Tariffs as Sanction Enforcement in the US-India Deal

Strip away the ‘win-win’ optics and the US-India trade framework established on February 6 looks like an experiment in enforcement: market access conditioned on sanctions compliance. In an executive order issued the same day, Washington terminated the 25% tariff surcharge imposed in 2025 over India’s direct or indirect imports of Russian oil, but instructed US agencies to monitor any resumption and to recommend whether to reimpose the duty if New Delhi backslides. For India, the mechanism’s credibility now turns on a hard trade-off: replacing discounted Russian barrels without damaging relations with Moscow or absorbing politically costly domestic adjustment.

What Happened

Washington and New Delhi are presenting the latest US-India tariff rollback as a bilateral trade reset. The interim framework approved by President Trump and Prime Minister Modi puts a stop to months of tariff escalation. At first sight, the headline writes itself: the U.S. and India reduced existing duties, laid the path toward a broader agreement, and expanded market access for their firms. But the real story is much less flashy.

The US termination of the additional 25 percent slapped on Indian exports in August 2025 remains conditional on India’s commitment to stop ‘directly or indirectly’ importing Russian oil. With the stroke of a pen, the U.S. got India to underwrite the first success of the Trump administration’s ‘secondary tariffs.’ In President Trump’s own words, secondary tariffs are the tool that makes trade ‘great for settling wars.’ However, in India’s case they are being repurposed to remedy failures in sanctions-enforcement by putting pressure on the sanctioned state’s supply chains and trade partners. The Trump White House positioned tariffs as a uniquely effective compliance tool because they are broad-based, fast to apply, and politically legible: pain is immediate and measurable at the border.

Tariffs Repurposed as Sanctions Enforcement

The mechanism behind secondary tariffs is straightforward: lower import duties are turned into a compliance bond. Access to the US market becomes conditional on supply-chain alignment with US sanction regimes, and the ‘additional tariff’ returns if the partner’s behavior is detrimental to (or not supportive enough of) Washington’s objectives. In India’s case, executive order 14384 ‘modifies’ the additional 25% duty by simultaneously instructing the Department of Commerce to implement a tit-for-tat logic that ties lower tariffs to India not resuming ‘directly or indirectly importing Russian Federation oil.’

The reason why secondary tariffs are attractive to US policymakers is administrative as much as strategic: they promise a simpler enforcement surface than conventional secondary sanctions. Conventional and ‘smart’ secondary sanctions typically work by threatening third-country firms and banks with loss of access to the US financial system, effectively deputizing private intermediaries as gatekeepers. In practice, that model depends on designation lists and screening, formal sanctions compliance programs, investigative work, and an enforcement pipeline that culminates in settlements or civil penalties.

Secondary tariffs simplify the procedure, streamline the implementation, and deliver a plain-text message by shifting the locus of enforcement from the financial system to US customs. The tariffs act as an immediate price shock that reduces the competitiveness of the targeted partner’s exports and forces domestic authorities to consider policing the conduct that triggers reimposition. In other words, secondary tariffs externalize sanction-enforcement costs. Each country trading with the U.S. has an incentive to prevent domestic economic agents from triggering retaliatory tariffs that would impose broad-based economic pain.

In theory, the deterrent effect rises with a partner’s dependence on US market access, but the long-run viability of ‘secondary tariffs’ rests on two harder conditions. First, whether Washington can credibly ‘monitor’ another country’s trade. This holds especially true for detecting indirect as well as direct imports of Russian oil because origin can be obscured through deceptive shipping practices (including AIS spoofing and ship-to-ship transfers), title transfer, and blending. Second, whether Washington will reimpose the duties in case of non-compliance even though the decision remains discretionary and therefore political. That credibility may be highest under the current administration, but it is bound to come be questioned after the 2028 election with a new president in the White House.

Using data from Keplr, a data-analytics firm, the change in India’s crude mix provides mixed evidence. On the one hand, it demonstrates that, regardless of the discounts, Russian oil is not an immovable object. However, it does not prove that US secondary tariffs are an irresistible force.

The ‘Immovable Object’ of Russian Oil

Looking closer at the numbers, monthly crude-oil imports from Russia have gone through three distinct phases since 2019. First, until 2021, Russia’s market share was minimal, with an average of about 100,000 barrels per day (bpd); or just 2.4% of the roughly 4.13 million bpd India imported. At that point, the import mix was dominated by Iraq and Gulf suppliers, with several minor suppliers.

After Russia’s full-scale invasion of Ukraine and the joint EU-US sanctions in 2022, Russia’s average rises to about 740,000 bpd in 2022 (jumping to a 16% market share) and to 1.79 million bpd in 2023 (nearly 39% of total imports). The EU’s embargo on Russian oil in December 2022 drove Russia’s exports upwards, peaking at 2.15 million bpd (46% of total arrivals) in May 2023. Russian crude replaced imports from minor producers (-19% between 2021 and 2023) and, to a lesser extent, US-origin crude (which halved in volume).

