Rajeev Narayan

In a move that has sent shockwaves through global corridors and thrown diplomatic calculations into a tizzy in New Delhi, the United States has imposed 50-per cent tariffs on India, citing the latter’s imports of discounted Russian oil as the ‘core provocation’. Orchestrated through an executive order by President Donald J Trump, the move has brought a once-manageable energy trade policy into the epicentre of a strategic standoff. For India, the fallout is wide-ranging—impacting GDP, threatening key exports and straining its once-strongest bilateral relationship.

For the global community, it raises questions on economic sovereignty, double standards in sanctions enforcement and a blurring of the line between trade enforcement and political pressure. India now stands at a crossroad, facing tough economic and diplomatic consequences. It must now defend its autonomy while shielding its economy from collateral damage.

India’s decision to purchase discounted Russian oil was born when the Ukraine conflict upended global energy markets in 2022. As Europe and the US turned away from Russian energy supplies, Moscow redirected its crude to Asia at discounted rates. India grabbed the opportunity.

By 2024, over 40 per cent of India’s crude oil imports were from Russia, up from 2 per cent before the war. This cushioned the economy against spiralling fuel costs and provided private refiners with cost advantages. At that time, even the US acknowledged India’s dilemma and appeared to understand its compulsions, particularly as India maintained a neutral stance in the Russia-Ukraine conflict.

When Bonhomie unravelled

The bonhomie unravelled with the return of Trump as US President. Months of guesswork came to a grinding end last week, with Trump signing an order imposing an additional 25-per cent tariff on Indian goods, taking the total burden to 50 per cent. The reasoning given was “India’s continued oil trade with Russia”, with the US accusing India of “funding the Russian war effort”. This was a dramatic shift in tone, a once ally turning into a punitive superpower.

The motivations behind the US pivot are multi-fanged. Trump framed the move under the guise of national security, leveraging executive powers to justify the tariffs as a necessary response to what he said was “India’s indirect support for an aggressor nation”. Trade negotiations between the two countries had already hit a dead end after five rounds of talks, including disagreements over market access, digital taxation, agricultural barriers and India’s protection of its dairy industry. India’s oil ties with Russia only deepened the divide. The timing of the tariff decision, coinciding with stalled trade discussions, hints that Washington is using this as a pressure tactic.

India, for its part, has countered the US by highlighting inconsistencies in the former’s approach. While India has emerged as a top buyer of Russian oil, the European Union continues to import Russian LNG and other commodities, accounting for a larger share of Russia’s fossil fuel revenue since the war began. For instance, the EU contributed 23 per cent of Russia’s fossil fuel income after the Ukraine invasion, while India’s share stood at around 13 per cent. Yet, India finds itself hit with economic penalties, exposing what many call a “brazen case of Western hypocrisy”.

Tough Road Ahead for India

The consequences for India could be severe. Economists estimate that 50-per cent tariffs could shave off between 0.8 and 1.2 percentage points from India’s GDP growth over the next fiscal year. Morgan Stanley says the drag will be substantial if the tariff situation is not resolved. Export-oriented industries will suffer the most, especially those reliant on the US as a market. Sectors such as apparel, textiles, footwear, chemicals, pharmaceuticals, electronics and gems and jewellery, in particular, are exposed. These industries, which employ millions of workers in India's informal sector, could face order losses and massive layoffs. Exporters have described the tariff shock as “worse than Covid”, citing a lack of clarity on timelines or relief mechanisms.

The broader diplomatic fallout is troubling too. The tariff strikes at the heart of India’s calibrated foreign policy, which seeks to balance India’s historical ties with Russia and its strategic partnership with the United States. It undermines the India-US momentum built over years of Quad collaboration, defence cooperation and trade engagement. In India itself, critics are questioning the wisdom of tilting too far westward, with voices across the political spectrum urging an assertive response.

Despite the pressure, India is not without options. Talks are being initiated at the diplomatic level to explore a pathway to resolution. A US trade delegation will visit New Delhi soon and India is considering limited tariff concessions on US agricultural products such as almonds and cheese in exchange for relief from the newly-imposed duties. While India is firm in its stance on energy sovereignty, there is recognition that diplomacy might still offer a face-saving solution.

Alternatives to Russian Oil

As an alternative, India is exploring strategies to reduce its dependence on Russian oil imports. Diversification is underway to increase sourcing from the US, Brazil, Canada, West Africa and the Middle-East. However, this shift will come at a cost, higher payouts that could inflate the oil import bill by $11 billion annually. There is also concern that reducing Russian crude intake too soon may damage long-term energy cooperation with Moscow, especially in sectors like nuclear fuel, defence logistics and space collaboration.

To counterbalance the blow, India is doubling down on economic diversification. It is renewing efforts to expand trade partnerships with Africa, Latin America and the ASEAN. It is also seeking to revive Free Trade Agreement negotiations with the European Union and deepening talks in regional trade blocs like the Indo-Pacific Economic Framework. The government is preparing relief measures for affected exporters, including interest subvention, credit guarantees and export-linked incentives. There’s also renewed urgency to accelerate the ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives, positioning industry to be less vulnerable to singular markets.

India is also learnt to be coordinating with BRICS nations to formulate a cohesive response. Brazil’s President Lula da Silva has reached out India and China, proposing a united front against what he described as “unilateral weaponization of trade by the West”. Russia, as expected, continues to stand firmly behind India, even offering extended credit lines and price guarantees to ensure uninterrupted oil supply.

India’s approach must be measured but firm. It must engage with the US to defuse the situation, while resisting overt pressure. It must widen energy and trade deals to reduce overdependence on any single bloc.

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India’s choice to buy Russian oil was neither careless nor ideological; it was calculated and economic. But in a world where trade and diplomacy are getting entangled, all decisions carry consequences. The US tariffs are not just a financial blow; they are a geopolitical message. How India responds will shape the country’s trajectory not just for the year ahead, but for the decade to come

The writer is a veteran journalist and communications specialist