When Sanctions aren't Enough

What happens when a country persistently buys discounted oil from a sanctioned state?

It now risks secondary tariffs. First deployed earlier this year over Venezuelan oil and now turned on India, Washington’s latest trade weapon is the focus of this week’s newsletter.

What happened?

On August 6, 2025, President Trump issued an Executive Order imposing an additional 25% tariff on imports from India due to its continued direct or indirect imports of Russian-origin oil. This new levy becomes effective August 27, stacking atop a 25% “reciprocal tariff” already in place, bringing the total combined rate to 50%.

What’s notable here is not just the escalation, but the method.

Secondary tariffs don’t block trade like traditional sanctions; instead, they financially penalize third-party countries trading with the sanctioned actor.

In this case, the U.S. is targeting Indian exports over its Russian oil ties.

The U.S. calculation is straightforward: make it more expensive for India to keep the Russian oil flowing than to stop.

India’s High-Stakes Balancing Act

The US move leaves the world’s third-largest oil consumer in a tight spot. Prime Minister Narendra Modi is at the cross-roads:

• If New Delhi yields to US demands and cuts Russian oil imports, it risks undermining a decades-old strategic relationship with Moscow.

• If it defies Washington, it invites a direct blow to its economy, jeopardizing USD 87 billion in annual exports to the US, its top trading partner.

The economic math is sobering. India saved about USD 3.8 billion on Russian oil last year, but exported more than 20 times that value to the US. Meanwhile, discounts on Russian Urals crude have narrowed to just USD 4.50 per barrel below Saudi grades, far less compelling than the USD 23 spread seen in 2023.

China Connection

If India winds down purchases, Russian producers will need to find other outlets for about 1.8 million barrels per day. China could take some, most likely at deeper discounts, but is unlikely to become overly dependent on Russian crude.

Washington is already watching Beijing closely, and President Trump and his advisors explicitly floated the idea of extending similar tariffs to China over Russian oil purchases.

One Thing Certain

The situation remains fluid.

If history is any guide, President Trump is not averse to abrupt course changes. The Trump–Putin summit on August 15 in Alaska could shift the trajectory entirely: reinforcing the tariffs, softening their impact, or scrapping them altogether.

For now, businesses and policymakers alike are left navigating a trade landscape where tomorrow’s rules may look very different from today’s.

Thanks for reading.

Alexey