India's Russian Oil Flows Said to Plunge after US Sanctions | Insight with Haslinda Amin 10/23/2025

Key Concepts

• Geopolitical Pressures and Market Impact: Sanctions on Russia, the war in Ukraine, and US-China trade tensions are creating significant pressure on global markets, particularly Asian equities and tech stocks.
• Inflationary Pressures and Interest Rate Expectations: Markets are perceived to be underpricing ongoing inflationary pressures, leading to an expectation of too many interest rate cuts by central banks.
• Oil Market Dynamics: The surge in oil prices is linked to sanctions on Russia and concerns about its commitment to ending the Ukraine war. The effectiveness of price caps and the potential for shadow fleet vessels to circumvent sanctions are key questions.
• Private Credit Market Risks: The opacity and illiquidity of the private credit market pose significant risks, with potential for rapid unwinding and difficult quantification of exposure for banks.
• Central Bank Independence: The importance of central bank independence from executive branches is highlighted as crucial for market stability and confidence, particularly in the US.
• Cryptocurrency and Stablecoins: A distinction is made between speculative crypto assets like Bitcoin and the potential growth of regulated stablecoins.
• US-China Trade Relations: The ongoing trade war and its impact on the global economy are a central concern, with expectations of continued delays and potential negative consequences for the US economy.
• India-US Trade Deal: Negotiations are underway to reduce tariffs between India and the US, with a focus on oil supply to India.
• South Korea's Investment Pledge: South Korea is discussing the structure of a $350 billion investment pledge with the US, focusing on investment rather than currency swaps.
• Steel Industry Dynamics: The Indian steel industry faces challenges from potential EU tariffs and import dumping, but also sees opportunities in reconstruction demand and domestic growth.

Oil Surges Amidst Sanctions and Geopolitical Tensions

Asian equities are under pressure due to geopolitical tensions, with tech stocks also facing scrutiny over restrictions on critical software purchases. Gold is pulling back for a third consecutive day as rallies are seen as overheated.

Key Points:

• Oil Price Surge: Oil prices have surged following the US announcement of sanctions, with President Trump reportedly asking Putin to end the war in Ukraine.
• Market Uncertainty on Sanctions Effectiveness: The market is uncertain about the effectiveness of new sanctions on Russian oil. The US and G7 strategy involves a price cap, aiming to allow countries like India to import Russian oil while curbing revenue to Moscow.
• Disruption of Russian Oil Flows: The strategy aims to disrupt Russian oil flows, which constitute half of its exports. A key question is whether the Trump administration will pursue "shadow fleet" vessels that continue to export fuel.
• Oversupply and Market Cushion: Despite sanctions, there is an oversupply of oil (3 million barrels), which could help mitigate market concerns. The IEA expects this to provide a cushion.
• OPEC+ Role: Russia is part of OPEC+, and while its supplies are curbed, Saudi Arabia or other OPEC members could potentially increase production to provide a cushion.
• Impact of Sanctions: Being stricter with sanctions and hitting Russian crude directly would have a lesser impact now compared to when the war began in 2022, when prices were over $100.

Inflationary Pressures and Interest Rate Expectations

Forecasters expect headline and core inflation rates to rise, with lingering tariffs contributing to these pressures. There's a belief that inflationary prices are underpriced by the market.

Key Points:

• Underpriced Inflation: The market is underpricing inflationary pressures, and factoring in too many rate cuts.
• Tariff Impact: The market is underestimating the impact of tariffs, viewing them as less significant than they are. This is seen as a premature assessment, with distortions and front-loading of imports/exports creating inventory build-ups. The sustainability of companies absorbing tariffs is questioned.
• Labor Market Nuances: The view that the labor market is weakening is considered too simplistic. It's described as a "K-shaped" market, with strong pockets alongside areas of weakness.
• Rate Cut Expectations: The expectation of a 50 basis point rate cut is deemed aspirational, with no clear case for it given the current inflation and labor market conditions. The Fed is seen as trying to catch up.
• CPI Print Importance: The upcoming CPI print is important for indicating the direction of travel for inflation, especially given the government shutdown's impact on data. A surprise on the upside could move markets significantly.
• Market Pricing of Rate Cuts: Markets are pricing in 50 basis points of rate cuts and more for the following year. This is considered too many, especially with underpriced inflationary pressures. A reaction in the Treasury market is expected if the CPI print is more than 30 basis points higher than expected.

