US Senate has passed Lindsey O. Graham Sanctioning Russia and Iran Act, 2026, authorising tariffs up to 100% on countries among five largest importers of Russian crude or gas if they knowingly purchase after enactment. House approval pending, but implications for India are serious.
The Russian oil dilemma: India diversified energy to reduce import bill and gain strategic leverage. Before Russia-Ukraine war, Russian crude was 2% of imports; now roughly half. In 2026 alone, imports nearly doubled from 4.54 MMT in January to 8.96 MMT in May. Cheap Russian oil saved India $8 billion in 2023-24, but carries diplomatic cost with US.
On July 24, before bill, US imposed forced-labour tariffs on 60 countries, including India, under Section 301 of Trade Act 1974, adding 10% duty replacing expired 10% under Section 122. If Russia Sanctions Act becomes law, India's cumulative tariff could reach 110%, making it most heavily tariffed. China could face 112.5%. Both are major Russian oil buyers.
GTAP simulation results: Two scenarios modelled. Sanction scenario - 110% US tariff on India, 112.5% on China. Welfare for India falls by $47 billion, GDP, output, domestic demand, exports, imports all contract. Aggregate exports fall 5.1%, imports 5.2%, reflecting disrupted trade and weaker economic activity.
Diversification scenario: Same tariffs but India pursues export diversification, proxied by full India-EU FTA. Picture flips. Welfare improves by $26.3 billion, GDP turns positive, sectoral output up 1.2%, domestic demand recovers by 1%. Exports rise 3.1%, imports rise moderate 2.6%, indicating stronger production and trade integration with alternative markets.
Lesson: even if India continues buying Russian oil for energy security, adverse effects of US tariffs can be mitigated largely through export diversification. India-EU FTA as proxy shows India must look beyond US and expand in alternative markets. But diversification needs domestic reforms - trade facilitation, non-tariff barrier removal, logistics, standards and moving up quality ladder. Otherwise resilience will remain limited.