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U.S. President Donald Trump meets with Indian Prime Minister Narendra Modi in the Oval Office of the White House in Washington, DC, on Feb. 13, 2025.
Jim Watson | Afp | Getty Images
This report is from this week's CNBC's "Inside India" newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse. Subscribe here.
The big story
A couple of weeks ago, I interviewed India's Petroleum and Natural Gas Minister Hardeep Singh Puri at Energy Week in Goa, India. I was probing, trying to get a former diplomat of 50 years to give me a straight answer on why a U.S.-India trade deal was proving so elusive.
"I'm not trying to dodge you," said Puri, repeating once again that discussions were "at a very advanced stage."
Six days later, U.S. President Donald Trump announced a truce.
On Feb. 2, Trump removed the 25% additional penalty imposed for buying Russian oil, claiming that India had committed to stop these purchases. This claim wasn't reiterated by India's Prime Minister Narendra Modi in his post on X, however, and nor was it mentioned in the joint statement issued by the two nations.
But it marked a much-needed reset.
The relationship had hit a low point, said Vasuki Shastry, a senior advisor to geostrategic advisory firm Gatehouse. "They're trying to desperately reset. India wants stability, the U.S. doesn't want to lose India. This is the halfway house solution, the off-ramp for both."
Audacity of opacity
In all the months since Trump shocked India by imposing the penalty for purchasing Russian oil, the nation didn't stop buying, nor did it say it would.
India imports 85-90% of its crude oil. Pre-Covid, India wasn't importing much from Russia, but the purchases ramped up nearly 40% following the Ukraine war, primarily due to the discount on offer.
Post Trump's 25% penalty, particularly in the past two months, that number has been inching downwards toward the 20% mark, according to data and analytics firm Kpler.
In the nine days since Trump's claim, neither India's Commerce Minister Piyush Goyal nor the Foreign Ministry has confirmed it. Foreign Secretary Vikram Misri said India's energy policy would be determined as always by availability and pricing considerations.
Shastry told me that energy is a national security issue and the Foreign Ministry statement was "absolutely on target."
And then came another reveal: the U.S. revising its fact sheet on the trade deal.
It removed "pulses" from a list of products it said India would reduce or remove tariffs on, and replaced the word "committed" to say that India "intends" to make $500 billion worth of purchases from the U.S. over five years in the agreement.
Talk about collaborative narrative management.
It's this audacity of opacity — that a straight answer isn't needed — that has seen observers suggest this is a decision to remain "strategically ambiguous."
"This is the best way for India," said the former Indian trade negotiator and founder of Global Trade Research Initiative, Ajay Srivastava.
Shastry goes one step further. He believes India and the U.S. have together made the trade-off: let us be labelled opaque rather than losing face.
"There was an urgency in Washington since India concluded the mother of all deals [with the EU]. The real question is what is the actual understanding between the U.S. and India," he said.
It's notable that India and the U.S. have only struck an interim deal so far. The negotiations for the full bilateral trade agreement are yet to be completed. Goyal told Indian reporters: "A formal agreement on this deal will take 30-45 days and will be signed in March."
It's unclear, however, what India's silence on buying Russian oil means for these negotiations. Will it be the elephant in the room with the potential to crush the negotiating table?
"There must be some understanding on this, an internal decision that is not being conveyed," Srivastava said.
The Russia riddle
The possibility of backchannel talks with Russia also cannot be dismissed. India's historic dependence on Russia for its defence needs cannot be overstated.
Shortly after Trump's executive order that India had "committed to stop directly or indirectly importing Russian Federation oil," the Kremlin's spokesperson chimed in to say, "we haven't heard any statements from Delhi on this matter yet."
It brought to mind the famous quote by former British Prime Minister Winston Churchill about Russia: "a riddle, wrapped in a mystery, inside an enigma."
So can Russia ever be counted out?
"I don't see India stopping to buy Russian oil," said Sumit Ritolia, lead research analyst at Kpler. "Flows will continue, but we won't see a level of 2 million barrels per day, or 40%. It will slowly move from the 20% or so it is now to 15% and I don't see it going lower than that."
He argues that the Indian refiner Nayara Energy, in particular, will continue buying Russian oil. It is majority-owned by Russian entities, including the U.S.-sanctioned Rosneft.
Oil prices
For now, the markets are happy there is a deal, says Vivek Sharma, head of international business at Nuvama Asset Services & Nuvama Private.
"The politics might be consuming the narrative, but it'll die down. India's been smart to remain ambiguous, remaining aligned with the U.S., without jeopardising its relationship with Russia."
Sharma said that as the cost of oil is likely to keep falling or remain low, India will be able to reduce its share of Russian oil — all while saying it is following market forces rather than a U.S. diktat.
Kpler's Ritolia believes the decline in India's Russian oil purchases won't have much of an impact on its import bill or global oil prices because a "trade shuffle" will occur.
"China will buy that Russian oil which India won't, and for that it will have to let go of some other market, maybe The Middle East, which India would buy from. The Dubai pricing complex will get a bit of a premium."
The larger concern for the oil market, analysts say, is the possibility of a U.S. and Iran conflict.
Top TV picks on CNBC
Sham Arora, chief technology officer at Tech Mahindra, talks about India's AI ambitions and explores the options for labor and language in the country. He says India will continue to be an AI talent factory.
Feroze Azeez of Anand Rathi weighs in on India's equity fund flows. According to industry data, Gold ETFs attracted more money than equities. Azeez says many HNIs chased a metals rally and fell for a "FOMO trap."
Aberdeen's James Thom says India's U.S. trade deal lifts a key overhang, improving sentiment after months of underperformance. He sees easier liquidity, stable policy and stronger earnings supporting a market recovery.
Need to know
India's central bank on Friday kept its policy rates steady, as trade deals with the E.U. and the U.S. are set to support the world's fastest-growing large economy. "Successful completion of trade deals augurs well" for overall economic outlook, said Sanjay Malhotra, governor of the Reserve Bank of India.
New Delhi is ready to place orders worth up to $80 billion for Boeing planes, India's Commerce and Industry Minister Piyush Goyal said, signaling the country's willingness to expand trade with the U.S.
Quote of the week
I think the government has done well to protect the import of soybean and maize, because these are the two commodities which the U.S. was exporting to China in very large quantity.
— Siraj Hussain, former agriculture secretary of India
In the markets
Indian stocks slid amid mixed trading in the region on Thursday. The Nifty 50 declined 0.4%, breaking a four-session winning streak. The index is down more than 1% so far this year.
The benchmark 10-year Indian government bond yield ticked up slightly to around 6.709%.
The rupee strengthened 0.16% to 90.58 against the dollar. The currency has weakened around 0.8% against the greenback since the start of the year.
Coming up
Feb. 16: Wholesale inflation data, unemployment rate
Feb. 12 -16: Marushika Tech IPO
Feb 16 -18: Fractal Industries IPO
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