Based on what’s happening in the black market for oil, the White House’s new import levy on India is backfiring.

President Trump last week doubled India’s tariff rate to 50% to punish it for buying sanctioned Russian oil. Indian refineries have become major buyers of Moscow’s crude since the war in Ukraine began.

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The tariffs on India could be affected by the federal appeals court ruling against “Liberation Day” levies on trading partner countries. But the ruling allowed the tariffs to remain in place at least through mid-October to allow an appeal to the Supreme Court.

The higher tariffs caused some ripples in the global black market, where around 6 million barrels of oil trade a day. Spooked Indian buyers dumped sanctioned Russian crude and ordered from the Middle East instead.

Russian cargoes were bought by opportunistic buyers in China: Orders for Russia’s Urals crude that will be delivered in October increased almost 10-fold compared with levels for September, says Tom Reed, a vice president at commodity analytics company Argus Media.

But Moscow cut the price of its oil to win back its Indian customers. A now $7 difference between a barrel of Urals and an equivalent grade from Oman is too good for India’s refineries to refuse. New Delhi also gave the green light for the purchases to continue, so flows are returning to normal.

The unintended effect of the U.S. crackdown has therefore been to make Russia’s already discounted oil even cheaper for India. As of Friday, a barrel of Urals costs India $1 less than it did before the White House first threatened the higher tariff.

The amount of crude under Western sanctions is at a record high: 15% of the world’s total oil supply, Kpler data shows. The black market to trade this illicit crude is increasingly sophisticated. In 2022, 427 so-called shadow vessels were suspected of transporting sanctioned energy for Iran and Venezuela, according to Claire Jungman, director of maritime risk at Vortexa. The fleet has quadrupled in size since Russia’s energy exports were sanctioned three years ago.

With so much discounted oil on offer, Beijing and New Delhi have been making hay. A third of China’s crude imports now come from sanctioned producers, up from 23% in 2021. India’s share of sanctioned barrels is higher at 37% of its oil imports, up from just 1% four years ago, says Homayoun Falakshahi, head of oil analysis at Kpler.

India’s energy policy may not have been the White House’s only target. The 50% tariff rate also looks like a tactic to force concessions in trade talks with New Delhi. U.S. demands that India open up its agricultural market have been a sticking point in negotiations. The new levy will be painful for India, potentially shaving 0.8 percentage point off the country’s economic growth, Citi estimates.

So far, the pressure hasn’t worked. New Delhi is reacting by moving closer to Russia and China. Prime Minister Narendra Modi made his first trip to China in over seven years this week to attend the Shanghai Cooperation Organization summit. India’s Foreign Minister traveled to Moscow in recent days and the countries agreed to increase bilateral trade by 50% over the next five years.

The episode makes the White House’s energy policies look conflicted. Until recently, it suited the U.S. and Europe for India to buy Russian crude because it keeps energy prices in check for Western consumers by keeping supply high and reducing demand for unsanctioned oil. And the U.S. hasn’t moved as aggressively against China, which also imports millions of barrels a day of sanctioned oil from both Russia and Iran.

The White House probably wants to remove the advantage that cheap oil hands to India and strategic rival China. But enforcing sanctions properly will mean higher prices at the pump for Americans. Its latest policy has only made black-market oil more enticing.

Write to Carol Ryan at carol.ryan@wsj.com

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