US-India Trade Deal: Time To Broaden Base Of India-Russia Economic Ties

President Trump has announced a reduced rate of18% for Indian exports to the US, down from 25%, after a telephone conversation with Prime Minister Modi. In his Truth Social post announcing the trade deal Trump has made a few claims that have raised political controversy in India and which also bear on our energy relations with Russia.

Trump says that Modi had agreed to “stop buying Russian oil, and to buy much more from the United States and, potentially, Venezuela”. The opposition parties in India have accused the government of surrendering to Trump’s diktat on ending our voluminous purchases of discounted Russian oil.

Trump had imposed a total of 50% tariffs on India, including penalty tariffs of 25% for buying Russian oil. This was done on the trumped up ground that through these oil purchases India was funding Russia’s war against Ukraine and was causing human losses there. This phony charge was propagated by US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, as well as Trump’s Trade Adviser Peter Navarro. In his Truth Social post Trump did not specifically address the removal of the additional penalty tariffs. The US ambassador to India, Sergio Gor, in a press interview locally did not address clearly the question whether the tariffs were being lowered from 50% to 18% or from 25% to 18%. The US embassy in India seems to have clarified that the penalty tariffs are also being removed.

Because of political controversy created by the US, and Europe too, on our oil purchases from Russia, the media has been tracking these purchases regularly, with monthly ups and downs recorded in reports. There was widespread interest among analysts in knowing whether India was resisting or yielding to US pressure, as that was viewed as a litmus test of our capacity to preserve our strategic autonomy.

India could continue to buy discounted Russian oil despite political pressure from the West because we were not only abiding by the sanctions imposed by the West but the EU itself was buying Russian oil and gas, and the US too was buying uranium and palladium etc, from Russia, and both could also be accused of funding the Russia military machine. We could rightly denounce the West’s hypocrisy and double standards.

Despite the cost imposed on us Modi has not yielded to Trump’s tariff bullying. We have succeeded to some extent in diversifying our export basket for goods hit by the US tariffs. Our hands have been strengthened by our FTA with the UK and much more so by the India-EU FTA, although the benefits will accrue from both after a time lag. To succumb to Trump’s pressure at this juncture, and that too for a limited interim deal, would not make sense. Whatever trade concessions India had to make in negotiations with the USTR had been made some months ago, and the ball of approval of the negotiated framework deal has been lying in Trump’s court for some time.

Trump’s self-serving Truth Social post while the parliament session is on has compelled the government to clarify the situation with regard to Russian oil and other elements. Under pressure on Russian oil purchases, India had developed a formulation that gave it a lot of room to maneuver with. As an oil importing country India’s decisions on oil purchases will be driven by market forces, the price factor, diversification of sources and energy security of our 1.4 billion people. This gives the government flexibility to justify whatever decision it needs to take depending on circumstances.

No wonder, in his statement in Parliament on Trump’s post, Commerce Minister Piyush Goyal has used our standard formulation to enunciate India’s position. He has quite rightly not directly countered Trump’s claim that Modi has agreed not to buy oil from Russia as that would only serve to aggravate Trump’s ego. He has indirectly countered Trump by saying that “ensuring the energy security of 1.4 billion Indians is the supreme priority of the government”, and that “diversifying our energy sourcing in keeping with objective market conditions and evolving international dynamics is at the core of our strategy to ensure this. All of India’s actions are taken with this in mind. He has urged the members of parliament “to consider these issues in their proper perspective”. This sounds like a defensive formulation.

Russia is watching the situation closely. Although the Kremlin spokesperson, Dmitri Peskov, has said that Russia doesn’t see anything new in all this, and that India can purchase oil from countries other than Russia and that Moscow is well aware that Russia is not the only supplier of oil to India, the fact is that Russia would see an Indian decision to stop buying oil from Russia as a blow to bilateral ties. The Russian Foreign Office has said that they had “no reason to believe that our Indian friends have reconsidered their approach”, which would be factually correct as the whole issue is not clear from our side, given that we continue to buy Russian oil, with substantial flows from September to November oscillating between 30 to 34% of our imports to 20% in December. It appears that till March or so oil will flow because of existing contracts. The Russian Foreign Office formulation also suggests that they do not expect India to change its fundamental position.

But then, Indian oil purchases were facilitated by large Russian discounts, and these seem to have already got substantially reduced. The so-called Russia “shadow fleet” is also being sanctioned, and some tankers have been interdicted, and this may cause transportation difficulties even if oil were to be available. Finally, much may depend on how the Trump-led peace efforts in Ukraine pan out, and whether if successful, the oil sanctions on Russia may be eased. If so, will Russia still have an incentive to offer discounts which would offset transportation costs to destinations like India, given that we have large oil producers close by geographically?

Beyond that one can imagine that Indian companies will continue to buy on the spot market Russian oil sold by unsanctioned Russian companies, although Reliance has announced it has signed no new contracts. Reliance has, in the past, bought large quantities of the extra heavy Venezuelan crude, and may be in the market for “potentially” buying Venezuelan oil (in Trump’s words) if available in sufficient volumes, which seems unlikely in the near future.

The big story of expanding India-Russia trade figures has been around our massive purchases of Russian oil (over $ 60 billion), and this has had a great deal of positive public resonance. If this trade dried up, the figures of trade ties will collapse dramatically. The figure of $ 100 billion of trade by 2030 as envisaged during Putin’s recent visit to India would then seem illusory. Our oil trade with Russia has also become a symbol of our strategic autonomy. Unfortunately, by the U.S politicising our oil trade with Russia, the issue has now become political and is no longer a pure trade issue, where India buys the cheapest oil available.

It has therefore become all the more necessary to broaden the base of India-Russia economic ties. It appears President Putin has given directions to his side to actively examine what Russia could buy more from India, and we, on our side, have given the Russian side a lengthy list of what we see are trade barriers on the Russia side that impede trade. Negotiations on India’s FTA with the Eurasian Economic Union have begun. This could help boost trade with Russia.

The writer is former foreign secretary of India.

Views expressed are personal