President Trump has announced that to persuade Russia to accept the ceasefire, the US is considering imposing ‘secondary tariffs’ of 25% to 50% on Russian oil. Obviously this broad brush announcement did not address specifics on whether it would be limited to oil and gas product imports and whether it would be aimed at specific companies or all companies from India. These are critical questions with major repercussions.

To be clear, India presently does not have a sanctions regime and Indian companies are not bound by EU and US sanctions except in specific circumstances (for e.g., if key decision makers or directors are US or EU nationals). Further even the sanctions regime addresses situations where crude is purchased above the prescribed price cap of $ 60 and is aimed more at preventing U.S. connected intermediaries from assisting in crude purchase in violation of this cap. For example US connected banks are not allowed to permit fund transfer to a sanctioned entity and US connected insurers are not permitted to insure crude sourced from a sanctioned entity unless the price cap is observed.

There has been a recent tightening of sanctions rules by the EU and U.S., particularly aimed at addressing the various ways by which Russian entities are bypassing sanctions. Particularly the so called ‘Ghost fleet’ vessels flying the flags of ships that Russia used for transporting crude. On 10 January, 2025, the Biden administration extended the scope of secondary sanctions which was previously limited to defence and dual use technologies to include the Russian energy sector. The EU has also been significantly tightening sanction norms but neither US nor EU restrictions directly apply to Indian companies.

India exports and imports substantial volumes of refined petroleum products and natural gas to and from the US, making it one of the country’s key energy trade partners. If the U.S. imposes tariffs on these goods or the sector as a whole, Indian energy exporters will face increased costs when entering the US market. A loss of this market could force Indian companies to mobilise exploring alternative buyers, potentially at lower prices and profitability. If Indian companies are forced to find alternative markets, the supply-demand balance within India could shift, potentially leading to overproduction of oil and gas in the domestic market.

Energy importers and infrastructure companies in India often rely on long-term supply contracts with U.S. partners—for LNG, crude oil, equipment, and technology. While this will vary from case to case, however from a legal perspective, Tariffs that raise prices or delay shipments may activate contract clauses such as Force majeure, Hardship provisions, Material Adverse Change etc. Activation of these clauses can result in prolonged disputes, high legal costs, high termination costs and/or adverse market reputation for a party.

Additionally, Companies seeking to mitigate tariff exposure may look to divert supply to alternative markets — the Middle East, Europe or Africa. Such shifts can raise legal issues under existing US- India supply contracts including under any specific ‘BIT’ arrangements. Reneging on “take-or-pay” agreements or exclusive supply arrangements could result in breach or high financial or reputational consequences.

However, reliance on these clauses is not guaranteed. Courts and arbitral tribunals on a case-to-case basis will examine whether tariffs were truly unforeseeable and if all mitigation steps were taken. Legal counsel will have to pre-emptively review high-value contracts for such clauses and prepare fallback renegotiation strategies.

From an importing perspective as well, Indian oil and gas companies rely on U.S. suppliers for various equipment and technology used in exploration, drilling, and refining. If tariffs on these products are introduced, these companies would face higher operational costs and without a domestic alternative for like technology, domestic companies may not have other options. Delays or cost increases in securing advanced refining technologies from the US could hamper the efficiency and output of refineries. Even energy firms might also find it harder to access US-backed financing or technology services if tariffs restrict the flow of capital or expertise between the two countries.

The increased costs of energy imports will lead to operational challenges for Indian companies. The Federation of Indian Chambers of Commerce and Industry has highlighted that many energy companies have had to adjust their budgets and operational strategies to cope with higher costs. This has included measures such as cost-cutting, delaying new projects, and seeking alternative sources of energy. Introduction of reciprocal costs will only aggravate this concern.

The imposition of US tariffs on India’s energy sector is not merely a geopolitical concern—it is a complex legal issue with broad ramifications for corporates which will increase legal discourse between corporates across the industry supply chain. Companies must stay ahead of these developments by assessing contract vulnerabilities, regulatory shifts, and legal remedies under international law and their individual contracts. By doing so, Indian energy companies can ensure continuity, reduce liability, and maintain investor confidence amid uncertain global trade conditions.

While the immediate effects could be chaotic and potentially damaging to profitability, long-term market shifts may drive the sector toward greater resilience and diversification. While the nature and form of these tariffs is awaited, being a part of the global market, Indian corporates must stay ready to meet this wave of potential tariff impact for its future competitiveness in the global energy economy.

This article was originally published in CNBC TV18 on 2 April 2025 Written by: Deepto Roy, Partner. Click here for original article

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