India would face "significant economic disruption" if it immediately halts Russian oil imports as part of any potential trade agreement with the United States, credit rating agency Moody's warned on Tuesday. The assessment underscores India's delicate balancing act between courting American investment and maintaining strategic autonomy in energy policy.
The warning, reported in the Economic Times, comes as India and the U.S. explore deeper trade ties. American officials have signaled that reducing reliance on Russian energy could be part of any comprehensive economic partnership, but Moody's analysis suggests such a move would carry substantial costs for India's economy and its 1.4 billion consumers.
India has become one of the largest buyers of Russian crude oil since Western sanctions followed Russia's invasion of Ukraine. Russian oil now accounts for approximately 35-40% of India's total crude imports, up from less than 2% before 2022. The discounted Russian barrels—often $15-20 cheaper per barrel than global benchmarks—have been crucial in keeping domestic fuel prices manageable and inflation in check.
In India, as across the subcontinent, scale and diversity make simple narratives impossible—and fascinating. But on energy policy, the calculation is brutally simple: replacing 40% of crude imports overnight would mean finding alternative suppliers willing to match Russian prices, or passing higher costs to consumers already grappling with food inflation and currency depreciation.
Moody's assessment highlights several risks. First, India's refineries have been configured to process Russian crude grades; switching suppliers would require technical adjustments and potentially reduced efficiency. Second, alternative suppliers in the Middle East face their own production constraints and may not have surplus capacity to absorb India's demand. Third, higher oil costs would ripple through the economy, affecting everything from transportation to manufacturing competitiveness.
For ordinary Indians, the stakes are immediate and tangible. Petrol and diesel prices directly affect household budgets. India's logistics sector runs on diesel; higher fuel costs mean higher food prices. The manufacturing sector, already competing with China and Vietnam, cannot afford input cost increases that erode competitiveness.
The geopolitical dimension adds complexity. India has carefully cultivated a foreign policy of strategic autonomy, maintaining ties with both Russia and the West. Prime Minister Narendra Modi's government has resisted Western pressure to condemn Russia explicitly, arguing that India's interests require pragmatic engagement with all major powers. Energy policy has been central to this stance.
Any U.S.-India trade agreement that includes energy provisions would test this balancing act. Washington wants India as a counterweight to China in the Indo-Pacific, but American leverage is limited if the price is economic disruption that undermines the Modi government domestically.
Moody's did not rule out a gradual transition away from Russian oil, but emphasized that immediate termination would be destabilizing. The rating agency suggested a phased approach, contingent on alternative supply arrangements and potentially supported by American or Middle Eastern commitments to make up the shortfall at competitive prices.
The warning reflects a broader reality: India's economic transformation depends on energy access at affordable prices. Until renewable energy can shoulder a much larger share of the load—and that transition will take decades—India's development ambitions remain tethered to global fossil fuel markets. Strategic autonomy, in this context, means keeping options open and avoiding sudden disruptions that 1.4 billion people would pay for at the pump.
