Washington’s October 22 sanctions on Russia’s top oil producers — Rosneft and Lukoil — have limited India’s oil import options and complicated trade talks with the US. India now faces two main challenges in its ties with the US: managing the impact of sanctions and securing a balanced trade deal. This will need a clear three-step plan.

On July 31, President Trump slapped a 25 per cent “Russian oil” tariff on Indian exports, accusing New Delhi of “fuelling the war” by buying cheap Russian crude. When the measure took effect on August 28, total US tariffs on Indian goods doubled to 50 per cent, causing India’s merchandise exports to the US to drop 37 per cent between May and September.

Despite falling exports, India kept buying discounted Russian oil, hoping Washington would ease tariffs once a trade deal was reached. That hope faded on October 22, when the US Treasury sanctioned Rosneft and Lukoil — companies that produce 57 per cent of Russia’s crude. The order warned that any foreign firm dealing with them could face secondary sanctions.

These “secondary sanctions” extend US power beyond its borders. They don’t just block trade — they can cut off access to global payment systems and shut down the digital services that power global business. India has already seen sanctions in action when Microsoft on July 22 abruptly cut off services at Nayara Energy, a refinery with Russian links, citing EU sanctions. Operations stopped until a court stepped in.

Trade deal

India was the first country in the Trump 2.0 era to start FTA talks with Washington, but progress has stalled over sweeping US demands. America reportedly wants India to remove tariffs on most industrial goods, open its farm and dairy markets, and allow imports of genetically modified corn and soybean. It also seeks freer data flows, weaker e-commerce and intellectual property rules, and larger commitments to buy US oil and LNG. These demands go far beyond normal trade negotiations, touching sensitive areas like food security and digital sovereignty — both central to protecting India’s farmers, small businesses, and national interests.

In return, Washington offers limited concessions: reducing tariffs on Indian exports from 25 per cent to about 15-17 per cent. Washington also pushes for higher purchases of US oil, LNG, and defence equipment. India’s oil imports from the US already rose 79 per cent, from $2.8 billion in April-August 2024 to $5 billion in the same period of 2025.

India must also note the worrying precedent set by Malaysia’s recent trade deal with the US, which gave Washington significant leverage over Kuala Lumpur’s foreign and trade policy. The agreement requires Malaysia to replicate US trade restrictions on other countries, act against foreign firms hurting US export interests, and seek US consultation before signing digital or technology pacts with third countries. Such provisions effectively give the US veto power over Malaysia’s foreign, trade and digital policies — an outcome India must avoid at all costs.

Three-step plan

India’s best way forward is a clear three-step plan: first, stop buying oil from sanctioned Russian firms to avoid secondary sanctions; second, once such imports end, press Washington to lift the 25 per cent “Russian oil” tariff, reducing total duties on Indian goods from 50 per cent to 25 per cent; and third, only after the US rolls back tariffs, restart trade talks for bringing tariffs down from 25 per cent to say 15 per cent.

Step 1 — stop buying oil from sanctioned Russian firms: The 25 per cent tariff hurt exports to the US but didn’t disrupt the economy. The new sanctions, however, threaten India’s financial and digital systems, both heavily dependent on US-controlled networks.

If Indian refiners keep buying from Rosneft or Lukoil, the fallout could be severe: banks may lose access to global SWIFT payment network, and refineries may stop on suspension of software services by US tech firms. Tariffs cause pain; sanctions can cripple. The impact is already visible. Reliance is cutting back Russian crude purchases, and Adani Ports has banned ships tied to sanctioned firms, affecting deliveries to IOC and HPCL-Mittal.

A near-total halt in Russian oil imports by late November now seems inevitable — not by choice, but out of necessity. It may look like yielding to US pressure, but India’s heavy reliance on American software leaves little room to manoeuvrer.

Step 2 — press Washington to remove the oil tariff: Once India stops buying from the sanctioned Russian firms, it should push Washington to withdraw the 25 per cent “Russian oil” tariff. But first, New Delhi needs clarity: must it end purchases only from Rosneft and Lukoil, or from all Russian suppliers?

The October 22 sanctions apply only to Rosneft and Lukoil, which produce about 57 per cent of Russia’s Crude. The rest — roughly 43 per cent— comes from non-sanctioned firms and remains legal to trade. Yet Washington’s tariff order on India ignored this distinction, punishing every barrel of Russian oil regardless of source.

If the US agrees to lift the extra tariff once India halts imports from the two sanctioned companies, total duties on Indian goods would drop from 50 per cent to 25 per cent — a significant gain achieved without a trade deal.

Step 3 — do a trade deal, but only on fair terms: India should restart trade talks only after Washington removes the “Russian oil” tariff. The two issues — oil sanctions and trade negotiations — must remain separate, since linking them limits India’s options.

When talks resume, they must focus strictly on trade. India could press for the same tariff flexibility granted to the European Union — average industrial tariffs around 15 per cent and duty-free access for select products.

India must carefully study the risks of allowing genetically modified (GM) corn imports for ethanol production. Any such move could affect local corn farmers who depend on stable prices and non-GM seed systems. GM imports may lead to contamination of domestic varieties if strict segregation is not maintained. Processing must therefore take place in dedicated facilities with separate storage, transport, and supply chains to prevent mixing with non-GM corn. Before proceeding, India should assess the long-term implications for farmer incomes, seed diversity, and export credibility in non-GM markets.

After securing free pass with Malaysia, US will sure press India for broad digital concessions — asking it not to (i) impose taxes on digital services, (ii) share or use its own data to build national champions, or (iii) regulate foreign tech firms. Most of these demands could be met through a single clause in the FTA text: “Both countries agree to grant non-discriminatory treatment to digital services and their suppliers.” But agreeing to such wording would block India from shaping its own digital policies and give a lasting advantage to US tech giants. Having already lost much of the computer hardware sector after joining the ITA-1 pact in 1997, India must avoid repeating the same mistake in the digital space. A binding “neutral” clause would in reality freeze India’s ability to tax, regulate, or promote local innovation — choking the country’s digital future.

India must also assess whether such commitments on agriculture, e-commerce, digital trade, and energy make the agreement one-sided. If so, it can afford to wait. Paying a 25 per cent tariff instead of 15-17 per cent is painful but manageable — China already lives with higher rates. It is better to bear short-term costs than to compromise long-term economic and strategic independence.

This three-step plan is a practical way to handle both challenges. India must move in sequence, not haste. Secure energy first, restore fair tariffs next, and negotiate trade only on equal terms.

Meanwhile India must plan for another challenge thrown by the sanctions. In just a week, crude oil prices have risen 7 per cent. As most Russian oil becomes off-limits, energy costs are likely to climb further. India must diversify its suppliers and prepare for a higher import bill.

In this age of illegal tariffs, weaponised oil, and digital sanctions, only cool strategy — not capitulation — will safeguard India’s interests.

The writer is founder, GTRI

Published on November 1, 2025