The ongoing trade tensions between India and the United States have escalated significantly with the U.S. imposing a 25% penalty tariff on Indian imports linked to India’s continued purchase of Russian oil. This latest move comes amid the collapse of Free Trade Agreement (FTA) negotiations and a backdrop of reciprocal tariffs, adding economic and diplomatic complexities to the already strained bilateral relationship.
Background of U.S. Tariffs on India
On August 6, 2025, the United States announced a punitive 25% tariff targeting Indian imports associated with its Russian oil purchases. This followed an earlier imposition of a 25% reciprocal tariff on Indian goods starting August 7, after the FTA talks between the two countries failed to yield any agreement. The tariffs form part of the U.S. strategy to pressure India to cut down on its imports of Russian crude oil, which have persisted despite Western sanctions on Russia following its invasion of Ukraine.
The new penalty tariffs took effect on August 27, signaling the U.S.’s intent to escalate economic pressure on India to align its energy procurement with Western policies aimed at isolating Russia economically.
India’s Response to U.S. Tariffs
India has sharply criticised the U.S. and European Union for what it terms as selective targeting. Indian officials argue that while India’s Russian oil imports are under scrutiny, Western countries continue to engage in their own trade with Russia, portraying a double standard. The Ministry of External Affairs (MEA) described the U.S. actions as unfair and reiterated India’s resolve to protect its national interests.
Prime Minister Narendra Modi conveyed his readiness to bear personal political costs to safeguard the interests of Indian farmers and producers affected by these trade tensions. Despite the pressure, India has not officially announced retaliatory tariffs against U.S. imports, opting for a measured diplomatic response as it navigates a complex geopolitical landscape.
India’s Dependence on Russian Oil
India’s energy relationship with Russia deepened significantly after the war in Ukraine began in 2022. By mid-2023, Russia had become India’s largest crude oil supplier, accounting for over 35% of its total imports. Indian companies benefit from heavily discounted Russian crude, saving billions of dollars annually. Additionally, Indian firms have made investments linked to Russian oil production and refining, strengthening economic ties.
Reducing imports from Russia would not only cause economic pain but also have political ramifications, complicating India’s balancing act between its strategic autonomy and global diplomacy.
Potential for Resolution
The trade dispute might see some shifts depending on evolving geopolitical developments. A planned meeting between U.S. President Donald Trump and Russian President Vladimir Putin on August 15 could influence the U.S. tariff stance, especially if Russia takes steps toward resolving the Ukraine conflict. Meanwhile, U.S. trade negotiators are expected to visit India later in August to discuss a potential mini-trade deal, aiming to ease tensions.
India faces a tough choice: either make concessions for better market access or continue with its Russian oil imports, sustaining economic benefits but risking further trade penalties.
Impact on India-U.S. Relations and Broader Implications
This dispute strains a relationship long built on defence, technology, and strategic cooperation. India’s refusal to curtail Russian oil imports contrasts with its earlier compliance on Iranian oil sanctions, reflecting its pursuit of strategic autonomy.
The tariffs disrupt Indian exports, especially garments, as U.S. buyers seek alternatives with lower tariffs. Diplomatic engagement continues with Indian officials visiting Moscow and scheduled talks with U.S. counterparts. The outcome will influence broader geopolitical alignments, including the Quad and SCO summits.
Ultimately, the dispute exemplifies the challenges of global trade amid geopolitical conflicts, highlighting the difficult balancing act countries face in navigating sanctions, alliances, and national interests in a fractured world order.
