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Editor’s note: Part two of our series on the Chola dynasty—newly beloved of BJP and DMK netas—has been pushed to next week, thanks to the tariff tamasha. There aren’t many Big Stories left in the calendar—before we shut the newsroom on August 29. So be sure to write in if you want us to do one on a burning topic of your choice. Email us at talktous@splainer.in 

 

How it started: An American love story

 

After the Cold War ended, it took some years for Washington to warm up to New Delhi—long a close Soviet ally. But by the dawn of the millennium, the Americans were making significant overtures toward a new relationship. George Bush Jr inked the first deal to support India’s civilian nuclear energy program. The Obama era ushered in new highs in military, nuclear and trade cooperation. Soon, it didn’t matter who was in power—Republicans or Democrats—the love affair deepened with each passing year:

 

During President Donald Trump’s first term, the United States started sharing sensitive intelligence with India and made it eligible to receive advanced technologies previously reserved only for American allies; under President Joe Biden, Washington gave New Delhi sophisticated fighter jet engine technology. Each of these recent administrations deepened diplomatic, technological, and military cooperation with India, making good on Bush’s promise “to help India become a major world power in the twenty-first century.”

 

The state of geopolitical play: greatly favoured New Delhi. Its close relationship with Moscow was no longer a problem for the US. The ample post-liberalisation Indian market was irresistible to US investors. Above all, the two were united in a post 9/11 world by a singular focus on Islamic terrorism. Pakistan had finally fallen out of Washington’s favour—no longer a valued Cold War pawn, its economy in shambles—Islamabad's chief export was global terrorism. 

 

An added impetus: The demise of the Modi-Xi love affair—which ended in a bloody confrontation at the Line of Control in Ladakh. India became the United States’ counterbalance to the economic might of China—Washington’s #1 post-Cold War enemy. 

 

Joy to the (multipolar) world:  When the Cold War made an unexpected return—with Russia’s invasion of Ukraine—India became too valuable to lose. Sure, New Delhi openly defied US sanctions on Moscow—but the bigger threat was the Russia-China alliance that remains the greatest challenge to US supremacy. India loved this ‘multipolar’ world. It could choose its own friends—and watch from the sidelines while they brawled. Everything was coming up roses until Trump returned to the White House. 

 

How it’s going: Trump tariff ka thappad

 

Here comes the Trump bump: Ahead of his swearing in, the Indian establishment was ecstatic about the bijness-loving prez who will surely set the dogs of global capitalism loose:

 

Nandan Nilekani, the billionaire co-founder [of].. Infosys, told the Financial Times in November that the “bull case” for the industry would be that Trump’s presidency would “unleash market deregulation”, allowing companies to expand, while spurring more mergers and takeovers, all providing business to India’s outsourcers.

 

In what seems near-delusional now, most experts predicted India would be Trump’s most favoured nation—thanks to his bro Modi:

 

More widely, economists and industry figures in India expect the world’s most populous nation, which has been edging closer into Washington’s orbit and whose leader, Narendra Modi, shares good relations with Trump, could be shielded from the worst of the US leader’s impulses… Teresa John.. who recently published research on the potential impact of “Trumponomics” on India, said overall the country was likely to “be relatively insulated” compared with other Asian nations, such as China, given its lower trade surplus with the US.

 

Haw! Our condolences to Ms John.

 

There goes the Trump bump:  On August 1, the US president instead delivered a 25% tariff torpedo—with the promise of an added “penalty” for trading with Russia. That last bit has not come into effect—and no one knows how large it will be. But the number is already higher than the duty on goods from competing nations like Vietnam (20%), Korea (15%) and Indonesia (19%). In other words, ‘made in India’ products will become uncompetitive in the US market.

 

Adding to the grief: Trump has abandoned protestations of love for his “good friend” Modi—ranting instead about the “strenuous and obnoxious” trade barriers of a “dead economy.” Some even think that some of it is about Modi himself: “Trump has obviously made it a very personal thing against Modi. I don’t think it has much to do with policy anymore.”

 

Quote to note: Just yesterday, a top White House aide Stephen Miller accused India of funding Russia’s war on Ukraine: "What he (Trump) said very clearly is that it is not acceptable for India to continue financing this war by purchasing the oil from Russia." That’s a new low.

 

Damage assessment: The matter of Russian oil

 

New Delhi and Washington are still committed to hashing out a bilateral deal at some point this year. Many see Trump’s over-the-top aggression as a bargaining tactic. It’s worked with everyone including the EU—so why not India. We certainly have a lot to lose—specifically, a $45 billion trade surplus. The $87 billion in exports accounts for 2.3% of our GDP. The worst hit: engineering goods, electronics, drugs and pharmaceuticals, gems and jewellery, and textiles. In sum, it is damaging but not crippling. 

 

But this isn’t just about trade. More serious are the shifts in the global chessboard—our geopolitical stars are no longer favourably aligned. 

 

The biggest blow: to New Delhi is the souring of the Trump-Putin relationship—which has altered our geopolitical kundali. In the words of South Asia expert Ashley Tellis: “As long as Trump’s policy was coddling Putin, India’s oil purchases were not a problem. Now they’ve suddenly become one because Trump’s interest in a ceasefire has intensified.” That’s the ceasefire with Ukraine—which the Russian president simply refuses to deliver. In fact, each time Trump threatens Putin, he bombs Ukraine with greater ferocity. Hence, the ultimatum to New Delhi—stop buying Russian crude and weapons.

