Indo-US Trade Deal – But who will supply the crude that India needs?

Indo-US trade deal becomes an Albatross

The question that is being quietly asked is whether the Indo-US trade deal is becoming India’s albatross. The Indian foreign minister may have stoutly denied any commitment to stop buying Russian oil, but that does not require too much intelligence to decipher. The US obviously would not remove the 25% penal tariffs unless they had a clear commitment that India would drastically cut down purchase of crude from Russia. That was also evident in the numbers. In February, the oil purchases from Russia were down to a multi-year low of 1.2 million bpd, and expected to fall further to just 8 lakh bpd in March. India seems to have adhered to its part of the deal.

Is the US really adhering to its part of the deal?

That is the million-dollar question. Most trade deals are based on trust, apart from the water-tight terms of the agreement. However, recent actions by the US government have not given too much confidence. Consider these examples. The day after the Supreme Court struck down the wartime tariffs as illegitimate, Trump used his special powers to impose 10% tariffs, and then increased it to 15%. Worse was still to come. Due to Indian production linked incentives (PLI), the US imposed a 126% tariff on Indian solar modules and panels, making them almost unviable in the US. For the kind of commitment India showed on oil, the US continues to behave erratically.

Is India paying for an unnecessary war?

That is what it looks like. Trump is trying to browbeat Iran into signing a nuclear agreement on American terms, something Iran is clearly not willing to do. Warships like the USS Gerald Ford have moved closer to Iran and Brent Crude prices have already rallied 20% to $72/bbl on war fears. Things could get worse for India if Iran decides to block the Straits of Hormuz. Most of India’s oil from Saudi Arabia, Iraq, UAE, and Kuwait has to necessarily come through the Straits of Hormuz. In Feb-26, nearly 2.6 million bpd (50% of total oil imports) came through the Straits of Hormuz. This route also accounts for 13.2% of India’s total non-oil exports. Clearly, India has a lot to lose from the blockade.

India must first focus on energy security

At this point, it looks like India needs more of a deal from the Indo-US trade deal. Just a day after the deal is signed, the US is able to put arbitrary tariffs on Indian solar modules. In any trade deal, such things have to be done only by mutual consent, not arbitrarily. Also, India has invested a lot in procuring Russian oil, including the Chennai-Vladivostok Maritime Corridor (CVMC). That is not only a cheaper way to get oil, but is also immune to any strife in the Middle East and West Asia. Indian trade negotiators need to seriously sit down with their US counterparts and make this more of a deal. You cannot have a deal, where one party has to adhere, and the other party can be arbitrary.