship worth $190 billion. Analysts warn of broader consequences:

• US Economic Risks: The tariffs could raise costs for US consumers and businesses, as Indian exports like textiles and auto parts are key inputs for American industries. This risks fueling inflation and straining US-India strategic ties, which Washington has cultivated to counter China.
• Global Oil Market: India’s abrupt shift away from Russian oil could tighten global supplies, potentially driving prices up from their current $66 per barrel. This would affect not only India but also other major importers like China and the EU.
• Geopolitical Realignment: The tariffs, coupled with Trump’s favorable trade deal with Pakistan (reduced to 19% tariffs), may push India closer to Russia, China, and Brazil within the BRICS framework. China has condemned the US move as “bullying,” resuming flights and easing trade restrictions with India.

A Silver Lining?

Despite the economic turbulence, some analysts argue India’s relatively low trade exposure (exports to the US account for 2% of GDP) may limit the long-term impact. S&P Global upgraded India’s credit rating to BBB, citing economic resilience, though it noted near-term challenges. The RBI’s steady 6.5% GDP growth forecast for FY26 and India’s robust domestic market provide a buffer.

Conclusion

The US’s 50% tariff on Indian goods over Russian oil purchases has plunged US-India trade relations into crisis, with the rupee hitting a record low and stock markets reeling. While India defends its energy choices as vital for its 1.4 billion citizens, the tariffs threaten billions in exports and thousands of jobs. With a 21-day window for diplomacy, India faces a delicate balancing act: safeguarding national interests while navigating global trade and geopolitical pressures. As New Delhi explores new markets and braces for impact, the resilience of its economy and the resolve of its leadership will be tested in this escalating trade war.

Sources:

• India Times, August 26, 2025
• Times of India, August 6–8, 2025
• CNBC, August 6–7, 2025
• Reuters, August 7, 2025
• NDTV, August 6–8, 2025
• India Today, August 7, 2025
• BBC, August 6, 2025
• Bloomberg, August 6, 2025
• POLITICO, August 6, 2025
• ClearTax, August 11, 2025
• Hindustan Times, August 13, 2025
• Posts on X, August 12–15, 2025