 

The importance of Russian oil: Trump’s demand would have mattered little in his first term. In early 2022, Russian oil accounted for just 0.2% of Indian imports of crude oil. But that number skyrocketed within months—due to Western sanctions: 

 

After European markets shut their doors to Russia, seaborne exports from Russia to India started scaling up. By May 2023, Russia was selling India more than two million barrels of crude a day, or roughly 45% of its imports, more than to any other country but China. 

 

For the past two years, our annual purchases have averaged $275 billion—accounting for 35% of our imports. Russia now far outstrips our usual suppliers Iraq and Saudi Arabia.

 

A wartime bonanza: Russia’s desperate need for oil revenue turned into a windfall for India. Washington turned a blind eye because the sleight of hand avoided skyrocketing oil prices—caused by sanctions. And it allowed Europe to access Russian oil—without dirtying its hands:

 

The trade suited everyone involved. Russia got to sell its crude oil, theoretically under a price cap the European Union had set at $60 a barrel, and India bought oil at a discount. Its oil companies refined some for domestic consumption and exported the rest as diesel and other products, some of it to Europe.

 

Of course, the biggest beneficiary of India’s good fortune was Mukesh-bhai and his oil refineries in Gujarat. Reliance stock has grown 34% since the invasion—even as share prices of US oil companies have stayed flat.

 

A multibillion dollar pivot: That’s basically what Trump wants from us—to swap out discounted Russian oil for expensive US oil. According to experts, our import bill will jump by $9-$11 billion if we stop buying from Moscow:

 

Financially, the implications are substantial. If a USD 5 per barrel discount is lost across 1.8 million barrels per day, India's import bill could increase by USD 9–11 billion annually. If global prices rise further due to reduced Russian supply, the cost could be even higher

 

The US threat comes on the heels of an EU crackdown on refined crude products from Russia—which will hurt Indian oil companies. Reliance alone sold 200,000 barrels of refined products to Europe—a day! While it is indeed possible to switch from Russian crude, the economic pain will be significant. In the words of an industry expert: “The pivot away from Russia — if forced — will be costly, complex and politically fraught,”

 

A freebie for China: It is especially unacceptable to make this demand of India but not of China—which is Russia’s #1 customer:

 

“What we also have to keep in mind is that even if India may cut to zero, China is not going to,” said Pankaj Saran, a former Indian deputy national security adviser and ambassador to Moscow. “You will have a kind of a bizarre situation where Russia will sell to China at cheap prices, and so you would have China being the ultimate beneficiary.”

 

Adding further insult: to diplomatic injury are the overtures to Pakistan. On the very same day that he announced the tariff, Trump also unveiled a trade deal with Islamabad—including a plan to develop its “massive oil reserves.” The extra bit of spite: “We are in the process of choosing the oil company that will lead this partnership [with Pakistan]. Who knows, maybe they’ll be selling oil to India some day.” There isn’t all that much oil in Pakistan—and they are up to their eyeballs in Chinese debt… but that’s not the point. 

 

India slaps back: And that’s why New Delhi is staying strong—despite Trump claiming otherwise:

 

Official sources in India, quoted by the news agency ANI, rebutted Trump’s claim, saying Indian oil companies had not paused Russian imports and that supply decisions were based on “price, grade of crude, inventories, logistics and other economic factors.”

 

This isn’t about patriotism—it’s sheer necessity. We rely on exports to fulfill 90% of our oil needs—and New Delhi has done its best to diversify its sources. The Indian government is simply insisting on its right to buy the cheapest oil—after Washington already forced us to give up two of our reliable sources: Iran and Venezuela. Targeting Russia may be a bridge too far.

 

Point to note: Russian oil may be possible to replace—albeit at great cost. Russian weapons are not. Moscow is our largest supplier of armaments—which include fighter jets, battle tanks and missiles. Yes, we are buying a lot more from the US in recent years—but Washington has never been a reliable military partner. Dragging in weapons also ups the stakes—turning a tariff into a punitive sanction: “The latest rhetoric from Trump also links to India’s defence imports from Russia, so the strategic landscape is shifting. This isn’t a sanctions regime yet, but the signalling is strong,”

 

The bottomline: India’s greatest worry is not the United States, or even Pakistan. It is China:

 

With China, India faces a full spectrum challenge: Its model of governance, its development strategy, and its relationships with the smaller states of South Asia and the Indian Ocean all have the potential to undermine India’s interests. India presently has no good options to manage these problems nor to resolve the border dispute. It needs time, money, and military modernization to find them. 

 

Some like Ashley Tellis argue that India must embrace a unipolar world ruled by the US—in exchange for its protection:

 

In a genuinely multipolar system, New Delhi would benefit less from the collective goods the United States supplies, such as protecting the sea-lanes in the Indian Ocean. To compensate, India would have to bear larger financial and security burdens than it has been willing to thus far. It might also fail to balance against Beijing, should the other two great powers (the United States and the EU) decide to leave India—the weakest in the mix—to fend for itself. Under multipolarity, India could end up worse off than it is under American unipolarity or than it might be under U.S.-Chinese bipolarity.

 

Sounds ‘sensible’—except Beijing is also the greatest reason not to abandon Russia—which, if greatly weakened, will become a “Chinese client state.” Imagine being stuck in that neighbourhood—leaning on the next loony US prez to save us. 

 

Reading list

 

Times of India, Indian Express and New York Times are best on the Russian oil conundrum. Reuters via The Hindu has the claim that refiners have already stopped using Russian oil—refuted by government sources in The Guardian. This older Times of India piece looks at Putin’s attempts to bring India and China together in a trilateral alliance. You can read Ashley Tellis’ essay in Foreign Affairs (requires a login). Andy Mukherjee in Bloomberg News lays out what concessions India can make.