Kazim AlamThe US is upset that India is “effectively financing” Russia’s war in Ukraine by purchasing oil from Moscow.
US President Donald Trump wants New Delhi to stop buying oil from Russia, which has been under heavy economic sanctions by the US and other Western nations since its offensives in Ukraine began more than three years ago.
In addition to a 25 percent tariff on Indian products announced last week, Trump also threatened a 100 percent levy on imports from countries like India and China that continue to purchase Russian oil.
The US threat is meant to cut one of Moscow’s major income streams, thus forcing it to sign a peace deal in Ukraine.
So far, India has refrained from commenting on Trump’s demand, even though the Reuters news agency quoted unnamed sources as saying that India is unlikely to toe the US line on oil purchases from Russia.
“India’s motivation is primarily strategic autonomy and energy security. Since the (end of the) Cold War, India has maintained a non-aligned foreign policy,” Dr Waqar Badshah, assistant professor of economics at Istanbul University, tells TRT World.
The non-aligned foreign policy stance – which means New Delhi does not formally position itself with or against any major power bloc – has continued under Indian Prime Minister Narendra Modi, he says.
“Buying discounted Russian oil helps India manage inflation, support its growing energy needs, and diversify suppliers,” Badshah says.
Bypassing Western sanctions
Sanctions limit a country’s ability to trade with the outside world. Once sanctioned, a business or bank can’t make transactions in major currencies or use SWIFT, the mainstay of the global payments network that banks rely on to process cross-border trade.
Yet these sanctions have failed to deter India from massively increasing its Russian oil imports over the last few years.
From less than $9 billion in 2021, New Delhi’s imports from Russia grew seven times to over $64 billion in 2024, mostly on the back of oil purchases at discounted rates.
As the single-largest energy supplier, Russia provides India with 35 percent of its total oil imports. The massive oil demand from India has helped Russia contain the fallout of sanctions and save it from total economic isolation.
With a share of 11.1 percent, Russia was the third-biggest crude oil producer worldwide in 2024, after the US (20.8 percent) and Saudi Arabia (11.2 percent). It was also the third-biggest exporter of crude oil in the same year.
China was the top crude oil importer in 2024, followed by Europe, the US and India.
Analysts say India has managed to dodge Western sanctions despite close economic cooperation with Moscow for a number of reasons.
For starters, US sanctions on Moscow are mostly unilateral as opposed to the ones imposed by the United Nations, which require mandatory compliance from all UN members. Historically, India has never recognised unilateral US sanctions.
More importantly, Indian banks are reportedly bypassing US sanctions by using the Indian rupee instead of the dollar to pay for Russian crude oil imports.
In 2022, India’s central bank allowed a handful of banks to open “special accounts” to facilitate rupee-based trade with Russia.
This strategy leaves US and European authorities with little room to punish the two banks that India has unofficially fenced off for dealing with sanctioned Russian entities.
These “relatively low-profile” Indian banks – UCO Bank in the public sector and private sector IndusInd Bank – are taking the biggest exposure to Russian trade. They do not have much exposure or branches anywhere in the West, which makes them least bothered about the threat of secondary sanctions.
Hedging against price shocks
One overlooked factor behind India’s continued trade with Moscow is that the US never intended to completely choke all Russian oil exports. That is because a complete ban on Russian oil exports would have sent global oil prices through the roof.
In fact, the US officially said last year that Washington did not want India to cut Russian oil imports.
Unlike Iranian and Venezuelan oil, Russian crude is not subject to direct sanctions, apparently to achieve the dual objective of hurting the Russian economy while ensuring a steady supply of Russian oil.
Under Western sanctions, companies operating in European and G7 nations are not allowed to provide shipping and insurance services for Russian crude oil trade, unless the transaction is verifiably below the price cap of $60 a barrel.
India is buying Russian oil below the current price cap, which has so far shielded it from Western sanctions.
Investing surplus rupee funds
Trade between India and Russia is heavily tilted, with the value of India’s imports from Russia outstripping exports many times over.
Given that India prefers to pay Russia in rupees, it’s obvious that Russian banks end up with loads of Indian currency.
But unlike the dollar that’s universally accepted as a medium of exchange, there are few takers of the Indian rupee outside of India.
Russians are reportedly using their rupee-based export proceeds to invest in risk-free government securities in India.
Moreover, Russia is spending piles of rupees to purchase electronics and machinery from India to ensure a steady inflow of electronic equipment “originally bought in Western markets”, according to areport in the Financial Times.
