The rules-based global trading order has been upended by US President Donald Trump’s tariff disruption. Coercive diplomacy is in play against America’s trading partners, including India which now faces the prospect of tariffs up to 100% for buying Russian oil. Trump has signed into law the Lindsey O Graham Sanctioning Russia and Iran Act of 2026 which takes effect within 30 days. Besides sanctions on Moscow, the United States Trade Representative (USTR) will recommend tariffs on the top five oil buyers of Russian oil, which includes China. This legislation provides tremendous discretionary powers and leverage to the Trump administration which is negotiating a trade deal with India. The Indian government has already conveyed to US interlocutors the potential implications this legislation will have on bilateral trade relations. Besides ensuring its energy security, India will take all measures to protect its trade and economic interests.
Even earlier, India has been in the crosshairs of the Trump administration for importing Russian oil as it was slapped with 25% duties in addition to 25% reciprocal tariffs last August. Although India insists on its sovereign right to access energy supplies from anywhere in the world, it did reduce imports from Russia. Fresh loadings headed to India declined by half from 2 to 1.08 million barrels a day in February this year. This led to a framework for an interim agreement with India’s tariffs pegged at 18% from 50% earlier. But these were invalidated by the US Supreme Court. Trump then imposed a 150-day uniform tariff of 10% which expired on July 24. To retain leverage in negotiations, the USTR launched investigations under Section 301 of the Trade Act of 1974 and imposed a 10% duty on India as its exports had inputs produced by forced labour.
The prospective US levies up to 100% for importing Russian oil make the tariff architecture of the bilateral trade deal highly uncertain. There is also a second ongoing USTR investigation on excess capacities. India wants a deal that gives it a tariff advantage over competitors but it is unclear what duties it will face in the US. For its part, it has undertaken to significantly reduce duties on US industrial and agricultural products with firm red lines on not allowing genetically modified maize, soya bean, and dairy items. Trade experts like Ajay Srivastava of the Global Trade Research Initiative argue that these impending oil tariffs will be used as a negotiation tactic by the US to reduce our Russian oil purchases and accept a deeply unequal trade agreement.
How then can India safeguard its interests? Unfortunately, it does not have the leverage that China — with its export controls on rare earths — has to prevent Trump from imposing these prospective tariffs. The intensifying conflict in West Asia has constrained alternative sources of oil supplies. They will also be costlier with Brent spot prices averaging $109.8 a barrel this month. Unfortunately, continued dependence on cheaper Russian crude is not an option either. A supply squeeze and narrowing discounts is the reality as Moscow’s energy infrastructure is being relentlessly targeted in its war with Ukraine. Urals crude supplied to India has been trading at a premium since September 8, according to S&P Global. India’s interests are best served by not rushing to ink the trade deal as the fate of Trump’s tariffs depends on the outcome of mid-term elections.