Article: Impact of EU Sanctions and US Tariff Threats on India's Trade and Energy Sector
EU-India Relations Face Challenges Amidst New Russia Sanctions
The recent developments in the global political landscape have brought about significant changes in India's trade and energy sector. Two key factors, the EU sanctions and the US tariff threats, are reshaping the country's economic landscape.
EU Sanctions on India's Energy Trade
The EU's 18th sanctions package, enforced from July 20, 2025, targets companies linked to Russian entities, such as the Vadinar refinery owned by Nayara Energy, which is 49% owned by Russian Rosneft. This action disrupts Nayara's ability to trade with European entities and forces it to shift focus towards markets outside Europe, including Southeast Asia, Southern Africa, and the Middle East, and to increase diesel exports there [1][2].
The sanctions have led to leadership changes at Nayara, reflecting the serious operational and compliance challenges. The refinery is also grappling with sourcing crude beyond Russian supplies, which has been a significant part of its input. Replacement crude from the Middle East and Iraq may be available but risks supply disruptions and price volatility [1][2].
This geopolitical tension influences EU-India trade negotiations by introducing greater uncertainty. India emphasises that energy security is a top national priority, resisting pressure to curtail Russian oil imports despite EU demands [3]. This stance could slow or complicate the pace and content of EU-India trade deal discussions, as the EU assesses India's compliance with its sanctions regime and broader geopolitical alignment [3][5].
US Threat of Tariffs on Indian Goods
The US threat to impose tariffs on Indian exports typically concerns trade deficits, market access barriers, and intellectual property issues. Its impact is on the flow of manufactured goods, services, and agricultural products, rather than on energy markets.
While US tariffs impact the overall trade balance and sectoral growth opportunities for India, they do not directly constrain India’s crude oil imports or energy security as the EU sanctions do. Instead, tariff threats complicate industrial and commercial negotiations but do not involve geopolitical conflict over energy dependence or sanctions enforcement [3][5].
Comparison and Key Differences
| Aspect | EU Sanctions on India's Energy Trade | US Threat of Tariffs on Indian Goods | |-----------------------------------|-------------------------------------------------------|--------------------------------------------------------| | Target Sector | Energy sector (oil refining, Russian crude imports) | Industrial/manufactured goods, services | | Primary Impact | Operational restructuring, supply chain disruption, export market realignment | Potential increase in tariffs, reduced export competitiveness | | Geopolitical/Strategic Dimension | High: linked to Russia-Ukraine conflict and energy security | Moderate: trade policy leverage, market access concerns | | Effect on EU-India Trade Deal | Creates friction and uncertainty due to compliance and geopolitical stance | Adds pressure but focused on tariff negotiations | | India's Response | Prioritizes energy security, resisting EU pressure | Negotiates or contests tariffs through trade forums |
Implications and Future Outlook
The EU sanctions are likely to exert a more complex and disruptive influence on India’s energy trade and its broader trade relations with the EU compared to the US tariff threats, which primarily affect trade negotiation dynamics without immediate operational constraints on critical sectors like energy [1][2][3][5].
Nayara Energy has pushed back against the EU's sanctions, calling them hypocritical. India's desire to diversify away from the US and towards the EU has probably increased due to US tariffs. The overall momentum towards a trade agreement between the EU and India remains resilient, and a breakthrough could still occur, especially if shifting geopolitical dynamics bring New Delhi and Brussels closer together.
Experts suggest that the EU's sanctions lack bite and will be difficult to enforce. There is a fear that removing Russian oil from the global supply could lead to a spike in prices, which would hurt everyone, not just Russia. The EU has taken a more measured approach during trade negotiations, particularly in the agricultural sector, which employs close to 44% of India's population.
In conclusion, the EU sanctions and US tariff threats are presenting unique challenges and opportunities for India. While the EU sanctions are more disruptive to India's energy sector, the US tariff threats could strengthen the mutual interest between the EU and India in finalizing a free trade agreement.
- The EU's 18th sanctions package targets companies in India's energy sector, such as Nayara Energy, which is shifting its focus towards markets outside Europe to cope with the sanctions and their operational challenges.
- The US threat of tariffs on Indian goods primarily affects the flow of manufactured goods, services, and agricultural products, but it does not directly constrain India’s crude oil imports or energy security.
- The EU sanctions could complicate the EU-India trade deal discussions by introducing greater uncertainty and creating friction due to India's compliance and geopolitical stance on Russian oil imports.
- The overall momentum towards a trade agreement between the EU and India remains resilient, and a breakthrough could still occur, especially if shifting geopolitical dynamics bring New Delhi and Brussels closer together, as the US tariffs may strengthen the mutual interest between the EU and India.
