Impact of US Sanctions on India
India has historically opposed unilateral economic sanctions. However, it has often been compelled to comply with such sanctions when imposed by the United States due to potential repercussions. This compliance is driven by the threat of secondary sanctions, which aim to deter countries from engaging with entities targeted by US primary sanctions.
Understanding Sanctions
- Primary Sanctions: These restrict or prohibit dealings with American citizens and entities.
- Secondary Sanctions: These are designed to prevent third-party countries from conducting business with sanctioned entities, thus serving as a force multiplier for primary sanctions. Under international law, such sanctions are controversial due to their extraterritorial nature.
Reasons for Compliance
The global dominance of the US dollar and the centrality of the American financial system make it crucial for international businesses to maintain access to US markets and financial systems. Consequently, entities cannot risk being cut off by US secondary sanctions, which could restrict access to these essential financial channels.
India's Specific Concerns
India's dependency on Russian oil highlights the potential impact of US sanctions, especially given that over two-thirds of India's Russian oil imports are from the sanctioned companies Rosneft and Lukoil. In 2025, Russian oil constituted over 35% of India’s total oil imports, indicating significant exposure to potential risks from US sanctions.
Industry Reaction
- Indian refiners and banks are expected to adopt a cautious approach to avoid attracting secondary sanctions, which may result in a decrease in Russian oil imports.
- Public and private sector players like Reliance Industries Limited (RIL) have substantial business ties with the US and cannot afford to be excluded from its financial markets.
Strategic Adjustments
Despite the lack of direct sanctions on Russian oil, the industry is likely to see shifts in procurement strategies, potentially involving indirect purchases from third-party traders. However, this approach is risky, as these traders might also become targets of US sanctions if they continue facilitating Russian oil trade.
Government Stance and Industry Outlook
The Indian government maintains that it will source oil from the most economically viable sources, provided they are not under direct sanctions. While there is a price cap on Russian oil when using Western shipping and insurance, the sanctions on Rosneft and Lukoil significantly threaten India's supply chain, as these entities represent a major portion of Russia's oil exports.
Overall, while the full impact of sanctions remains to be seen, the threat of secondary sanctions will likely lead to a reevaluation of India's import strategies and increased caution within its refining sector.