India's $68 billion question: How to trade with Russia without making America unhappy

Time of India

3 days ago

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The enduring Russia-India axis
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Why India won't 'switch off' its Russia ties
Here's the economic risk
The Pakistan oil card
More pressure on the horizon
Diplomatic stress test
India's trade ties with Russia are back in the spotlight after US President Donald Trump has imposed a 25% tariff on Indian exports, effective August 1, 2025. His reasoning? India's high duties on American goods and what he calls 'obnoxious' non-monetary trade barriers.But there's more to it.Trump is also tying these tariffs directly to India's deepening ties with Russia. He is coupling them with what he calls an 'additional penalty' for India's strategic trade relationship with Moscow, especially its oil purchases and military imports.This unspecified penalty, according to The New York Times, is his first test run of what he's branding as 'secondary tariffs' -- a departure from conventional financial sanctions often applied to countries engaging with embargoed nations.The new tariff list is broad, covering products from smartphones and steel to shrimp and jewellery, sectors where India has a strong export presence. These exports now face the risk of losing ground in the US market.Trump, never one to mince words, went a step further.He dismissed both Indian and Russian economies as 'dead,' claiming the US does 'very little business' with either, just as he announced a tariff that could cost India billions. He's also accused India of undermining international efforts to stop the war in Ukraine.This aggressive stance by the US prompts a critical examination of the deep-rooted relationship between India and Russia -- and the growing pressure on New Delhi to recalibrate its foreign policy.Despite everything, India-Russia relations are still going strong.External Affairs Minister S. Jaishankar, speaking to the Indian diaspora at an event in Moscow in December 2023, described the bilateral relationship as 'the one constant in world politics.'And he wasn't being dramatic.This partnership goes back to the 1950s, when the Soviet Union used its UN Security Council veto in India's favour on Kashmir. Moscow also stood by India during the Cold War and helped mediate with Pakistan more than once.Trade-wise, things are booming.In FY25, bilateral trade hit $68.7 billion. According to the Indian embassy in Moscow, this is nearly 5.8 times higher than the pre-pandemic trade of $10.1 billion.'It comprises India's exports worth $4.88 billion and imports from Russia amounting to $63.84 billion.'The target is $100 billion in bilateral trade by 2030, as Jaishankar reiterated in March last year, and a huge part of that is crude oil. Russia now accounts for around 40% of India's oil imports, up from just 0.2% before the Ukraine war, according to The Economic Times.That shift isn't just dramatic, it's locked in. In December, India signed its biggest-ever energy deal with Russia: a 10-year agreement to supply 500,000 barrels of oil per day to Reliance, worth about $13 billion annually, as Reuters reported.That's 0.5% of global supply, committed for a decade. It shows just how deeply rooted this energy relationship has become.But here's the twist. Indian state-run refiners have reportedly paused Russian oil purchases . With discounts narrowing and US President Donald Trump warning countries against buying crude from Moscow, state refiners like Indian Oil Corp, Hindustan Petroleum, Bharat Petroleum and Mangalore Refinery haven't placed fresh orders in over a week, according to industry sources cited by Reuters.While private players, Reliance and Nayara, remain the largest buyers of Russian oil, public-sector refiners still control over 60% of India's 5.2 million barrels-a-day refining capacity. Any shift in their strategy matters.And oil is just one piece of the puzzle.India remains the world's largest importer of Russian arms. Reports from the Stockholm International Peace Research Institute (SIPRI) consistently show India as a top, if not the top, importer of Russian weaponry over various periods.According to the London-based think tank Chatham House, over 50% of India's military equipment is Russian-made. India is trying to diversify under its Make in India initiative, but that kind of dependence doesn't unwind overnight.They're also building nuclear plants together.According to The Moscow Times, Russia's state-owned Rosatom has an agreement to build six reactors in India. And if that's not enough high-level engagement, Prime Minister Narendra Modi has met Vladimir Putin 17 times over the last decade, including two visits to Russia in the past year alone.New Delhi has made it clear: it's not walking away from Moscow just because Washington wants it to.As India's High Commissioner to the UK, Vikram Doraiswami, put it: India can't just 'switch off [its] economy' to comply with Western sanctions. Energy security and defence needs take priority. And when critics question India's continued trade with Russia, Indian officials often point to Europe's own ongoing dealings with Moscow as a counter.'Many of our European partners are still buying rare earths and other energy products from the same countries they're refusing to let us buy from,' Doraiswami told Times Radio last week, following Prime Minister Modi's visit to London. 'Don't you think that seems a little odd?'When asked about India's 'closeness' with Russia and President Vladimir Putin, Doraiswami said the relationship rests on several long-term factors, not least of which is defence.'Some of our Western partners wouldn't sell us weapons but had no problem selling them to countries in our neighbourhood that used them to attack us,' he said, alluding to US-Pakistan arms ties during the Cold War.But this stance isn't winning India any friends in the West.India has stayed studiously neutral on the Russia-Ukraine war. It hasn't condemned the invasion, and it abstained on multiple UN resolutions targeting Moscow. That's drawn criticism, particularly from the US and EU, who've grown frustrated with what they see as strategic ambiguity.There's also concern about India's role in supplying dual-use technologies. As Bloomberg reported last year, US and EU officials now say India is the second-largest supplier of restricted tech to Russia, undermining global efforts to curb Moscow's war