Tariff Tensions Rise: Why India’s Russia Trade Strategy Is About More Than Just Oil

In an increasingly complex web of global trade tensions, India’s growing economic ties with Russia have become a hot-button issue, especially for the United States and the European Union. As Western powers attempt to isolate Moscow economically over the Ukraine conflict, India finds itself walking a diplomatic tightrope, citing national interest, energy security, and market logic for its continued imports from Russia.

But beneath the geopolitical headlines lies a deeper economic narrative that impacts India’s domestic ecosystem, particularly its micro, small, and medium enterprises (MSMEs). These businesses form the backbone of India’s economy, and the ongoing shifts in global trade alignments are reshaping their operational realities.

India’s Trade with Russia: What the Numbers Say

India's bilateral trade with Russia soared to a record $68.7 billion in FY 2024–25, largely fueled by discounted crude oil imports. Russia has emerged as India’s top oil supplier, with over 35–40% of India’s crude import basket now coming from Moscow — a staggering rise from less than 1% pre-Ukraine war.

This surge in trade is not merely about oil. It includes fertilisers, coal, defence equipment, chemicals, and engineering goods — commodities that feed directly into MSME sectors ranging from agriculture to manufacturing to logistics.

Rising Western Pressure, But India Stands Firm

U.S. President Donald Trump’s administration, as of early August 2025, has issued sharp warnings, including threats of secondary sanctions and tariff hikes on Indian exports. Trump has openly accused India of profiteering from Russian oil and called for punitive trade measures. The European Union, too, has echoed similar concerns.

In response, Indian officials have pointed out a stark double standard. The EU, in 2024 alone, imported €67.5 billion worth of goods from Russia — including record volumes of LNG, fertilisers, mining products, and steel — far surpassing India’s total trade with Moscow.

Despite this, pressure on India is intensifying. And the implications for MSMEs — which are heavily reliant on affordable raw materials, energy, and uninterrupted exports — are becoming more pronounced.

MSME Sector: Caught in the Crossfire

India’s MSMEs, already navigating post-pandemic recovery and high inflation, are deeply intertwined with global supply chains. Many MSMEs depend on affordable energy, fertilisers, chemicals, and metals — all of which are directly or indirectly sourced from Russia.

Should secondary sanctions or trade restrictions be imposed on India, MSME margins will shrink, production costs could surge, and their global competitiveness might suffer. Sectors like textile dyeing (dependent on Russian chemicals), auto components (steel and palladium), and agri-businesses (fertilisers) could see immediate ripple effects.

Further, the threat of tariffs from the U.S. — a key export destination for Indian MSMEs — could make it harder for small manufacturers to compete in American markets, pushing them to absorb losses or scale down operations.

Energy Affordability Is Critical for MSMEs

At the heart of India's argument lies a basic economic truth: cheap oil keeps the Indian economy running, especially for MSMEs that rely on diesel-driven logistics and thermal power.

Energy costs have a cascading impact. A rise in oil prices affects transportation, manufacturing, agriculture, and retail, all dominated by small businesses. By continuing oil imports from Russia at discounted rates, India ensures predictable energy pricing, which helps maintain cost stability across MSME operations.

Beyond the Blame Game: A New Trade Order Emerging

What we are witnessing is not just a diplomatic spat; it's a realignment of the global trade architecture, and India is placing its long-term bets. By refusing to yield to pressure, the Indian government is sending a message that national economic security takes precedence over global posturing.

For Indian MSMEs, this assertion offers some reassurance that the government is actively shielding core sectors from external volatility. However, the road ahead isn’t easy. Navigating potential sanctions, compliance hurdles, and tariff wars will require MSMEs to become more agile, diversify supply chains, and reduce dependency on vulnerable markets.

Final Thought

The India-Russia trade saga underscores a broader truth: in today’s fractured world order, economic pragmatism often outweighs political alliances. And for Indian MSMEs, this could be the beginning of a more turbulent — but possibly more self-reliant — era.