What Happened
- An analysis by SBI Capital Markets (SBICaps) noted that the India-US interim trade deal will boost Indian exports through the reduced 18% reciprocal tariff, but flagged concerns over rising energy and metals import costs.
- The deal framework involves India purchasing $500 billion worth of US energy products, aircraft, precious metals, technology products, and coking coal over five years.
- The US has claimed India committed to reducing purchases of Russian oil and increasing procurement from the US and Venezuela, though Indian officials characterised energy purchases as "strategic decisions, not trade pact obligations."
- Shifting from discounted Russian crude to higher-priced US crude raises concerns about widening India's Current Account Deficit (CAD), given India's 88.2% oil import dependence.
- Indian refineries are predominantly configured for medium-sour crude grades (typical of Russian and Middle Eastern oil), while US crude is largely light-sweet — necessitating refinery adjustments or blending strategies.
Static Topic Bridges
India's Crude Oil Import Structure and Energy Security
India is the world's third-largest oil consumer and importer, with crude oil imports constituting the single largest item on India's import bill. Energy security is a critical strategic concern, with India's domestic crude production meeting only about 12% of demand.
- India's oil import dependence: approximately 88.2% (2024-25)
- Russia became India's top crude oil supplier from 2022 onwards after the Ukraine conflict, offering deep discounts (Urals crude priced $5-15 below Brent); Russia supplied approximately 36-40% of India's crude imports by volume in 2024-25
- US crude oil (WTI-linked, light-sweet) is more expensive than Russian Urals (medium-sour) and involves higher freight costs for India
- Indian refineries (Jamnagar, Vadinar, Paradip, Mangalore, Vizag) are largely configured for medium-sour crude from West Asia and Russia; switching to light-sweet US crude requires blending or refinery reconfiguration
- India's Strategic Petroleum Reserves: three facilities at Visakhapatnam (1.33 MMT), Mangalore (1.5 MMT), and Padur (2.5 MMT), totalling 5.33 MMT — approximately 9.5 days of consumption
- Administered by Indian Strategic Petroleum Reserves Limited (ISPRL), a subsidiary of the Oil Industry Development Board (OIDB)
Connection to this news: Any shift from discounted Russian crude to higher-priced US imports would directly impact India's import bill and CAD, while the refinery compatibility issue adds technical costs — making the $500 billion energy purchase commitment economically challenging.
Current Account Deficit (CAD) and India's External Sector
India's Current Account Deficit (CAD) — the excess of imports of goods and services over exports plus net income and transfer payments — is a key macroeconomic indicator. A widening CAD puts pressure on the rupee, depletes forex reserves, and can trigger capital outflow concerns.
- India's CAD (FY 2024-25): approximately 1.1-1.2% of GDP, considered manageable
- Oil imports constitute approximately 25-28% of India's total import bill; every $10/barrel increase in oil prices widens CAD by approximately 0.4% of GDP
- India's foreign exchange reserves: approximately $630-640 billion (February 2026), providing approximately 10 months of import cover
- The RBI manages CAD through forex intervention, interest rate adjustments, and capital flow management
- Historical precedent: In 2013, CAD touched 4.8% of GDP (triggered by high oil prices and gold imports), leading to the "taper tantrum" rupee crisis
- India-US trade: India's merchandise trade surplus with the US (approximately $35-40 billion) has been a US concern; the $500 billion purchase commitment is partly designed to address this imbalance
Connection to this news: The SBICaps analysis highlights a structural tension in the deal — while lower tariffs boost export competitiveness, the energy and metals purchase commitments could widen India's overall trade deficit and CAD if pricing differentials are not managed.
India-US Trade Deal Structure — Interim Agreement vs Comprehensive BTA
The India-US trade deal announced in February 2026 is structured as an Interim Agreement within a broader framework for a comprehensive Bilateral Trade Agreement (BTA). This two-phase approach allows immediate tariff relief while deferring complex issues like agriculture, digital trade, and government procurement to the comprehensive phase.
- Interim Agreement (February 2026): US reciprocal tariff reduced to 18% on Indian goods; India reduces tariffs on select US products
- Zero-duty removal under Interim Agreement: generic pharmaceuticals, gems and diamonds, aircraft parts (subject to successful conclusion)
- $500 billion purchase commitment: energy products, aircraft and parts, precious metals, technology products, coking coal over 5 years
- Comprehensive BTA (under negotiation): launched 13 February 2025 by Trump and Modi; covers IPR, digital trade, labour, environment, government procurement, agriculture
- India's key export sectors benefiting from 18% tariff: textiles and apparel, leather and footwear, plastic and rubber, organic chemicals, machinery, home decor, artisanal products
- Previous US-India trade talks: "Trade Package" negotiations in 2019-20 collapsed without agreement; this is the first formal framework deal
Connection to this news: The SBICaps assessment effectively weighs the export gains from the 18% tariff (versus the threatened 50%) against the import cost increases from energy procurement commitments, concluding that the net balance depends on implementation details and pricing.
Key Facts & Data
- US reciprocal tariff on Indian goods: 18% (reduced from threatened 50%)
- India's $500 billion purchase commitment: energy, aircraft, precious metals, tech, coking coal over 5 years
- India's oil import dependence: approximately 88.2%
- Russia's share of India's crude imports: approximately 36-40% by volume (2024-25)
- India's CAD (FY 2024-25): approximately 1.1-1.2% of GDP
- India's forex reserves: approximately $630-640 billion (February 2026)
- India-US bilateral goods trade: approximately $129 billion (FY 2024-25)
- India's Strategic Petroleum Reserves: 5.33 MMT total (Vizag, Mangalore, Padur)
- Every $10/barrel oil price increase widens CAD by approximately 0.4% of GDP