President Trump plans to impose an additional 25% tariff on imports from India. This measure aims to penalise India for purchasing Russian oil despite U.S. pressure.
The tariff coincides with expectations for additional sanctions on Russia. This move is intended to put economic pressure on Moscow to move toward ending the conflict in Ukraine.
Trumps Strategy on Trade
Trump’s strategy aims to divert more goods to the U.S. and boost U.S. oil exports to India. This could reduce India’s dependence on Russian energy and strengthen America’s trade.
The increase sets the potential tariff rate at around 50%, effective from 27 August. Crude oil prices have increased due to this announcement.
Previously, a decline brought the market close to its 100-day moving average at $64.96. Today’s low was $65.11, prompting a market rebound.
The market is trading at $65.68, with sellers needing a break below the 100-day average to target $64.71 and $63.61. Resistance is near $66.97, with the 200-day average at $67.89.
Tariff Deadline and Impact
Oil inventory estimates are due: Crude oil at -0.591M, Gasoline at -0.406M, and Distillates at +0.775M.
The August 27th deadline for the new 25% tariff on India is the key date we are watching. Crude oil prices are reacting to this geopolitical risk, but we are currently balancing on a critical technical level. A sustained move below the 100-day moving average at $64.96 would signal that sellers are taking control despite the news.
Given the uncertainty, traders should consider using options to define their risk. Buying call spreads to target resistance near $66.97 or put spreads if the market breaks below key support are viable strategies. This allows for participation with a capped downside before the tariff deadline clarifies the market’s direction.
The biggest impact may be on the Indian Rupee and the Nifty 50 index. The United States is India’s largest trading partner, with bilateral trade valued at over $130 billion in 2024. A potential 50% total tariff threatens this relationship, making derivatives that bet against the Rupee and the Nifty 50 look attractive.
This move follows a clear trend we have observed since 2022. India’s imports of Russian seaborne crude surged after the invasion of Ukraine, with recent data from earlier this year showing volumes often exceeding 1.9 million barrels per day. Washington’s action is a direct response to these sustained purchases, making this a serious trade flashpoint.
We should anticipate a rise in broad market volatility. Looking back at the US-China trade war escalations between 2018 and 2020, we saw sharp spikes in the VIX. This new trade dispute introduces similar uncertainty, making long volatility positions via VIX futures or options a potentially valuable hedge.
In the very short term, all eyes are on the EIA inventory data due out today, August 6th. The expectation for a draw in crude oil inventories could provide temporary support for prices. A surprise build, however, could easily push us through the key 100-day moving average and shift momentum to the downside.
