India is facing a big and dangerous crossroads. It has to go about meeting its energy needs, all while being threatened with new tariffs from the United States. India finds itself at a critical juncture, as energy demand is expected to surpass that of China by 2030. If so, should it keep buying cheap oil from Russia, or switch to more expensive oil that might interfere with the country’s manufacturing ambitions. This decision is clearly in step with increasing momentum of Prime Minister Narendra Modi’s “Make in India” initiative. That’s part of a much larger effort to make the country a global manufacturing center.
The stakes are particularly high for India, which imports about 80% of its energy needs. Russian crude oils currently account for about 36% of India’s imports. In India, huge discounts ensure that this abundant energy source is the smartest, most economical option. Even the recently proposed U.S. tariffs on steel and aluminum would be quite harmful to India’s exports. With experts estimating that these tariffs will eventually impact almost 55% of India’s trade with the U.S.
The Energy Landscape
India has long been one of Iran’s biggest customers, purchasing as much as 480,000 bpd. Yet, geopolitical tensions and U.S. sanctions on Iran have made its energy procurement strategies far more difficult. With India’s economy projected to grow at one of the fastest rates in the world, energy demand is skyrocketing. The country became the world’s third-largest oil consumer, propelled by a growing, urbanizing population of more than 1.4 billion people.
Indeed, given these conditions, India’s continued dependence on Russian crude is less a political play and more an economic imperative. As Amitabh Singh, an associate professor at Jawaharlal Nehru University’s Centre for Russian and Central Asian Studies, remarked:
“India’s continuing purchases are a purely economic or commercial decision.”
This pronouncement highlights the contradictory nature of India’s energy decisions as it pursues economic self-interest while being swayed by global forces.
Manufacturing Ambitions at Risk
Prime Minister Modi has dedicated significant resources to his “Make in India” campaign, aiming to boost domestic manufacturing and reduce dependence on foreign imports. The initiative has positioned India as a viable alternative to China for global manufacturing needs, attracting interest from American businesses and consumers alike.
That progress is now in jeopardy, thanks to the heavy cloud of potential U.S. tariffs. As a result, these tariffs will do little to expand India’s manufactured goods exports to the U.S. This growing market is vital to India’s rapid economic development. In 2024, India exported $87 billion worth of goods to the U.S. At the same time, it was importing $42 billion. This resulted in a hefty $45.8 billion goods trade deficit for the U.S. This economic state of affairs has assumed greater importance amid India’s renewed ambitions to strengthen its domestic manufacturing capabilities.
Such potential tariffs could seriously undermine India’s own manufacturing export ambitions. Even more damaging, they could undermine the country’s growing re-integration into the global supply chain. The country’s newfound role as a manufacturing partner to the world’s leading economies depends on its ability to keep good trade ties with the U.S.
Navigating Global Alliances
As India considers its energy choices and the impacts of U.S. tariffs, it is reexamining its international partnerships too. With an eye on the 2024 general elections, Modi’s government is under pressure to shift India’s energy landscape while ensuring economic stability. Trump’s proposal for the use of “secondary sanctions” may further encourage India to reconsider its relationships with other international partners. This brings to light the delicate balancing act that Indian policymakers must walk along.
India’s position as the world’s second-largest exporter of petroleum products makes this picture even more complicated. In 2023, the total value of exported petroleum products from the country reached $86.28 billion. This massive number solidifies its place as a major force in global energy markets. Much of that growth has been driven by India’s booming purchases of American oil, gas, chemicals and aerospace components.
The challenge before India illustrates key global trends in energy procurement and geopolitics. As countries navigate their energy futures amidst shifting alliances and economic pressures, India’s choices will play a pivotal role in shaping the landscape of international relations.