A new fault line is emerging in global trade, this time between long-time strategic partners, the United States and India. Recent statements by U.S. President Donald Trump, threatening to impose steep tariffs on Indian goods due to its continued oil trade with Russia, have escalated tensions and introduced a new layer of uncertainty for shipping and energy markets. Trump has accused New Delhi of buying Russian crude at discounted prices and re-exporting it for profit. He responded by announcing a baseline 25% tariff on Indian exports—effective from August 1—with suggestions of even higher levies and potential penalties unless India curbs its energy ties with Moscow.
This development could significantly disrupt the flow of seaborne goods, particularly from India’s export-driven sectors such as textiles, auto components, and petrochemicals. It also raises the risk of retaliatory measures and trade diversion strategies that could reshape existing routes and partnerships in the global shipping network.
India has strongly pushed back, calling the measures “unjustified and unreasonable.” The government argues that its Russian oil imports were a practical response to the redirection of traditional supplies to Europe after the Ukraine war began in 2022. Indeed, Russian crude now accounts for nearly 40% of India’s oil imports (last year Russia supplied India with one-third of its crude oil imports, or about 550mn barrels), up from just 2.5% prior to the conflict, according to U.S. Energy Information Administration data. Indian officials also point to the perceived double standard. The European Union remains a major trading partner with Russia, registering €67.5 billion in bilateral trade in 2024, including €17.2 billion in services. U.S. trade with Russia, though diminished, still amounted to $5.2 billion last year. India argues that unlike others, its imports are based on essential economic needs, not discretionary trade.
The geopolitical dimension is equally critical. India’s decades-long strategic partnership with Russia, dating back to Cold War-era defense cooperation, remains intact. While pressure from the West has mounted, India has resisted attempts to cut ties with Moscow, opting instead for diversification rather than elimination. Reports suggest Indian refiners have begun sourcing alternatives as a contingency but no formal policy shift has been announced. The trade rift threatens to undo more than two decades of steady progress in U.S.-India relations. The imposition of tariffs, suspension of trade talks, and threats of secondary sanctions mark a sharp departure from earlier efforts at alignment. The U.S. administration has also criticized India’s participation in BRICS and publicly questioned its manufacturing incentives, further straining bilateral trust.
The broader economic impact is becoming increasingly evident. According to ICRA, India’s GDP growth projection for FY26 has already been revised down to 6.2% due to early tariff impacts, with the possibility of further downside depending on any additional penalties. Sectors like textiles, pharmaceuticals, and leather goods are particularly exposed. Goldman Sachs notes that Indian equity markets, already underperforming their emerging market peers, may face extended weakness due to both tariff uncertainty and earnings pressure.
Beyond the short-term economic consequences, there’s a broader strategic concern. Washington’s increasingly coercive tone has politicized the bilateral relationship, raising doubts about the long-term stability of U.S.-India ties. Indian leaders, once cautiously optimistic, now signal a harder stance—prioritizing national interest over external pressure. In sum, the U.S. tariff threats mark a pivotal moment, not only in India’s foreign policy calculus but in global trade alignment. With energy security, geopolitical loyalties, and domestic political narratives all in play, the risk of lasting disruption to global trade flows is growing, and could deepen if diplomacy does not intervene.
Data Source: Intermodal