India-US ties will collapse if Trump moves ahead with Russian oil sanctions and Section 301 tariffs

In the last few days, two specific developments have taken place in the United States that carry ominous portents for US-India bilateral ties. A relationship that is already under considerable stress may sink without a floor if the developments reach logical conclusion.

I am talking about Trump administration’s decision to impose 25% tariffs on Brazil under Section 301 of US trade law, a move that has already invited bitter backlash from Brasilia. And second, the passage of a bipartisan bill, championed by the late US senator Lindsey Graham, to implement 100% secondary tariffs on nations such as India for the ‘crime’ of buying Russian oil. The US might argue that Vladimir Putin is the real target and India is simply the collateral damage. That is cold comfort for New Delhi.

There was some speculation that the bill, that was lying in the US senate for 15 months, may not see the light of day. Recent movements belie such expectations. Perhaps as a tribute to Graham, the revised Russia sanctions bill has already secured over 60 co-sponsors in the US senate, enough to ensure it can advance despite some procedural obstacles, as reported by Axios. The bill is likely to pass the senate though securing time for debate and a vote remain key hurdles. Led by US senator Richard Blumenthal, a Democrat, the measure would still need approval in the US House before becoming law, but Trump has already indicated his willingness to back the legislation.

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This should ring alarm bells in New Delhi. If this proposed legislation is enacted into law, it will create a kind of stress that the US-India relationship, in its current state of disrepair, may not be able to handle. Ties have already undergone profound suffering under the weight of America’s growing unpredictability, obdurate unilateralism, and breathtaking double standards, particularly since Trump has entered the Oval Office for the second time.

For India, the expectation that it must drastically reduce or entirely halt its imports of Russian crude under the current circumstances is a macroeconomic catastrophe and physical impossibility. India fulfils 88% of its crude and 51% gas requirements through imports.  Its energy security is inextricably linked to national security, domestic stability, and poverty alleviation efforts.

The global energy market is currently going through considerable supply strain, aggravated by the conflict in West Asia that has taken a turn for the worse. Strait of Hormuz, through which a fifth of global energy trade is carried out, remains out of bounds due to blockade and a counter-blockade.

In a market where energy flows remain severely stifled, demanding that New Delhi turn away from Russian energy is implausible. India was gradually reducing its Russian oil intake before the US and Israel decided to attack Iran. Since the Hormuz strait went out of bounds, Moscow’s hydrocarbons have become a critical shock absorber for the international energy system, not just India.

At this point, taking away millions of barrels of Russian oil from the global market while West Asian supplies remain choked would worsen an already worrying supply situation. It will inevitably send global crude prices -- already up 7% since Trump walked out of the MoU with Iran -- soaring to even steeper heights.

It hardly needs telling that the consequences would be devastating for India. With the weakened rupee already under pressure, every $1 rise in global crude prices increases India’s annual import bill by approximately $1.5 to $2 billion.

A massive spike in crude prices would trigger crippling inflation, force the rupee to fall further, deplete foreign exchange reserves, balloon the current account deficit, and severely contract industrial output, ultimately punishing the poorest segments of Indian population.

No supplier can replace the sheer volume, reliability, and availability of Russian crude. As Indian Express reports, citing Kpler data, “India’s Russian oil imports rose to around 2.6 million barrels per day (bpd) in June, accounting for over half of New Delhi’s total crude imports. July arrivals are also tracking at healthy levels and could match or even exceed June’s volumes, as per estimates.”

Asking New Delhi to abandon its most stable energy supply chain during an acute global energy crisis is to force India to fall on a sword to satisfy American objectives, even as Washington indicates that exemptions will be carved out for its European allies.

Trump has already done enough damage to bilateral ties. Latest Pew Research survey indicates public confidence in the US and Trump has taken a considerable beating among Indians, while unfavourable perceptions have registered highest ever rise in two decades. Around 45% Indians hold a favourable view of the US, down from 54% a year earlier, while 31% hold unfavourable opinion, the highest since Pew began tracking Indian public opinion on the US in 2002.

This unfavourability will increase further if the Trump administration moves forward with additional tariffs under Section 301. Having suffered a jolt in the US Supreme Court that took away his power of levying tariffs on a whim, Trump has found newer ways to implement his habit of weaponizing tariffs against US trade partners.

This specific provision allows Trump to impose taxes on countries it accuses of “unfair trade practices”. The White House has already wielded this tool aggressively against Brazil, punishing the South American nation for reasons that are utterly random and defy belief, such as alleging that Brazil’s exports fell foul on a range of issues from “digital trade to illegal deforestation”.

Reuters reports that Brazilian officials reckon the motives for the new tariffs by the Trump administration were “political rather than technical, making negotiations fruitless.”

The US specifically targeted Brazil’s popular domestic digital payment system, Pix, claiming unconvincingly that it disadvantaged American credit card companies.

India, with its own globally lauded Unified Payments Interface (UPI) and a robust framework for digital sovereignty, finds itself directly in the crosshairs of this exact strain of American protectionism. If Washington applies the same heavy-handed Section 301 measures against New Delhi ignoring the complexities of India’s domestic regulatory environment and the necessity of protecting its own developing industries, it will have ignited a full-scale trade war.

Reuters quotes Ajay Srivastava, founder of the Global Trade Research Initiative think tank, as saying, “The Brazil case… is a warning for India… It shows that Washington can use trade action not only over ‌tariffs and market ⁠access, but also against any policy it sees as unfair to US business.”

These bilateral tensions are playing out against the backdrop of a broader strategic retreat by the US. It has moved away from the shared commitment to a free and open Indo-Pacific, demoted India’s role in its strategic calculus for Asia, and adopted a transactional approach towards China underpinned by a fundamentally accommodative approach. By making bilateral economic deals with Beijing while picking trade fights with New Delhi, Washington signals that India is no longer central to its strategic playbook.

Alongside, Trump has embraced Pakistan’s military dictator Asim Munir and emboldened a nation that poses a direct security threat for India. It demonstrates a willingness in Washington to sacrifice India’s core security interests for short-term tactical gains or backchannel maneuvers in West Asia.

India is hedging against Trump, deepening ties with Indo-Pacific democracies, expanding strategic and economic linkages with Europe, and managing the China threat. It has so far taken a measured, restrained approach towards the US, despite Trump’s many provocations. New Delhi’s patience should not be taken for granted.

(The views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)