How Trump Lost The Plot, On India

After imposing cumulative tariffs of 50% on India early this month, the United States this week promised those were only the beginning of the secondary sanctions the South Asian economy would face if it kept buying oil from Russia while Moscow refuses to relent on its invasion of Ukraine.

“I could see, if things don't go well, then sanctions or secondary tariffs could go up," US Treasury Secretary Scott Bessent said on Wednesday, before calling on the European Union to take similar action. “The Europeans need to join us in these sanctions. They need to… It’s put up or shut up time,” he said.

US President Donald Trump now says this increasing pressure on India forced Russian president Vladimir Putin to seek negotiations with the US. But for India, a country that possibly prizes nationalistic pride above all else, a Trump-Putin truce would do little to assuage its ego.

Much of Trump’s current tirade against India has centred around the country’s huge purchases of Russian oil since the Ukrainian invasion began in 2022. Before the war, India imported less than 2% of its oil from Russia but that figure has since inflated to an all-time high of near 40%. That jump in trade boils down to one single factor: economics. As the West shunned Russian oil, Moscow began selling its crude at steep discounts of as much $40 a barrel, creating prices that were too irresistible to pass up for Indian refiners.

In the time since, however, that discount has scuttled to just $2.70 per barrel, but India has still not shown any interest in cutting its Russian oil dependance. Last month, when that discount was a narrower $1.50 a barrel, India did cut back on some purchases, triggering speculation that Trump’s tariff threats were starting to work. But figures out just today show India has still bought up near-record 2 million barrels of Russian oil per day. Energy experts warn the impact from Trump’s threats — if any — would only begin to show between late September and October. But it’s likely to be “business as usual,” considering the Narendra Modi government hasn’t sought to stop its refiners from buying Russian crude, despite Trump’s threats.

That raises some fascinating questions. What exactly keeps India hooked on Russian oil, even as the trade has become less lucrative? And why is the Modi government unmoved by risks of Trump’s outsized tariffs? For the latter, the answer lies, again, in “economics” as Indian officials and refiners have repeatedly and vehemently claimed. Indian oil majors have since 2022 optimised their refineries to effectively process Russian crude grades and oil flows from Moscow are also free from long-term commitments such as those required by the Middle East, experts say. That would mean that “replacing Russian barrels in full is no easy feat — logistically daunting, economically painful, and geopolitically fraught,” Sumit Ritolia, lead research analyst for refining & modelling at Kpler, told CNBC.

And yet, Indian state-backed analysts seem to have shrugged off those concerns. In a report last week, for instance, India’s largest state-run bank noted that stopping oil imports from Russia will increase India’s oil bill by “only” $9 billion in FY26 and $11.7 billion in FY27. Another state-run bank gave an even lower — $5 billion — estimate and added: “For the world economy, there could be a greater problem.”

Those banks are not wrong, of course. For a $4 trillion economy, potential losses in the low billions are unlikely to be immensely painful. And if Russian crude stops flowing, it will undoubtedly create supply gaps that would fuel global inflation. Preventing that inflation was, in fact, a chief reason why the West had, in the past, not taken issue with India’s Russian oil purchases. But what the banks’ observations also indicate — very clearly — is that India does have the potential to wean off of Russian oil if it wanted. That brings us to the second, more important, question of New Delhi’s “recalcitrant” attitude (as US’ Bessent puts it).

What the US seems to be missing, amazingly, is the layers and layers of politics that are defining the Modi government’s response to Trump’s threats. Chief among them is India’s hunger to be seen as a respectable global leader, and Modi’s need to be seen as the man who made that happen. Early this week, for instance, former Indian central bank chief Raghuram Rajan pointed out that while India could afford to do it, “an overt public decision to stop buying from Russia would be seen domestically as bowing to US pressure.” That “plays badly in any democracy,” he added.

And, in fact, it would play particularly badly for Modi.

