The Illusion of Leverage: The US-India Oil Deal and American Economic Statecraft

Modi and Trump Meet in the Oval Office (Via AP News)

In February 2026, the Trump administration announced a landmark trade arrangement with India, framing it as a decisive use of American economic power: tariffs would be reduced in exchange for India curtailing its purchases of Russian crude oil. On the surface, this looked like a masterstroke of economic statecraft — Washington using market access as a weapon to starve Moscow's war machine. But beneath the headline, the deal is riddled with ambiguities, legal vulnerabilities, and strategic inconsistencies that expose deep structural weaknesses in how the United States wields economic power. Far from a model to be replicated, the US-India oil deal may be remembered as a cautionary tale about mistaking tactical maneuvering for durable geopolitical leverage.

            The appeal of the deal was straightforward. Russia's war in Ukraine depends heavily on oil revenues, and India had emerged as one of Moscow's largest customers after Western sanctions redirected Russian crude away from Europe. By threatening tariffs on Indian goods and then offering to remove them in exchange for reduced Russian oil purchases, the US attempted to use its enormous consumer market as a lever to reshape India's energy behavior.

The national security logic is sound in principle. Every barrel of Russian oil that India stops buying is revenue denied to the Kremlin, weakening its capacity to sustain a prolonged conflict in Ukraine and fund broader destabilization efforts in Eastern Europe. For the United States, which has committed billions in military and economic aid to Ukraine, pressuring partners to close Moscow's revenue loopholes is a legitimate and necessary component of a comprehensive strategy. The deal also carried a secondary benefit: deepening the US-India trade relationship as a counterweight to China's economic influence in the Indo-Pacific.

The problem is that the deal's substance is far less solid than its framing. After the deal was announced, India's Ministry of External Affairs declined to confirm any commitment to halt Russian oil imports, stating only that energy security for 1.4 billion Indians was its "supreme priority," a formulation carefully designed to avoid binding New Delhi to Washington's terms. Even Modi’s response to the tariff cut on X made no mention of ending Russian oil imports. This was not accidental. It reflected India's longstanding doctrine of "strategic autonomy," a foreign policy posture that prioritizes flexibility over alignment. India has historically refused to be locked into any single great power's orbit, and the Modi government has shown no appetite for abandoning that tradition.

The on-the-ground reality confirms this. While India did reduce Russian crude imports significantly, falling to 1.1 million in early 2026, state-owned refiners continued purchasing Russian oil well after the deal was announced. Russia, for its part, stated it had received no formal communication from the Indian government about any policy change. In other words, India made enough of a gesture to secure tariff relief without actually restructuring its energy relationship with Moscow. The US, eager for a win, accepted the terms. The arrangement then unraveled within weeks: the Iran war's closure of the Strait of Hormuz forced Washington to issue India a 30-day sanctions waiver in March 2026, explicitly permitting it to resume purchases of Russian crude — the very behavior the deal had been designed to stop.

Perhaps the most damaging flaw is what the deal reveals about selective enforcement. As India reduced its purchases under US pressure, China's independent refineries simply absorbed the freed-up barrels at steeper discounts, with Chinese imports of Russian crude reaching an all-time high of over 2 million barrels per day in February 2026. By that point, China accounted for 52% of Russia's total fossil fuel export revenues among its top buyers, yet faced no equivalent tariff pressure from Washington. If the principle is that buying Russian oil enables the Kremlin and threatens US national security, that principle must apply consistently. When it does not, partners and adversaries alike conclude that American economic pressure is negotiable and that the right combination of diplomatic flattery and partial compliance can defuse it. That is a deeply corrosive message for a country that depends on the credibility of economic deterrence.

Even setting aside the strategic inconsistencies, a structural legal problem looms over the deal's replicability. The tariffs that gave the US its leverage were imposed under the International Emergency Economic Powers Act (IEEPA). In early 2026, the Supreme Court ruled 6-3 that the power to impose tariffs is constitutionally reserved to Congress unless specifically delegated, curtailing the president's unilateral use of IEEPA for broad tariff measures. The administration pivoted to Section 122 of the Trade Act of 1974, but that authority has never been tested at this scale.

The solution is not to abandon tariff diplomacy but to build more durable architecture around it. The US should pursue multilateral frameworks, through the G7 or the Quad, that carry greater legitimacy than bilateral deals and are harder to defuse with partial compliance. It should replace vague tariff-extracted commitments with binding USMCA-style agreements that create structural incentives for energy diversification. And above all, it must address the China inconsistency. As long as Beijing can absorb every barrel India stops buying, pressuring New Delhi alone does not meaningfully reduce Moscow's revenues, and allowing Beijing a free pass destroys the policy's credibility entirely.

The US-India oil deal is not without value. It deepened the bilateral trade relationship and demonstrated creative use of economic tools in service of national security objectives. But it also illustrated the limits of transactional diplomacy when the underlying architecture is legally fragile, strategically inconsistent, and dependent on partners with no intention of fully complying. Real economic statecraft requires consistency, legal durability, and institutional depth. Until the United States builds that architecture, deals like this one will continue to look stronger from the outside than they actually are.