How India can counter the Graham Act

Source: The post “How India can counter the Graham Act” has been created based on “How India can counter the Graham Act” published in “Business Line” on 23rd September 2026.

UPSC Syllabus: GS-3- Economy 

Context: India faces a dual challenge of high dependence on Russian crude oil and significant dependence on the US export market. The Graham Act, which authorises tariffs of up to 100% on the five largest importers of Russian oil and gas, can therefore create pressure on India’s external sector.

Introduction

Graham act is a U.S. law aimed at increasing economic pressure on Russia and Iran. It strengthens sanctions targeting Russia’s political, financial, energy and commercial networks. Although it does not specifically name India or China, its provisions can affect major buyers of Russian energy, including India and China.

Major Provisions and Their Implications for India 

1. The Act allows the U.S. President to impose tariffs of up to 100% on imports from major purchasers of Russian crude oil or natural gas. If applied to India, this could make Indian exports such as textiles, electronics and engineering goods more expensive in the U.S. market.
2. The Act targets Russia’s “Shadow Fleet” and other entities involved in transporting Russian oil and evading sanctions. This could make the purchase, transportation and insurance of Russian crude more difficult or costly for Indian companies.
3. The Act provides conditional exemptions for countries that meet specified requirements relating to Russian natural-gas imports. This may provide some flexibility to countries that are taking significant steps to reduce their dependence on Russian gas.
4. The Act authorizes tariffs of up to 500% on certain Russian-origin goods. This is intended to increase economic pressure on Russia and could indirectly affect global trade and energy markets.

India’s major vulnerabilities

1. High dependence on Russian crude: India imports over 88% of its crude oil. In July 2026, Russia accounted for 51.1% of India’s crude imports, worth $7.27 billion.
2. Limited diversification so far: In FY26, India imported $40.82 billion of Russian crude, compared with only $9.87 billion of US oil, showing the continuing dependence on Russia.
3. Exposure to the US market: India’s merchandise exports to the US reached $87.31 billion in FY26, accounting for 19.78% of total exports and generating a bilateral surplus of $33.86 billion.
4. Threat to export sectors: Major exports to the US include electrical machinery, pharmaceuticals, nuclear reactors, gems and jewellery, and minerals. Higher tariffs could therefore affect several important sectors.
5. Pressure on the external account: India’s merchandise trade deficit widened to $86.1 billion in Q1 FY27. A fall in exports could further widen the deficit and put pressure on the current account.
6. Oil-price vulnerability: Brent crude crossed $100 per barrel, while India’s crude basket reached $113.91. The oil and gas import bill rose 36.5% year-on-year to over $60 billion during April-August 2026.
7. Rupee and reserves pressure: The rupee touched ₹96.84 per dollar, while foreign-exchange reserves stood at $785.7 billion. However, a substantial part of the recent increase came from a concessional swap window involving over $136 billion in borrowed foreign-currency deposits.

Way Forward

1. Conclude the India-US bilateral trade agreement quickly with preferential rather than merely reciprocal tariff arrangements.
2. Diversify crude sources substantially to reduce excessive dependence on Russian oil and qualify for the Act’s provision relating to significant diversification.
3. Strengthen genuine foreign-exchange earnings so that the reserve cushion is supported by sustainable external surpluses rather than borrowing-based inflows.
4. Diversify export markets beyond the US to reduce concentration risk and protect Indian exporters from future tariff shocks.
5. Maintain diplomatic engagement with the US while pursuing energy diversification rather than relying on Washington’s discretion.

Conclusion: India’s objective should be to reduce excessive dependence on any single source of energy or export market. A combination of energy diversification, a stable India-US trade arrangement, stronger external-sector resilience and wider export markets can enhance India’s strategic autonomy.

Question: The increasing dependence of India on Russian crude and the possibility of higher US tariffs pose challenges to India’s external sector. In this context, discuss the vulnerabilities created by such dependence and suggest measures India can adopt to safeguard its economic interests. 

Source: Business Line