Russia Oil Sanctions Threat May Complicate US-India Trade Talks

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(Bloomberg) — Fresh US threats to impose sanctions on countries buying Russian oil may complicate ongoing trade negotiations between Washington and New Delhi, according to people familiar with the matter.

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The proposal caught Indian officials by surprise because the issue of New Delhi’s purchases of Russian oil had already been addressed during negotiations that led to a preliminary trade agreement in February, one of the people said. The issue has not resurfaced in more recent talks, the person said, asking not to be identified because of the sensitivity of the matter.

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India has yet to sign the preliminary agreement after the US Supreme Court struck down President Donald Trump’s so-called reciprocal tariffs. New Delhi is seeking more favorable terms than its regional competitors before moving ahead.

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Still, New Delhi is unlikely to respond with public criticism to the new bill, the people said. They expect India to continue engaging with the US, viewing the current tensions as a transitional phase in the broader bilateral relationship.

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India’s Ministry of Commerce and Industry and the Ministry of External Affairs didn’t immediately respond to requests for comment.

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The renewed pressure comes from a new Russian oil sanctions bill, spearheaded by late Senator Lindsey Graham and backed by Trump, that would target the top five purchasers of Russian crude oil and natural gas, including China and India. The measure, negotiated by a bipartisan group of senators, would grant Trump authority to hit the countries with tariff rates up to 100%. 

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The move adds another layer of tension to the talks as New Delhi also faces Section 301 investigations by the Office of the US Trade Representative over forced labor and excess production capacity, findings India has pushed back against.

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In recent days, both sides have expressed optimism that a deal is close, though neither has offered details or a timeline. India currently faces a 10% US tariff on its exports, a rate set to expire on July 24. If no agreement is reached, New Delhi could face higher tariffs following the Section 301 findings.

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Analysts said the latest developments once again show the unpredictability of US trade policy.

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“The thing is not to overreact too much based on a decision made by the US today because it can change this evening, it can change tomorrow, it can change next week,” Nitin Pai, founder of Takshashila Institution, a think tank based in Bengaluru, said.

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The sanctions threat is likely to complicate the trade talks, he said, adding that “even that is part of the turbulence.”

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It would not be the first time Washington has sought to pressure New Delhi over its Moscow ties. The US imposed an extra 25% tariff on India last year to penalize the country for importing Russian oil, then walked back the duties in February.

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India would struggle to wean itself off Russian oil. Russia supplied more than half of India’s crude imports in the first half of July, or about 2.6 million barrels a day, according to ship tracking firm Kpler, tightening its grip on one of the world’s fastest-growing energy markets.