A War Room for India in an Age of Sanctions

UPSC Syllabus: Gs Paper 2- International relations

Introduction: A War Room for India in an Age of Sanctions

Economic sanctions are no longer limited to foreign policy; they can affect banks, shipping, energy supplies, trade and households. The latest U.S. sanctions and tariff measures show how India’s dependence on global financial and maritime networks can turn external pressure into domestic economic risks. India therefore needs a coordinated response that connects diplomacy, finance, trade, energy, shipping and law.

America’s New Sanctions and Tariff Push

1. 100% tariff authority: The U.S. House passed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 by 262–159, sending it to President Trump.
2. Targeting Russian energy buyers: The Act gives the President power to impose up to 100% tariffs on countries buying Russian crude oil or natural gas.
3. Wider sanctions framework: The legislation also targets Russian leadership, energy networks, banks and vessels involved in sanctions evasion, while adding measures against Iran.
4. Five-year tariff power: The additional tariff authority against energy-importing countries would remain available for five years, increasing uncertainty for countries dependent on Russian energy.
5. Iran-related pressure: Washington has separately expanded sanctions across digital assets, technology, gold, aviation and shipping, widening pressure beyond direct oil transactions.
6. Sanctions beyond sellers: Modern U.S. restrictions increasingly target tankers, insurers, ship managers, traders and financial institutions, making entire transactions vulnerable to disruption.
7. Indian companies already targeted: Washington sanctioned four India-based companies and three Indian nationalsover alleged trade in Iranian oil and petrochemicals.

Why India Is Directly Exposed

1. Russian crude dependence: India imported $40.8 billion of Russian crude in FY2026, equal to 30.3% of total crude imports worth $134.7 billion.
2. Rising dependence: By July 2026, Russian crude accounted for 51% of India’s imported crude, increasing India’s exposure to possible U.S. action.
3. Export vulnerability: Higher U.S. tariffs could affect Indian exporters because the U.S. is an important destination for Indian goods, creating risks for trade recovery.
4. Energy-security pressure: Reducing Russian oil purchases could create adjustment pressures because India must simultaneously protect affordable energy supplies and stable domestic consumption.
5. Iran-linked exposure: U.S. sanctions on Indian companies and nationals over alleged Iranian oil and petrochemical trade show that Indian businesses can also face direct sanctions risks.
6. Shipping exposure: Iran’s Persian Gulf Strait Authority listed 45 vessels initially and 77 by September 14, including vessels serving or registered in India.

How Sanctions Travel from Global Networks to Indian Households

1. Weaponised interdependence: Control over critical financial, insurance or transport networks allows one country to pressure businesses that depend on those networks.
2. Dollar-payment chokepoint: An Indian company may follow Indian law but still depend on an American bank and dollar-payment system, creating additional sanctions risks.
3. Insurance chokepoint: Foreign insurers can become another pressure point because Iran warned insurers against covering vessels on its non-compliant list.
4. Hormuz chokepoint: Restrictions around the Strait of Hormuz can affect shipping even when the original dispute concerns sanctions or trade.
5. Domestic transmission: Disruption can move from international transactions to fuel supplies, LPG availability, farmers, seafarers and household kitchens, linking foreign policy with daily economic life.
6. Crisis coordination: During the West Asia crisis, India coordinated Ministries, monitored vessels and supplies, increased LPG production and arranged alternative cargoes to keep supplies moving.

India’s Strategic Choices in the Face of Sanctions

1. Diversify energy sources: India can reduce concentration risks by securing alternative crude and LNG supplies, including long-term LNG contracts outside Hormuz.
2. Build LPG resilience: Greater LPG storage capacity can provide more protection when external disruptions threaten regular supplies.
3. Expand Indian shipping: A larger Indian-controlled tanker fleet can reduce dependence on foreign shipping capacity during sanctions or maritime disruptions.
4. Strengthen maritime insurance: A stronger Bharat Maritime Insurance Pool can improve domestic capacity when foreign insurers become unwilling to cover vulnerable vessels.
5. Use rupee settlement: Rupee settlement can support lawful trade where sellers accept it, but it cannot protect transactions involving banks that still depend on New York.
6. Protect lawful trade: India needs to preserve energy security, fertiliser supplies, seafarer interests and lawful trade while maintaining relations with the U.S., Russia, Iran and Gulf countries.

Why India Cannot Simply Follow China’s Approach

1. China’s legal position: China has argued that American measures lack a basis in international law or UNSC authorisation.
2. China’s business instructions: Beijing earlier directed Chinese businesses not to recognise, enforce or comply with American sanctions against five Chinese refining companies.
3. India’s position: India recognises UNSC-mandated sanctions but does not accept unilateral sanctions, creating a position that differs from direct compliance with U.S. measures.
4. Different economic capacity: China has greater market power, state-directed economic capacity and leverage over critical supply chains, giving it more room to resist external pressure.
5. India’s U.S. dependence: India’s financial and commercial links with the U.S. make direct replication of China’s approach more costly for Indian businesses.
6. Legal objection is insufficient: Rejecting unilateral sanctions legally does not remove the commercial costs faced by Indian firms through banks, insurers, payments or trade restrictions.
7. Need for balance: India must protect domestic interests while maintaining working relationships with the U.S., Russia, Iran and Gulf countries.

Way Forward

1. Permanent coordination: An Economic Security and Sanctions Office under the Cabinet Secretariat can provide a permanent mechanism for handling economic coercion.
2. Whole-of-government structure: It should bring together foreign policy, finance, commerce, energy, shipping, law, defence, RBI and market regulators.
3. Track the full chain: The office should identify where transactions can fail, covering payment, insurance, shipping, ports and final delivery.
4. Support affected companies: It should provide early warnings when a payment route, insurer or port becomes vulnerable to foreign action.
5. Negotiate exemptions: India should seek evidence behind foreign listings, support legitimate delisting requests and negotiate written exemptions and transition periods.
6. Clear domestic guidance: Banks should distinguish legal prohibitions from commercial caution, while companies should receive clear Indian guidance before sanctions disrupt legitimate transactions.

Conclusion

Sanctions now operate across finance, trade, shipping and energy, making fragmented responses inadequate. India cannot control every international chokepoint, but it can reduce its vulnerability through diversification, domestic capacity and coordination. A permanent economic-security war room can help India to assess the full transaction chain before taking decisions and protect energy security, lawful trade and national interests.

Question for practice:

Examine how the growing use of economic sanctions by the United States can affect India’s economic security and strategic autonomy.

Source: The Hindu