India faces tough choices under U.S. tariff pressure

A student of Gurukul school of Art completes artwork of U.S. President Donald Trump and Prime Minister of India Narendra Modi, in Mumbai, India, Friday, Aug. 1, 2025. (AP Photo/Rajanish Kakade)

India faces an ultimatum from the United States with major political and economic ramifications both at home and abroad: end purchases of Russian oil or face painful tariffs.

Indian Prime Minister Narendra Modi, leader of the world’s most populous nation and its fifth-biggest economy, must make some difficult decisions.

U.S. President Donald Trump has given longstanding ally India, one of the world’s largest crude oil importers, three weeks to find alternative suppliers.

Levies of 25 per cent already in place will double to 50 per cent if India doesn’t strike a deal.

For Trump, the August 27 deadline is a bid to strip Moscow of a key source of revenue for its military offensive in Ukraine.

“It is a geopolitical ambush with a 21-day fuse,” said Syed Akbaruddin, a former Indian diplomat to the United Nations, writing in the Times of India newspaper.

How has India responded?

New Delhi called Washington’s move “unfair, unjustified and unreasonable”.

Modi has appeared defiant.

He has not spoken directly about Trump but said on Thursday “India will never compromise” on the interests of its farmers.

Agriculture employs vast numbers of people in India and has been a key sticking point in trade negotiations.

It all seems a far cry from India’s early hopes for special tariff treatment after Trump said in February he had found a “special bond” with Modi.

“The resilience of U.S.-India relations... is now being tested more than at any other time over the last 20 years,” said Michael Kugelman, from the Asia Pacific Foundation of Canada.

What is the impact on India?

Russia accounted for nearly 36 per cent of India’s total crude oil imports in 2024, snapping up approximately 1.8 million barrels of cut-price Russian crude per day.

Buying Russian oil saved India billions of dollars on import costs, keeping domestic fuel prices relatively stable.

Switching suppliers will likely threaten price rises, but not doing so will hit India’s exports.

The Federation of Indian Export Organisations warned that the cost of additional U.S. tariffs risked making many businesses “not viable”.

Urjit Patel, a former central bank governor, said Trump’s threats were India’s “worst fears”.

Without a deal, “a needless trade war” would likely ensue and “welfare loss is certain”, he said in a post on social media.

What has Modi done?

Modi has sought to bolster ties with other allies.

That includes calling Brazilian President Luiz Inacio Lula da Silva on Thursday, who said they had agreed on the need “to defend multilateralism”.

Ashok Malik, of business consultancy The Asia Group, told AFP: “There is a signal there, no question.”

India’s national security adviser Ajit Doval met with Vladimir Putin in Moscow, saying the dates of a visit to India by the Russian president were “almost finalized”.

Modi, according to Indian media, might also visit China in late August. It would be Modi’s first visit since 2018, although it has not been confirmed officially.

Beijing’s foreign ministry spokesman Guo Jiakun said in response to an AFP question on Friday that “China welcomes Prime Minister Modi” for the Shanghai Cooperation Organization summit.

India and neighbouring China have long competed for strategic influence across South Asia.

Successive U.S. administrations have seen India as a key partner with like-minded interests when it comes to China.

“All those investments, all that painstaking work done by many U.S. presidents and Indian prime ministers, is being put at risk,” Malik said.

“I have not seen the relationship so troubled since the early 1990s, to be honest. I’m not saying it’s all over, not in the least, but it is at risk.”

Can Modi change policy?

Modi faces a potential domestic backlash if he is seen to bow to Washington.

“India must stand firm, put its national interest first,” the Indian Express newspaper wrote in an editorial.

Opposition politicians are watching keenly.

Mallikarjun Kharge, president of the key opposition Congress party, warned the government was “disastrously dithering”.

He also pointed to India’s longstanding policy of “non-alignment”.

“Any nation that arbitrarily penalizes India for our time-tested policy of strategic autonomy... doesn’t understand the steel frame India is made of,” Kharge said in a statement.

However, retired diplomat Akbaruddin said there is still hope.

New Delhi can be “smartly flexible”, Akbaruddin said, suggesting that could mean “buying more U.S. oil if it’s priced competitively, or engaging Russia on the ceasefire issue.”