capabilities.Meanwhile, Trump's frustration goes beyond Ukraine. He's long complained about stalled US-India trade talks, India's membership in BRICS (which he sees as 'anti-US'), and Delhi's refusal to distance itself from Putin.The US is India's single biggest export market, accounting for nearly 25% of its exports in recent months, ahead of the UAE, Netherlands, China, and the UK.According to Reuters, India exported $87 billion worth of goods to the US in 2024. In May 2025 alone, India posted a trade surplus of over $5 billion with the US, exports stood at $8.83 billion, while imports were $3.63 billion.But that trade advantage could come under pressure.The US currently runs a $45.7 billion goods trade deficit with India. Now, new US tariffs are set to hit Indian goods harder than those from other countries.The import tax on Indian goods is expected to be higher than that on exports from nations like Japan (15%), the EU (15%), Indonesia (19%), and even Vietnam (20%), despite Vietnam being explicitly targeted by the Trump administration.According to Reuters, Citi economists say India's weighted average tariff rate would end up being five to ten percentage points higher than its Asian peers.That could make India a less competitive manufacturing hub at a time when global supply chains are already in flux. Even a modest 5–10% drop in exports to the US would translate into a multi-billion-dollar hit.As if things weren't messy enough, Trump, while announcing a trade deal with Pakistan, stated on Truth Social on Wednesday that the United States would help Islamabad develop its "massive oil reserves" — though the specifics of these reserves remain unclear.But his comments on Truth Social were provocative: "We have just concluded a deal with the country of Pakistan, whereby Pakistan and the United States will work together on developing their massive oil reserves," Trump wrote, adding, "We are in the process of choosing the oil company that will lead this partnership. Who knows, maybe they'll be selling oil to India some day!'This comment is hugely significant for India, given that it came the day after Trump announced the 25% tariff on 'friend' India, along with an unspecified penalty for its close ties with Russia.'…They have always bought a vast majority of their military equipment from Russia, and are Russia's largest buyer of energy, along with China, at a time when everyone wants Russia to stop the killing in Ukraine, All things not Good!'It's a remarkable juxtaposition: Trump penalising India, a long-time partner, while dangling energy cooperation with Pakistan, a country the US has historically had a rollercoaster relationship with.Former US Assistant Secretary of State and partner at The Asia Group, Nisha Biswal, told ANI: 'These differences, divergences in the US-India relationship are longstanding. Historically, the United States has demonstrated a fair amount of understanding regarding India's legacy relationships and the accommodations for that. I think President Trump is probably less inclined to accommodate and adapt to those legacy relationships..."The next few months will be a serious stress test for India's foreign policy.To complicate things further, a new bipartisan bill in the US Senate is calling for a 500% tariff on goods from countries that keep buying Russian oil and gas while refusing to back Ukraine. If it passes, India will have some hard decisions to make.Called the Sanctioning Russia Act of 2025, the bill has been introduced by Senators Lindsey Graham (Republican) and Richard Blumenthal (Democrat), with support from over 80 co-sponsors across party lines, enough to potentially override a presidential veto.The proposed law would slap steep tariffs, up to 500%, on imports from countries that continue buying Russian crude, gas, petroleum products, or uranium and don't actively support Ukraine.India and China are explicitly named as top targets. Brazil also comes up frequently. There's also talk, largely from Trump's camp, of an additional 100% 'secondary tariff' threat.The bill does include a waiver clause, allowing the US President to choose not to enforce the tariffs even if Congress passes the law -- leaving room for negotiation or strategic exemptions.India has defended its energy deals with Moscow, citing national interest and energy security. External Affairs Minister S. Jaishankar has said India's position has been made clear to Senator Graham and that New Delhi will 'cross that bridge when we come to it' if the bill moves forward.India's Russian oil imports have surged since the Ukraine war began, making up a large chunk of its crude basket. If this bill becomes law, the fallout could hit Indian exports to the US, one of its most important trade relationships.As of July 31, the bill remains at the 'Introduced' stage. The Senate version has been referred to the Banking, Housing, and Urban Affairs Committee and is still working its way through the legislative process.Even if it doesn't pass, there's more trouble coming.The EU's latest sanctions, implemented in July 2025, ban the import of refined petroleum products made from Russian crude, even if those products are processed in third countries like India.This move directly threatens India's fuel exports to the bloc, which were estimated at $14.3 billion in FY25, according to ICRA.India had emerged as a major hub for rerouting Russian oil to Europe, capitalising on discounts offered by Moscow after its invasion of Ukraine. That backdoor has now been shut.As for Iran, India's official crude imports have remained negligible since 2019 due to US sanctions. But recent American actions suggest some trade may still be happening.On July 30, the US State Department imposed sanctions on six Indian companies, including Alchemical Solutions, Global Industrial Chemicals, and Jupiter Dye Chem, for allegedly engaging in 'significant transactions' involving Iranian petroleum and petrochemical products.India is currently assessing the tariff impact, with a US delegation slated to visit later in August for ongoing trade negotiations. However, the path forward appears fraught with challenges.Russian President Vladimir Putin's anticipated visit to India in the coming months will likely ignite similar discussions.The move by the US marks a sharper turn in pressure tactics to isolate Russia and raises the stakes significantly for India's delicate balancing act between maintaining its strategic autonomy and nurturing partnerships with competing global powers.