Why in news?

India has consistently opposed unilateral economic sanctions, but has often complied with US-imposed restrictions to avoid fallout.

In the past, Indian refiners stopped importing oil from Iran and Venezuela after the US sanctioned those countries. Now, with new US sanctions on Russian oil giants Rosneft and Lukoil, a similar situation looms.

India avoids dealing with sanctioned entities mainly due to the risk of US secondary sanctions, which could penalize third-party countries or companies doing business with the targeted nations.

What’s in Today’s Article?

• Understanding Secondary Sanctions
• Why Countries Fear US Secondary Sanctions
• Why US Sanctions Matter for India

Understanding Secondary Sanctions

• Secondary sanctions extend beyond the direct targets of US restrictions.
• Primary sanctions stop American citizens and companies from dealing with blacklisted entities (like Rosneft and Lukoil).
• On the other hand, secondary sanctions aim to discourage foreign countries and companies — over whom the US has no legal authority — from engaging with them.
• These measures act as “anti-circumvention tools”, forcing other nations to comply indirectly by threatening penalties.
• Because they apply outside US borders, secondary sanctions are often seen as extraterritorial and questionable under international law.

Why Countries Fear US Secondary Sanctions?

• The US dollar’s dominance in global trade and the central role of the American financial system make US sanctions highly influential worldwide.
• Any company or country engaged in international trade needs access to US markets and banks — losing that access can cripple business.
• Secondary sanctions don’t always impose fines; instead, they block foreign entities from the US financial system if they act against Washington’s foreign policy interests.
• Because of this, India’s refiners and banks are expected to cut back on Russian oil imports, fearing penalties.
• The US Treasury’s warning that secondary sanctions could hit buyers of Russian crude has already had an impact — experts predict an immediate drop in India’s Russian oil imports, which currently account for over 35% of total imports.

Why US Sanctions Matter for India?

• US sanctions carry real weight because they make banks, insurers, and investors cautious, cutting off access to funding and financial systems.
• Most Indian refiners — including Reliance Industries (RIL) and public sector companies — rely heavily on the US market, banking network, and technology partners. Losing that access would seriously impact their global operations.
• India’s Heavy Exposure to the US
  • RIL, which buys nearly half of India’s Russian oil, has subsidiaries, partnerships, and investments in the US with firms like Google, Meta, and Intel.
  • Public sector refiners also depend on dollar-based payments and the American banking system to buy crude oil, pay shippers, and insurers.
  • Any disruption in US dollar transactions could severely hurt India’s refining sector.
• Impact on Russian Oil Imports
  • To avoid secondary sanctions, Indian refiners and banks are expected to act with extreme caution, likely leading to a sharp drop in Russian oil imports.
  • Government-owned refiners are already reviewing compliance risks, and RIL has said it will fully follow government guidance.
  • Some refiners may try to buy Russian oil through third-party traders not directly targeted by sanctions.
  • However, experts warn this loophole may not last, as the US could extend sanctions to these intermediaries if it wants to curb Russian oil flows more effectively.
• India’s Official Stand
  • The Indian government has reiterated that it will buy oil from wherever it gets the best price, as long as the oil itself is not under sanctions.
  • However, the new US restrictions on Rosneft and Lukoil — which supply over two-thirds of India’s Russian oil — could seriously limit India’s access to cheap Russian crude in the near term.