President Trump’s threat of a 25 per cent tariff as secondary sanctions on oil imports from Venezuela and trade with Iran heightens economic pressure on both regimes. This move disrupts global oil trade, impacting major buyers like India, China, Italy and others, forcing them to reassess energy security and trade strategies.
US secondary sanctions are punitive economic measures targeting third-party nations, entities, or individuals engaging with sanctioned regimes. Unlike primary sanctions, which restrict US entities directly, secondary sanctions deter foreign actors by threatening their access to the US financial system and markets. Such coercive economic diplomacy affects India’s orderly economic rise, necessitating a strategic response.
Legal framework
US secondary sanctions derive authority from legislative acts and executive orders aimed at discouraging foreign engagements that challenge its global hegemony. The International Emergency Economic Powers Act, 1977 grants the US President broad authority to impose economic restrictions on entities deemed national security threats. Likewise, the CAATSA, 2017 penalises defence and energy-related dealings with Russia, Iran, and North Korea, requiring India to seek a waiver for its S-400 missile system acquisition.
Other laws include the Iran Sanctions Act, 1996, renewed 2016, penalising foreign firms investing in Iran’s energy sector, impacting India’s crude imports and the Chabahar Port project. The Global Magnitsky Act (2016) extends penalties to foreign individuals involved in corruption and human rights violations. Similarly, the National Defense Authorization Act (NDAA) restricts military cooperation with adversaries, while the Trading with the Enemy Act (1917) historically targeted Cuba and North Korea with minimal impact on India.
Executive Orders (EOs) issued by the US President refine and expand sanctions, affecting Indian firms trading with Russia or Iran. Enforcement is led by the Office of Foreign Assets Control (OFAC) under the US Treasury, maintaining the Specially Designated Nationals (SDN) List. The Bureau of Industry and Security (BIS) under the US Commerce Department enforces export controls, limiting Indian firms’ access to advanced technology when engaging with sanctioned entities.
Additionally, the State Department oversees CAATSA waivers and sanctions diplomacy, while the Financial Crimes Enforcement Network (FinCEN) monitors financial transactions to ensure compliance by Indian banks. The Department of Justice (DOJ) prosecutes violations, reinforcing India’s need for strategic manoeuvring.
India-specific cases
India has frequently faced secondary sanctions due to engagements with Russia, Iran, and Venezuela, affecting defence procurement, energy security, and financial transactions. For instance, the CAATSA-linked S-400 Deal (2018-Present) is a key case. Despite US warnings, India proceeded with the Russian S-400 missile system purchase citing the China threat. While Turkey faced CAATSA penalties for a similar transaction, the US has refrained from sanctioning India, recognising its strategic value. However, the risk remains given the unpredictability of US policy.
In the Iranian Oil Imports (Pre-2019) scenario, India was a major buyer under the JCPOA framework. When the Trump administration reimposed sanctions in 2018, India ceased Iranian oil imports in 2019 to avoid financial restrictions, demonstrate closeness to President Trump’s polices, however losing a competitive crude supply option in terms of logistics, cost, and time.
The Chabahar Port Project (2016-Present) highlights India’s delicate balancing act. Investments in the Iranian port aimed to enhance connectivity with Afghanistan and Central Asia, with India scaling up efforts through a 10-year operational deal. Limited US waivers recognised its strategic relevance, yet broader sanctions hindered Indian investments in crucial infrastructure like gantry cranes and platform terminals.
Given India-Russia strategic cooperation in defence, there remain concerns with continued large-scale procurements, including fighter jets, frigates, and spare parts. While India is diversifying its defence imports, the spectre of sanctions persists for future procurements like the SU-57, advanced radar systems, and missile technology.
Regarding Venezuelan Crude Oil Purchases (2019), Indian refiners sourced oil despite US sanctions on Maduro’s regime. Mounting pressure forced India to curtail imports, limiting its crude sourcing flexibility, however Indian firms availed exemption from previous regime with intense diplomatic parleys. Since the Ukraine War (2022-Present), India has increased Russian crude oil imports while using alternative currencies like the rupee-rouble mechanism, drawing US scrutiny. While the US has refrained from penalising India, developments remain closely monitored.
Lastly, Huawei & Chinese Tech Restrictions (2019-Present) underscore the impact of secondary sanctions on India’s technology policy. US measures against Chinese telecom firms prompted India to exclude Huawei from its 5G rollout while maintaining a guarded stance towards China.
Way forward
India must be cautious but not overly constrained by secondary sanctions, as they can restrict financial and trade options, escalate transaction costs, and impede technological access in India’s orderly economic rise as the geopolitical weight grants it manoeuvrability beyond what smaller economies possess to deal with secondary sanctions.
New Delhi has successfully negotiated waivers in critical areas, such as the Chabahar Port and the S-400 deal, underscoring its diplomatic acumen. Rather than perceiving sanctions as insurmountable hurdles, India should continue leveraging strategic partnerships with the US, Europe, and Russia while fortifying domestic capabilities to mitigate vulnerabilities.
Diversifying energy imports, expanding trade partnerships, and strengthening indigenous defence and technology sectors will insulate India from external economic coercion. A key approach involves financial de-dollarisation and digitalisation via Central Bank Digital Currencies (CBDCs), expanding rupee-based trade settlements and engaging in alternative currency mechanisms with key partners.
India’s diplomatic leverage, seen in past exemptions, underscores its strategic strength. Diversifying trade and energy partnerships reduces reliance on sanctioned entities, enhancing resilience. Strengthening domestic industries, especially in defence and technology, minimises external pressures and bolsters strategic autonomy. Moreover, it is important to balance independence with pragmatic diplomacy and correspondingly we must adopt a multi-pronged approach, leveraging negotiations, trade flexibility, and institutional countermeasures. Secondary sanctions present challenges, but with astute planning and assertive policies, India’s economic and geopolitical rise will remain on course.
Ram is Professor and Head, and Dhriti is Ph.D scholar, IIFT New Delhi. Views are personal