Private Credit Market Risks

The private credit market is described as bubbling away, with concerns about its opacity and illiquidity.

Key Points:

• Opacity and Illiquidity: The private credit market is opaque and illiquid, making it difficult to assess risks.
• Potential for Rapid Unwinding: US banks have an exposure of $300 billion, and an unwinding could happen rapidly.
• Bank of England Stress Testing: The Bank of England is stress testing the credit market, indicating a need for caution.
• Uncertainty of Impact: It is unclear who will be worst hit, but some smaller banks and asset owners in the retail market could be affected.
• Yield Expectations: The expectation of yields dropping is considered premature. The risk to the market is further weakening of the labor market.
• Treasury Market Pressure: There could be pressure on Treasuries in the long term.
• Natural Rate Increase: The natural rate of interest is believed to have increased, and a further leg down in rates is not certain.
• Credit Market Lag: Credit markets have not yet fully priced in the credit slowdown.

The Dollar and Debasement Concerns

The debate around currency debasement and the future of the dollar is discussed.

Key Points:

• Signs of Debasement: There have been signs of currency debasement, particularly in selected areas.
• Gold Rally as Debasement Trade: The gold rally is seen as a debasement trade.
• Dollar's Dominance: The dollar is benefiting from this situation and is expected to continue to do so because no other market can absorb liquidity at that size.
• Crypto and the Dollar: Cryptocurrencies are also mentioned in relation to the dollar.

India-Russia Oil Supply and India-US Trade Deal

The potential for Russian oil supply to India to fall to zero is discussed in the context of ongoing India-US trade negotiations.

Key Points:

• Russian Oil Supply to India: Russian oil supply to India is reportedly set to fall to zero.
• India-US Trade Deal Progress: There are rumors of progress in US-India negotiations, with a focal point being oil supply to India.
• Impact on Oil Prices: If true, this would be a significant step and aligns with the idea that oil prices are responding to actual oil supply disruptions rather than just sanctions on entities.
• Tariff Reduction: The India-US trade deal could see tariffs fall from high levels to around 15%.
• Rupee and Yen: The rupee is hovering at low levels. There is excitement about the Yen, but a rally is considered unlikely, with the Yen expected to capitipate.

South Korea's Investment Pledge and Currency Swaps

South Korea's Finance Minister discusses the structure of a $350 billion investment pledge with the US.

Key Points:

• Investment Pledge Focus: Trade talks are focusing on the structure of the $350 billion investment pledge, rather than a currency swap.
• Annual Investment Limit: The maximum amount that can be raised annually without impacting the market is $20 billion.
• Currency Swap Necessity: Whether a currency swap is needed and to what extent will depend on the deal's structure. It may not be necessary or could be on a smaller scale.
• US Currency Provision: The US must provide the currency for long-term investments, and a swap with the US would require further discussions.
• No Short-Term Liquidity Need: South Korea is not seeking a swap due to a lack of short-term liquidity like Argentina, but rather for long-term investments.

China-US Relationship and Global Economic Health

The summit in Shanghai brings together policymakers and financial executives to discuss the critical China-US relationship and its impact on the global economy.

