US President Donald Trump’s trade war, which began with the aim of fixing the trade deficit with partner countries, has entered a new phase of economic coercion, with India in the eye of the storm. To force Russia into signing a peace deal with Ukraine and India to agree to stiff US terms in the ongoing trade talks, Trump on Monday widened the tariff war to achieve geopolitical goals by warning India of additional tariffs for profiting from sales of Russian oil amid the Ukraine war.
While New Delhi has called the targeting of India over the purchase of Russian oil “unjustified and unreasonable” and vowed to take “all necessary measures” to safeguard its “national interests and economic security”, Indian exporters are in a fix, scrambling to retain access to the US — their most valuable export market, accounting for nearly 20 per cent of India’s total outbound shipments.
Globally, experts on trade and geopolitics have said the new tariff threats by the US directed at India could undermine 25 years of US-India relations. Trump’s latest threats to India follow the American President’s multiple blunt remarks over India’s association with the BRICS grouping, Apple’s manufacturing operations in India, and, topping it all, the invitation extended to Pakistan’s Army Chief to the White House weeks after the Pahalgam attack and later offering a lower 19 per cent tariff to Pakistan.
However, using economic coercion to achieve geopolitical goals has been a longstanding American policy and is only expanding under Trump. A working paper titled ‘Asphyxiation by Sanctions: Harm, Fear and Smog’ by former Reserve Bank of India governor Urjit R. Patel calls the US the “hegemonic sanctioner”, arguing that India should view the emerging international financial architecture around BRICS and the Asian Infrastructure Investment Bank (AIIB) as a “risk mitigant” and a rational response to the ever-expanding sanctions regime.
US leads global sanctions regime
India’s sharp response to Trump’s coercion on Monday comes after the US for decades sanctioned multiple countries for exporting oil, complicating New Delhi’s strategy to diversify its energy imports. Over the years, the US has sanctioned oil exports from Venezuela, Iran, Iraq, Libya, Sudan and Syria. India resumed oil imports from Venezuela in 2023, after a three-year pause, only after the US eased sanctions on the country.
Patel’s paper said out of 1,325 global sanctions since 1949, 486 have been imposed by the US, which currently administers over 30 sanctions programmes — making it responsible for “three times as many sanctions as any other country or international body”. Moreover, US-led sanctions have surged in recent decades, partly due to the collapse of the Soviet Union, the paper said.
Patel wrote that the US has “pioneered secondary sanctions on an industrial scale”, often in coordination with allies such as the G7 grouping and the EU, forming a “posse”. These extraterritorial sanctions are enforced to impede economic and commercial activity by third countries that would not otherwise violate a primary sanctioner’s rules, he said.
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The former RBI Governor wrote that the effectiveness and reach of US secondary sanctions are heavily reliant on the centrality of the American financial system and the US dollar’s status as the global numeraire and principal currency for settling cross-border transactions. However, the overuse of the US dollar correspondent banking network as a “switch” on payments has prompted many countries to explore alternatives — a trend that could undermine the dollar’s dominance, he warned.
Significant cost for emerging economies
Patel said the US economic sanctions have imposed a significant burden on emerging economies such as India. The hegemonic position of the US means that its sanctions, particularly secondary ones, cause “collateral damage” to third countries — economic losses that are especially severe for emerging economies and often “underappreciated” by the sanctioners.
Patel, who has also served as a Director at the Bank for International Settlements, argues that the imposition of sanctions by hegemonic powers often occurs without adequate public debate or transparency regarding their costs. Unlike wars, where human and financial costs are evident, the “cost-benefit of sanctions, counter sanctions and secondary sanctions is a black box — the layered and complex scope is a mystery to most”.
The paper also pointed out that US sanctions, particularly on Iran, have directly affected Indian investments. The development and operation of Iran’s Chabahar Port, which involves Indian investment, faced “a hard break” due to initial US sanctions and had “limited operations” after the US reintroduced sanctions in 2018. Even after India signed a 10-year agreement to develop and operate the port in 2024, the US State Department issued a warning about “the potential risk of sanctions” for deals with Iran, creating significant uncertainty and hampering progress.
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In another example, Patel highlights that Indian public sector oil companies have accumulated unpaid dividend income of around $900 million from their upstream ‘oil equity’ investments in Russia. This non-receipt of income is directly attributed to “payment channel-related prohibitions by the US and the EU”, he says, adding that this financial loss “inter alia, affects investments by Indian oil companies and the government’s budgetary revenue”.
India-US relations and the Trump threat
While a trade deal is yet to be finalised between the two countries, several measures already announced by Trump have begun to affect India. Indian officials have indicated that the US is unwilling to negotiate sectoral tariffs — such as those on steel and automobiles — which have already impacted nearly $5 billion worth of Indian exports.
Evan A. Feigenbaum, Vice President for Studies at the Carnegie Endowment for International Peace, said on Monday that US-India relations may now become a political football, especially in New Delhi. He warned that the core understandings that enabled closer ties may be at serious risk, as New Delhi had largely assumed Washington would take political risks to strengthen the relationship — something Trump has not done and clearly will not do.
Feigenbaum added that the split in relations is further underscored by Trump’s effusive praise for Islamabad and recent engagement with Pakistan’s army and government — developments that raise obvious concerns in New Delhi. “The United States was roiled by India’s ties to Iran, Myanmar, and later Russia. Trump and his administration are now moving to sanction and tariff India over its oil trade with Russia. This significantly shifts the bar for bilateral relations,” he said.
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