Sources familiar with the matter said a prospective US-India trade agreement could provide India a crucial buffer against the steep tariff threat embedded in the Graham Act, the sanctions law signed by President Donald Trump that authorises tariffs of up to 100% on the largest purchasers of Russian energy. The development has sharpened the stakes for New Delhi, which has emerged as one of the biggest buyers of discounted Russian crude since the Ukraine war upended global energy flows.
The possibility of a carve-out or alternative treatment through a trade pact has become more salient as uncertainty over Washington's next move has risen. While the law gives the White House broad latitude to target countries that continue importing Russian oil and gas, sources said the existence of an active trade negotiation could alter the political and economic calculus. For India, the issue is not only about tariffs; it is about preserving access to the US market, limiting supply-chain disruption and avoiding a sudden escalation in bilateral trade tensions.
Trade Talks Gain Weight
The tariff threat comes at a sensitive moment in US-India economic relations, with both sides seeking to deepen commercial ties even as they remain divided on market access, industrial policy and energy security. A trade deal, if reached, could potentially be used to soften enforcement or create a framework that reduces the likelihood of India being singled out under the sanctions regime, sources said. But there is no public indication that any exemption has been finalised, and the legal architecture of the Graham Act leaves significant discretion in Washington.
For India, the stakes are unusually high because Russian oil has become a central pillar of its energy strategy. After Western sanctions redirected Russian barrels away from Europe, Indian refiners stepped in as major buyers, helping cap domestic fuel inflation and support broader macroeconomic stability. Any abrupt tariff action from the US would therefore land not just as a trade shock but as a policy challenge for New Delhi, potentially raising import costs, complicating export planning and adding pressure to the current account.
Energy Security Meets Tariffs
The sanctions law places India in a difficult position between energy security and trade exposure. Indian officials have repeatedly defended Russian oil purchases as a sovereign economic decision driven by national interest and price stability. Yet the Graham Act's design is explicitly intended to raise the cost of continued Russian energy trade for large buyers, meaning India could face pressure even if it has not violated any existing US trade rules.
Economists said the immediate risk would depend on how aggressively the US administration chooses to implement the law and whether it prioritises deterrence over disruption. A 100% tariff would be severe enough to hit a wide range of Indian exports, particularly labour-intensive sectors and firms with thin margins. It would also risk unsettling investor sentiment at a time when India is trying to sustain manufacturing growth and expand its role in global supply chains.
At the same time, the existence of a trade deal could give both governments a face-saving off-ramp. Washington could claim it is enforcing sanctions while still preserving strategic ties with a key Indo-Pacific partner. New Delhi, meanwhile, could argue that a negotiated outcome protects its economic interests without forcing an immediate break from Russian energy imports.
Market Watch Intensifies
The market reaction will hinge on whether the threat remains rhetorical or becomes operational. Traders and exporters are likely to watch for signs that the US is preparing implementation guidance, waiver language or country-specific exemptions. Any indication that India is being treated differently from other large buyers of Russian energy would be read as a significant diplomatic and commercial signal.
For now, the message from the sources is one of conditional relief rather than certainty. A trade deal could shield India from the full force of the sanctions law, but only if negotiations move quickly and if the final terms are acceptable to both capitals. Until then, the 100% tariff threat remains a live risk hanging over one of the world's most important bilateral economic relationships.