U.S.-India trade relations confront a monumental trial due to tensions involving Russian oil
The ongoing dispute over Trump tariffs on India's trade with Russia has become a significant question mark in the interconnected global economy. The tariffs, which specifically target India's purchases of Russian crude oil, have added an additional 25% penalty.
The Ministry of External Affairs in India has characterised these tariffs as "unjustified and unreasonable." Bilateral negotiations between India and the US continue, with a sixth round of talks scheduled from August 25. Despite this, India maintains its sovereign right to trade with Russia.
The implementation of these tariffs marks a watershed moment in US-India relations. India has faced 50 percent US punitive tariffs under Trump mainly because it continued to buy Russian oil and weapons, despite US pressure. However, India has not agreed to reduce Russian oil imports and instead strengthened ties with Russia, including diplomatic visits, while seeking to diversify exports to other regions like China, Latin America, and the Middle East.
The tariffs could potentially reduce India's GDP growth by 1 percentage point over time, according to analysis by Japanese brokerage Nomura. They create conditions resembling a trade embargo for affected products, forcing a fundamental restructuring of export strategies. The tariffs threaten $87 billion worth of annual exports to the US, equivalent to 2.2% of India's GDP. Engineering exports alone face potential losses of $4-5 billion annually due to the tariffs.
The tariffs have created ripple effects across multiple sectors of the Indian economy, particularly impacting labor-intensive manufacturing sectors like textiles, gems, and leather goods. The currency implications of the tariffs have already manifested through rupee weakness in offshore markets.
The August 27 deadline for the additional 25% penalty tariff creates immediate urgency for diplomatic resolution. Data shows that India's richest businessman, Mukesh Ambani's Reliance Industries, imported 183 million barrels of Russian crude during the first seven months of 2025, reflecting a 64% year-on-year increase.
The European Union's parallel restrictions on Russian petroleum products, effective January 2026, create additional pressure on India's energy sourcing strategy. The success or failure of Trump tariffs on India as a policy tool will likely influence future American approaches to economic coercion. The outcome of these tariffs, whether they pressure Russia or damage US-India relations, remains a defining question for this ambitious but controversial strategy.
India and China have shown some convergence against US unilateral tariff measures, indicating a subtle strategic alignment with China against US tariff policies related to Russian oil imports. However, the details of any potential collaboration between the two nations remain unclear. The tariffs have also led to a subtle strategic realignment, with India seeking to diversify its export markets and strengthen ties with other countries.
The implementation of the Trump tariffs on India has undeniably marked a significant turning point in the global economy, with potential long-lasting effects on US-India relations and the Indian economy as a whole. The ongoing negotiations between the two nations will be closely watched by the global community.
