How India Crossed the Oil Slick in US Trade Talks

As Indian negotiators closed in on an understanding with their US counterparts on the bilateral trade deal between the two nations, they focused on what mattered most. Rather than pursuing easier entry for Indian automobiles to the US, they sought protection for pharma exports which added up to a sizable $ 8.7 billion in 2024. Pharma exports are “under investigation” as per the US “section 232” rules that can result in imposition of special tariff rates on “national security” grounds. Steel and Aluminum products attract a 50% tariff and will continue to do so. Now, though the US department of commerce probe into India’s pharma exports is still on, successful conclusion of India-US trade talks offer hope of a positive outcome.

Export of passenger vehicles to the US is negligible, as per reports the figure varies from $ 8-14 million a year, but there is a thriving business in auto components with India’s component exports to the US touching $ 6.2 billion in 2024-25. Preferential tariff rates and removal of section 232 on certain inputs is a major win for India’s auto parts industry and Automobile Components Manufacturers Association lost no time in welcoming the announcements in New Delhi and Washington.

Russian Oil Bogey

The India-US joint statement on the trade deal released at 4.29 am on February 7 by the Indian government confirmed the breakthrough achieved in a phone call between US President Donald Trump and Prime Minister Narendra Modi. It confirmed the removal of the 25% “penal” tariff imposed on Indian exports to the US for purchase of Russian oil and revealed that the reciprocal tariff has now been set at 18%, lower than what applies to some of India’s trade competitors. The Russian oil tariff stood immediately withdrawn and reduction of the reciprocal tariff from the 25% announced last year to 18% is expected to happen in a few days.

“Contingent on the findings of the U.S. Section 232 investigation of pharmaceuticals and pharmaceutical ingredients, India will receive negotiated outcomes with respect to generic pharmaceuticals and ingredients,” the statement said and the emphasis, said Indian officials, points to satisfactory results given that generics are 90% of pharma exports to the US. As commerce minister Piyush Goyal later explained, vast number of Indian agricultural products such as tea, spices, coffee, coconut, cashews, mango and banana along with gems and diamonds will get zero duty access to the US.

Looking Ahead

What the joint statement does not mention is India’s import of Russian oil. The White House statement released on February 6 says “…India has committed to stop directly or indirectly importing Russian Federation oil, has represented that it will purchase United States energy products…and has recently committed to a framework with the United States to expand defense cooperation over the next 10 years.” It adds that should India be found to have “resumes” import of Russian oil, reimposition of the ad valorem duty of 25% on import of Indian articles to the US can follow.

At the time when the 25% duty was slapped on India in August, 2025, it was fairly apparent the action had less to do with concern over India’s oil imports from Russia and was more an act of pique over the Modi government’s steadfast refusal to endorse Trump’s claim to have mediated an end to the May 7-10 India-Pakistan conflict. A glacial call between Trump and Modi on June 17, during which the PM categorically stated India had not, and will not, accept third party mediation pertaining to Pakistan led to a serious downturn in ties. It was apparent that since oil was the purported reason for “punishing” India, it would find mention in the order withdrawing the tariff that hit sectors like textiles, gems, leather and marine products hard.

The India-Russia relationship

While a section of the commentariat and media continues to see oil as the weak link in the trade deal, seeking an answer to whether India will indeed halt import of Russian oil is a bit like a dog chasing its tail – no definitive purpose is likely to be served. India has not gone beyond stating it will do whatever is needed to secure the energy needs of its population and will purchase oil from “non-sanctioned” entities. While there is a clear reduction in oil imports from Russia, the strategic aspects of the relationship means supplies will never be halted.

In fact, what is remarkable is that India and US have negotiated the oil slick and are now looking to press ahead with a new trading and defence partnership. India’s perspective on trade has radically changed, it has abandoned a dogmatic fear of competition. There is no reason for India to challenge the White House claim when it is no longer a sticking point. The crisis in India-US relations was much more than trade as a strong convergence on major geo-political matters such as the Indo-Pacific and the need to counter China’s expansionism seemed at risk.

It is facile to argue, as some commentators do, that India’s is accepting US “dictates” on oil imports as it did in the case of Iran and Venezuela. The US sanctions against these countries affected not just India but all other nations that did business with Tehran and Caracas. Further oil purchases from both these nations cannot be compared with Russia with whom India has a time-tested strategic relationship that has become more important in the light of China’s aggression on the Line of Actual Control in the Ladakh sector in 2020 and the four-year stand off that followed in the icy heights of the Himalayan range.

Energy purchases from US

The price advantage of Russian oil at the time the war in Ukraine began has declined and India has rebalanced its supplies. If India-US trade grows as predicted, energy purchases such as crude and LNG will increase. In the case of the Free Trade Agreement with the European Union too, India negotiated the Ukraine-Russia hairpin successfully, articulating its support for an end to Russia’s invasion of its neighbour. EU’s problems with Trump and the stale mate in India’s own trade negotiations no doubt accelerated the outcome. Ironically enough, the EU-India FTA might have helped Trump to conclude that nothing was to be gained by holding out on a bilateral trade agreement with India any further.