The man with the 56-inch-chest

Modi’s election in 2014, and consecutive returns to power in the decade since have been singularly enabled by a voracious wave of nationalism. Modi has famously, on many occasions, boasted that he has the mettle of a “56-inch-chest” to drive progress. And such is his appeal that his face is plastered on anything and everything in India currently — from newly constructed roads and highways to the barrels of free grains handed out to 800 million poor people.

But Trump’s recent moves have more than threatened that carefully orchestrated image. For instance, when Trump announced the India-Pakistan ceasefire last month, questions were raised on why that announcement didn’t come first from Indian quarters. The fact that Trump played a role in those negotiations itself attracted widespread criticism. Many drew comparisons to former Indian Prime Minister Indira Gandhi who refused to bow to US President Richard Nixon in 1971, when he sought to negotiate between warring India and Pakistan. For Modi, that comparison would be uneasy, to say the least, considering he single-handedly eviscerated late Ms Gandhi’s Congress party in the 2014 elections.

Furthermore, Trump’s recent tirade has also triggered widespread anger among many Indians, and re-ignited the deep distrust that once plagued India-US relations. At the core of that distrust too is India’s 1971 war with Pakistan, in which the US — along with China — went on to side with Pakistan. India did find support, however, from erstwhile Russia — the Soviet Union — at the time. Russia’s support that year cemented Indian ties with Moscow that had first taken root after India’s independence in 1947. And that dynamic explains why even today the Indian political elite would refuse to break away from their longest-running ally, especially at a time when Trump is putting at risk 25 years of work to restore US-India ties. Trump’s growing closeness with Pakistan is also putting India on edge, considering New Delhi has steadfastly accused Islamabad of funding terrorism activity in India for years, including a 2001 attack on its Parliament.

Add to that Trump’s demand to enter India’s agricultural and dairy markets and it’s no surprise that Modi has decided to dig in his heels. States in the Indian heartland are home to the biggest chunk of Modi’s supporters and they are also home to swathes of small farmers that will be directly impacted by American exports. Modi, simply put, cannot afford to lose their vote.

Also in play are Modi’s controversial ties to Mukesh Ambani — Asia’s wealthiest man and owner of Reliance Industries. Reliance owns the world’s largest refining complex in Jamnagar, a city in Modi’s home state Gujarat. And Reliance has reaped billions of dollars in profits from buying cheap Russian oil. Trump’s recent attacks, however, have put an outsized focus on Reliance’s wartime profits. “The last time many Americans paid any attention to Jamnagar… it was thanks to Rihanna,” one New York Times reporter explained, referring to the American singer’s performance at a pre-wedding party for Ambani’s son in the city. Besides, lower Russian crude flows will also directly impact profit margins for Reliance, which has allegedly spent billions on funding Modi’s Bharatiya Janata Party.

Such is the weight of these political manoeuvres that India now increasingly seems poised to grow closer to its once giant rival China. One Indian refiner, for instance, shipped oil to China for the first time since 2021 this month. Meanwhile, Chinese Foreign Minister Wang Yi is scheduled to visit New Delhi next week and Modi is set to visit China at the end of the month to attend the SCO summit. This would be Modi’s first trip to China since 2020.

It is worth noting that Trump’s initial aggression against India was based on very valid concerns about the daunting trade barriers within the country. A need to remove these barriers is widely recognised within the country, and experts such as former central bank chief Rajan say trade liberalisation will only benefit India. “But, it’s hard to negotiate with a gun to your head,” he says.

• Chinese regulators are asking firms like Alibaba, ByteDance and Tencent to justify their large orders for Nvidia’s H20 chips, and even putting pressure on them to halt their purchases altogether.

• US hedge fund Bridgewater Associates has sold off its entire holdings in about 16 Chinese stocks and two China-focused funds.

• Hong Kong ports operator CK Hutchison says the $22.8 billion sale of its ports business has a “reasonable chance” of going through even with a major Chinese strategic investor.
  

• And Chinese factories are cutting costs — and jobs — in the face of high American tariffs, and the crisis in manufacturing centres is expected to worsen in coming months.