US and India Strike Interim Trade Accord; New Delhi to Halt Russian Oil Imports

The United States and India announced a breakthrough interim trade framework on Friday, resolving months of economic friction. The agreement, steered by the Trump administration and Prime Minister Narendra Modi's government, establishes a new reciprocal tariff structure and mandates a significant geopolitical pivot regarding India's energy supply chain.

The Russian Oil Ultimatum

In a decisive geopolitical move, the framework is contingent upon India ceasing the import of Russian crude oil—both directly and indirectly. This provision addresses Washington's persistent concern that New Delhi's energy purchases were financially supporting the war in Ukraine.

To ensure adherence, the US has implemented a strict monitoring mechanism. Full compliance will trigger the removal of existing “punitive” tariffs of 25% on Indian goods. However, the administration has warned that any resumption of Russian oil flows will result in immediate “additional actions,” likely including the reinstatement of heavy levies.

$500 Billion Purchase Commitment

A core pillar of the agreement is India's commitment to purchase $500 billion worth of US goods over the next five years. This target represents a doubling of current import volumes and focuses on high-value strategic sectors:

• Energy: Significant increases in US oil, natural gas, and coking coal imports.
• Technology: Procurement of high-end tech products, specifically Graphics Processing Units (GPUs) for AI and data center infrastructure.
• Aviation & Defense: Expanded orders for aircraft and military hardware.

Tariff Structures and FX Impact

Despite the cooperative tone, the US will apply a 18% reciprocal tariff on the majority of Indian industrial and agricultural imports. In return, India has agreed to lower non-tariff barriers and open its market to specific US exports, including ethanol byproducts (DDGS), nuts, and wines. Notably, India maintained protectionist measures on sensitive domestic agricultural sectors such as dairy, wheat, and rice.

Markets reacted aggressively to the news. The Indian Rupee (INR) posted its strongest single-day rally in seven years, buoyed by the removal of the punitive tariff threat and the improved long-term trade outlook. Analysts suggest the deal provides a stabilizing anchor for the INR while simultaneously narrowing the US trade deficit through the aggressive purchase commitments.