India and the Iran-US Deal: Energy Security, Inflation and Economic Impact

There was great interest in the Narendra Modi-Donald Trump meeting of June 17 on the sidelines of the G7 summit in Évian, France. After a hiatus of 16 months, this meeting was held after a period of turmoil rarely witnessed in Indo-US relations in the current century. The latest was the extreme provocation of the attacks on commercial shipping off the Gulf of Oman by the US under the guise of implementing its sanctions and blockade of the Strait of Hormuz. Almost all these ships had a majority of Indian seafarers, and in the US air strike on the commercial oil tanker, MT Settebello, three Indian seafarers lost their lives.

This was the immediate provocation before the India-US meeting. India had taken unprecedented steps in recent times to call in the US Chargé d’Affaires (CDA) and strongly protest the attack on commercial shipping in violation of international maritime law and the death of Indian seafarers.

This was not a one-time protest, because two days later, India called in the CDA again and protested. This time, in media glare. The minister of external affairs, S. Jaishankar, had a telephonic conversation with his counterpart, Marco Rubio, the US Secretary of State, and conveyed India’s dismay.

This looked like an unprecedented surge in protests by India against US actions, and it was in the public glare rather than confined to diplomatic premises. The MT Settebello episode feels different. For perhaps the first time in two years, India publicly challenged the results of the US’ direct military action. The symbolism matters. New Delhi lodged its protest even before Washington had clarified the circumstances surrounding the hit. This is a subtle but important shift. On an earlier such occasion, India had not formally protested. India appears increasingly willing to signal that a strategic partnership does not imply strategic silence.

This had raised the question of whether the protests had peaked and whether Modi and Trump would now discuss other consequential matters.

At the G7 summit, Modi raised the closure of the Strait of Hormuz, the maintenance of international maritime law and the protection of Indian seafarers in his public comments with Trump. While Trump was effusive in the meeting about his friendship for India in general, and Modi in particular, on this issue of seafarers, he was rather nonchalant. He confined himself to saying ‘yes, he was aware [of the deaths of the Indian seafarers]; it was a rough profession’, and while reaching out to Prime Minister Modi to shake his hand, he said, “We will discuss this.” That was all.

Evidently, the immense love that Trump professed for India and Modi did not include saying, “We are sorry.” This was also the message that Rubio had conveyed to Jaishankar. The published US readout of Rubio’s conversation with Jaishankar was more brusque than the conversation itself was.

Suddenly, the ambience of US-India relations seems to have shifted, with Trump and Modi meeting and engaging in a public display of bonhomie. This upbeat mood of the meeting should hopefully imbibe itself into the rest of the relationship.

Several US interlocutors have followed the Trump line and have been often brusque and unnecessarily categorical about issues involving India. It is my expectation that the Modi-Trump meeting would perhaps alter the tone of the relationship without necessarily ending its sterner era.

Caveats in FTAs

This is even as the UK committed to a July 15 launch of the UK-India Comprehensive Economic and Trade Agreement in the meeting between Modi and British Prime Minister Keir Starmer, and the European Union (EU) leadership indicated that the India-EU free trade agreement (FTA) will probably come into force by the end of the year.

Those FTAs are moving forward, gaining momentum from the lack thereof in the India-US bilateral trade negotiations. The US is likely to push that forward, though for that it has to resolve many of its own fault lines domestically.

This is one problem with these FTAs. The US, the UK and the EU, while proceeding on a bilateral basis, suddenly hit India with their own protectionist measures, such as the UK’s tariffs on steel and the EU’s environmental standard, the Carbon Border Adjustment Mechanism, which are then proclaimed to be across the board and not singling out India.

The essence of an FTA is that it must provide most-favoured-nation treatment and not have surprises after the FTA is negotiated to comply with so-called domestic legal requirements. These should have been taken into account during negotiations of the FTA, and this applies to the US as well. The US has opened investigations under Section 301 of the Trade Act of 1974. For Trump, an FTA often means simply how much the partner country will invest in the US and he holds up a target of $20 billion for India. Half of that may have already been fulfilled. Sun Pharma’s major investment in 2026 is its $11.75 billion all-cash acquisition of the New Jersey-based Organon & Co. Trump has been expected to visit India for several months now, potentially as part of a Quad meeting with Japan and Australia. This remains unlikely, as does his own interest in the Quad. Trump’s strategic perspective in his second term has embraced Pakistan and China and reduced interest in the Quad and its partners. For India, this is a negative.

Besides showing the US as an unreliable strategic partner, India knows that Trump is not open to any negotiation on his outreach to Pakistan and China, even if India feels badly about it. The deeper lesson emerging from the present crisis concerns India’s longstanding foreign policy doctrine. Strategic autonomy has served India well. It has enabled New Delhi to maintain relationships across competing power centres while preserving room for independent decision-making. Yet the Hormuz crisis reveals an uncomfortable truth. Not taking sides does not guarantee immunity. Broadly, the crisis tests whether India’s increasingly confident foreign policy can translate diplomatic principles into practical protection for its citizens. The challenge for both governments will be to ensure that a tactical disagreement does not evolve into a strategic rupture.

The Iran-US deal could create opportunities for India. An immediate benefit would be greater stability in the Strait of Hormuz, through which a large share of India’s oil imports pass. Lower oil prices would reduce India’s import bill, ease inflationary pressures, strengthen the rupee and improve fiscal stability. Relief from sanctions could also allow India to diversify its energy imports by resuming purchases of Iranian crude, increasing bargaining power with other suppliers. More importantly, it may revive India’s strategic interests in the Chabahar Port and the International North-South Transport Corridor, improving access to Afghanistan and Central Asia and beyond while bypassing Pakistan. Diplomatically, a reduction in US-Iran tensions gives India greater room to balance relations with Washington, Tehran and the Gulf states without being forced into difficult choices.

(Views expressed are personal)

Gurjit Singh is a former ambassador and author