Key Points:

• China's Bargaining Chips: The US has historically underestimated China's bargaining chips in their relationship.
• Mutual Dependency: The US and China are equally dependent on each other.
• Wealth Management in China: Wealth management is an important initiative for China, with high-net-worth individuals seeking diversification and state assets.
• Critical Juncture: The conference is held at a critical time in the China-US relationship, with six months of tariffs impacting the global economy.
• US Market Wobbliness and Stagflation: US markets are showing signs of weakness, and the expectation of stagflation is rising.
• China's Persistent Inflation: China faces persistent inflation.
• Policy Response: The policy response to potential stabilizing of the US-China relationship is a key question.
• Global Economy Assessment: The global economy has avoided catastrophe, but the relationship between the US and China is a significant factor.
• Increased Global Debt: The world has a higher overall amount of public and private debt than before the crisis, creating fragility.
• Vigilance Required: Extreme vigilance and caution are needed from authorities and the private sector due to the dangerous global environment.
• Non-Bank Regulation: There is a problem of absence of appropriate regulation in the non-bank sector, contributing to credit risks.
• Central Bank Independence: Central bank independence is more important than ever, and any perceived dependence of the US Federal Reserve on the executive branch would be a catastrophe for the market.

Cryptocurrency and Stablecoins

The future of cryptocurrency and the role of stablecoins are discussed.

Key Points:

• Bitcoin as Speculative Asset: Bitcoin is seen as a speculative asset rather than a currency due to its volatility.
• Stablecoin Growth Potential: Stablecoins could see significant growth, potentially reaching $5 billion to $300 billion in five years.
• Regulation of Stablecoins: The US administration is paying close attention to stablecoins, and they need to be controlled.
• Unregulated Instruments: Allowing instruments like Bitcoin to operate without regulation, potentially financing illicit activities, is deemed incorrect.
• Need for Regulation: There is a call for regulation of these instruments to prevent unregulated operations.

Steel Industry Outlook and Trade Dynamics

The CEO of J.W. Steel discusses the outlook for the Indian steel industry amidst trade negotiations and global demand.

Key Points:

• India-US Trade Deal Impact: The impact of the India-US trade deal on the steel industry is limited, but indirect surplus can find its way to India. The Indian government is conscious of this and taking measures against dumping.
• EU Tariffs: The EU's proposal of 50% tariffs on steel is a potential concern, but it's not yet finalized.
• Reconstruction Demand: A positive tailwind for the steel industry is the reconstruction demand expected in the Middle East and Ukraine, contingent on the cessation of the war.
• Ukraine as a Growing Market: Ukraine is a growing market for steel, with double-digit growth expected for the next decade or two.
• Safeguards and Anti-Dumping: Safeguards announced in March have helped reduce imports, but they have inched up again due to global uncertainty. Anti-dumping measures are also being attended to.
• Domestic Demand: Domestic demand in India is one of the fastest-growing in the world.
• Safeguard Duty Renewal: Safeguard duties are due for renewal, and an extension for three years is recommended.
• Steel Price Increases: Strong consumption sales in India, driven by production and interest rate reductions, are picking up. The state government's role is also expected to contribute to growth.
• Import Concerns: The primary concern is any kind of import dumping into the country.
• Supply Constraints: Supply in the country needs to be in line with production, which is increasing. Mines are being geared up, and the government is taking measures to ensure production increases.
• Raw Material Sourcing: The company has three mines with significant resources and is looking for new assets as it ramps up capacity.
• Joint Venture with Costco: Progress is being made on documentation for a joint venture with Costco, with land identified and plans being finalized. Operations are expected to start within a year.
• JV Capacity: The joint venture aims for an initial capacity of 5 million tons, scalable to 10 million tons.

Conclusion

The global economic landscape is characterized by significant geopolitical risks, inflationary pressures, and evolving trade dynamics. Sanctions on Russia, the US-China trade war, and the opacity of private credit markets are creating uncertainty. While some markets are showing resilience, vigilance and cautious policy responses are crucial. The importance of central bank independence and the need for regulation in emerging financial areas like stablecoins are highlighted. The steel industry, particularly in India, faces both challenges and opportunities driven by trade policies and global demand.