Will Donald Trump's 25% tariff threat on Venezuelan oil deal blow to India's energy imports? How will it hit Indian economy?

Hours before Assistant US Trade Representative for South and Central Asia Brendan Lynch left the country with a high-level delegation on a four-day visit to India, President Donald Trump announced to impose 25% additional tariffs on those countries, that buy crude oil from Venezuela. This tariff will be levied on all imports in addition to other tariffs imposed earlier. 

This is a major blow to India, which has been buying crude oil from the Latin American country. India stopped buying oil from Venezuela after the US slapped Caracas with economic sanctions in 2019 to isolate leftist President Nicholas Maduro. 

India buys crude oil from Venezuela

After Washington waved the sanctions, New Delhi resumed oil imports from the country in 2023. The sanctions were back after a brief lull, but India continued buying crude oil from Venezuela, mainly because of the cheaper price. 

The share of Venezuelan crude oil in overall crude import by India is insignificant. While New Delhi imports 4.5 million barrel per day (one barrel is equal to about 159 liters), it bought 65,000 bpd in January and 93,000 bpd in February from Venezuela. 

It can be compared to 16 million tons of crude oil India imported from the South American country in 2019 before the US sanctions were imposed. 

How will US tariff on Venezuela crude hit India?

However, the fresh tariff threat by the US is significant because India will need more oil and its dependence on imported oil will increase from 87.7% in FY 2024 to 88.2% in February 2025, according to the oil ministry’s Petroleum Planning & Analysis Cell (PPAC).

Secondly, the additional tariff on Venezuelan oil will certainly harden the crude oil price in the international market. 

While WTI crude oil was trading around $69.13 and Brent crude around $73.02 per barrel when this article was written, they are certain to soar. This will impact all oil-importing countries, including India. 

It may hit the Indian economy hard as according to the PPAC,  petroleum product consumption in India is most likely to grow by 4.7% in FY 2025-26. India may end up buying 252.93 million tonnes of crude oil this year, paying a hefty amount. 

Will it hit US investment?

Brendan Lynch's visit is also significant because the talks will not be limited to tariffs, but it will be held also on the issue of potential US investment. 

With cumulative investment exceeding $60 billion till 2023, the US is the biggest source of Foreign Direct Investment (FDI). 

Analysts believe US companies may be interested in making massive investments in India in sectors like technology, e-commerce, renewable energy, and healthcare.

As the US-China trade war is certain to begin soon, American companies may use this opportunity to expand their business in India. 

The talks will also be held before the full-fledged talks on Bilateral Trade Agreement (BTA) begin formally. In fact, the talks that will be held on tariffs may set a template for future talks. 

What did Donald Trump say?

However, the US President has chosen the opportunity to warn India instead of reaching out. In a Truth Social post, Donald Trump wrote on Monday, "Venezuela has been very hostile to the US and the freedoms we espouse. Therefore, any country that purchases oil and/or gas from Venezuela will be required to pay a tariff of 25 per cent to the US on any trade they conduct with our country. All documentation will be signed and registered, and the tariff will take effect on April 2."

It is also the date on which the reciprocal tariffs on India come into effect. 

Trump is also upset because a developing country like India enjoys a trade surplus with the world's biggest economy. 

With bilateral trade reaching $129.2 billion in the Financial Year 2024-25, India exported goods worth $87.4 billion, while imports from the US reached $41.8 billion. It had a trade surplus of $45.7 billion.