Since mid-2025, Indian refiners have already demonstrated that Russian intake is adjustable. Russia-origin crude fell from roughly 2.1 million bpd in mid-2025 (about 45% of the total) to just 1.16 million bpd in January 2026. This nearly one million bpd contraction in just seven months is the empirical reason Russian oil is not an ‘immovable object’ in India’s import basket.

The ‘Irresistible Force’ of Secondary Tariffs

The decline in crude imports from Russia since late 2025 does not alone demonstrate that secondary tariffs are a viable sanctions-enforcement tool. The same trend is consistent with several overlapping drivers, and a reversal in those variables could weaken the marginal deterrent effect of US secondary-tariff conditionality.

The first of these drivers is that Russian crude is sold to India at a variable discount that depends on Russia’s access to higher-margin markets. Even after the EU’s seaborne crude ban, Russia kept providing crude to Slovakia and Hungary through the ‘Druzhba’ pipeline that is refined by the Hungarian oil company MOL. Continued access to those markets affects how aggressively Russia must price barrels into other markets, including India. In mid-2025, estimates put Indian refiners’ discount on Russian crude in the range of one to three dollars per barrel. As the price of similar crude grades from alternative sources fell in 2025, the economic case for maximizing Russian intake weakened at the margin. With a more cooperative government likely to win the elections in Hungary and the EU ratcheting the pressure on Slovakia, Russian exporters may start offering stronger discounts to place larger volumes with Asian customers.

Second, even without a formal embargo, firms price regulatory and reputational risk into freight, insurance, financing, and counterparty selection. Some buyers will reduce exposure simply to avoid the tail risk as the perceived probability of punitive action rises due to US trade measures, tighter documentation scrutiny, and stricter sanction enforcement. However, Russian exporters are assuring Indian importers that new title-transfer strategies will be effective sanction-busting and monitoring- evasion tools.

Third, crude substitution is constrained by refinery economics and downstream export markets. Venezuelan grades such as Merey 16 and Boscán are extra-heavy and can carry materially higher processing costs, even for comparatively well-equipped refineries such as India’s. However, Russia’s medium and light varieties of crude (Urals Blend, Siberian Light, and the Eastern Siberia-Pacific) are refined and directly exported to Europe rather than burnt locally. The hard currency brought into India’s coffers by those sales has played no small role in propping the value of the rupee, rendering Russian oil key to the ‘petro-rupee’ model. Yet this arbitrage that made discounted Russian crude attractive has also become riskier given that the EU prohibited imports of refined petroleum products derived from Russian-origin crude in January 2026 and imposed heavier documentation burdens for third-country exporters.

This is precisely why secondary tariffs are not an ‘irresistible force’ on their own. To ensure India’s compliance is sustainable, Washington may need to pair the tariff threat with credible supply alternatives. Recent reporting that the US is leveraging its intent to ‘run’ Venezuela oil reserves to grant the Indian company Reliance a trade license illustrates what such a ‘carrot’ could look like.

A First-Hand Account of Indian Refiners’ Options

A Shanghai-based shipbroker with knowledge of crude trade in Asia, who requested anonymity due to ongoing transactions, said compliance is unlikely to be binary in practice: ‘I’d watch not just total Russian arrivals, but which Indian buyers keep lifting, and whether discharges concentrate into a smaller set of ports and refineries.’ That pattern is already visible in reported buyer concentration: state refiners and Nayara remained active buyers of Russian in January 2026, while the holder of a new US-issued import license for Venezuelan oil, Reliance, stepped back.

The broker argued that the India case could become a template ‘where flows can be tracked […] oil is not even the easiest to audit.’ That is plausible in principle, but extension to other cases is contingent on India’s cooperation: the secondary-tariff model relies on reliable measurement and credible willingness to reimpose duties. Where auditability is low (as for oil) and the political cost of reimposition is high (e.g., long-time allies), retaliation could appear more as a negotiating tactic than a decisive threat.

Takeaways

The US-India interim framework on secondary tariffs is less the epilogue to a short trade dispute than a trial by fire for tariff conditionality as a sanctions-enforcement instrument. The tariff rollback is structured as conditional market access in exchange for supply-chain alignment.

Whether ‘secondary tariffs’ succeed to keep India in line will depend on two credibility tests. On the one hand, India must demonstrate that imports of Russian crude can be steadily reduced from their 2023 peak despite increasing discounts and domestic political constraints. On the other, the U.S. must demonstrate it can detect indirect flows and will retaliate quickly but proportionately once violations are proven. That is difficult in oil markets where origin can be obscured through routing, documentation games, and deceptive shipping practices that enforcement agencies themselves have flagged. If Washington wants this model to outlast the current moment, it will likely need to pair the tariff threat with a credible supply-side ‘carrot.’ Alternatives such as licenses that expand legal access to cheaper Venezuelan crude can be such a policy lever, but US ‘control’ over Venezuela reserves may also come into question once a new administration enters the White House.

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