India-US Spat Over Trade and Oil Threatens Wider Fallout

While India has emerged in recent years as a key partner for Washington in its strategic rivalry with China, its large U.S. trade surplus and close relations with Russia – which Trump is seeking to pressure into agreeing to a peace agreement with Ukraine – have made it a prime target in the Republican president’s global tariff offensive.

Trump’s taunt that India could buy oil from arch enemy Pakistan has also not gone down well in New Delhi, said two Indian government sources. India has also rejected repeated claims by Trump that he used trade as a lever to end a recent military conflict between India and Pakistan.

In an unusually sharp statement this week, India accused the U.S. of double standards in singling it out for Russian oil imports while continuing to buy Russian uranium hexafluoride, palladium and fertiliser. On Wednesday, it called the tariffs “unfair, unjustified and unreasonable,” vowing to “take all actions necessary to protect its national interests.”

But New Delhi knows that any further escalation will hurt it in matters beyond trade, said the sources. Unlike China, India does not have leverage like supplies of rare earths to force Trump’s hand to improve the terms of any trade deal, they said.

In recent years, successive U.S. administrations, including Trump’s first, carefully cultivated relations with India with an eye on it as a vital partner in long-term efforts to counter the growing might of China.

But analysts say Trump’s recent moves have plunged the relationship back to possibly its worst phase since the U.S. imposed sanctions on India for nuclear tests in 1998.

“India is now in a trap: because of Trump’s pressure, Modi will reduce India’s oil purchases from Russia, but he cannot publicly admit to doing so for fear of looking like he’s surrendering to Trump’s blackmail,” said Ashley Tellis at Washington’s Carnegie Endowment for International Peace.

“We could be heading into a needless crisis that unravels a quarter century of hard-won gains with India.”

Indian state refiners have in recent days stopped buying Russian oil as discounts narrowed and pressure from Trump rose, Reuters has reported.

NEW CHALLENGES FOR RELATIONS

A more pressing challenge for India, analysts say, is the stark divergence between its priorities and Trump’s political base on key issues such as work visas for tech professionals and offshoring of services. India has long been a major beneficiary of U.S. work visa programs and the outsourcing of software and business services, a sore point for Americans who have lost jobs to cheaper workers in India.

Relations with India risk becoming a “football in American domestic politics,” warned Evan Feigenbaum, a former senior State Department official under the Republican presidency of George W. Bush.

“Issues that directly touch India are among the most partisan and explosive in Washington, including immigration and deportation, H1B visas for tech workers, offshoring and overseas manufacturing by U.S. companies, and technology sharing and co-innovation with foreigners,” he wrote in a LinkedIn post.

Since a 2008 deal to cooperate on civilian nuclear technology, the two countries have deepened intelligence sharing and defence cooperation and expanded interactions with Australia and Japan through the Quad grouping aimed at containing China’s dominance in the Indo-Pacific.

But fractures have appeared, despite Modi’s rapport with Trump in his first term and then former President Joe Biden.

Images in February of Indians deported by the U.S. on military planes, their hands and legs shackled, horrified the country just days before Modi went to see Trump seeking to stave off high tariffs.

The relationship was also seriously tested in late 2023 when the U.S. said it had foiled a plot with Indian links to kill a Sikh separatist leader on U.S. soil. New Delhi has denied any official connection to the plot.

“The Modi regime’s credibility in the U.S. has gone down,” said Sukh Deo Muni, a former Indian diplomat and a professor emeritus at New Delhi’s Jawaharlal Nehru University.

“And maybe there are people who think that India or Modi had to be brought back on track, if not taught a lesson. And if that trend continues, I’m quite worried that the challenge is quite powerful and strong for India to navigate.”

STRENGTHENING TIES WITH U.S. RIVALS

One Indian government source said India needs to gradually repair ties with the U.S. while engaging more with other nations that have faced the brunt of Trump tariffs and aid cuts, including the African Union and the BRICS bloc that includes Brazil, Russia, China and South Africa.

India is already making some moves with Russia and China.

Russian President Vladimir Putin is expected to visit New Delhi this year and on Tuesday, Russia said the two countries had discussed further strengthening defence cooperation “in the form of a particularly privileged strategic partnership.”

India has also boosted engagement with China, a change after years of tensions following a deadly border clash in 2020. Modi is set to visit China soon for the first time since 2018.

“Russia will attempt to exploit the rift between the U.S. and India by proposing the restoration of the Russia-India-China trilateral and new projects in defence,” said analyst Aleksei Zakharov at the Observer Research Foundation in New Delhi.

“India will undoubtedly be mindful of structural factors such as sanctions against Russia and will seek to find a compromise with the Trump administration.”

(Reporting by Krishna N. Das and Shivam Patel in New Delhi and David Brunnstrom in Washington; Editing by Don Durfee and Deepa Babington)