The Perils of Sanctioned Oil

As Washington weaponizes oil, India must relearn the art of energy self-preservation.

India’s energy dilemma has become a case study in the geopolitics of double standards. The country imports more than four-fifths of the crude oil it consumes, making energy security not a technocratic concern but a strategic one. But the global oil market is no longer governed merely by prices and supply curves. It is shaped by sanctions, exemptions, waivers and political discretion, often applied unevenly. Nowhere is this more evident than in America’s handling of Venezuela, Russia and Iran and in the consequences for India.

Double Standards

Consider Venezuela. American sanctions have effectively paralysed an Indo-Venezuelan joint oil venture, placing India’s investments in limbo. At the same time, Washington has granted Chevron special licences to extract Venezuelan crude. China, meanwhile, continues to import Venezuelan oil in large quantities, attracting little more than rhetorical rebuke. India, by contrast, has found itself denied similar approvals. The message is unambiguous: sanctions are flexible instruments for allies and blunt ones for others.

The pattern repeats with Russia. Even as American policymakers discuss the possibility of reviving US involvement in Russian energy projects in the future, India has been hit with punitive tariffs and persistent moralising for buying discounted Russian crude. Iranian oil, once a crucial pillar of India’s energy basket, has been entirely choked off by American sanctions, despite Tehran’s geographic proximity and favourable terms. New Delhi has largely swallowed these slights, unwilling to disrupt an otherwise productive relationship with Washington spanning defence, technology and trade.

India’s response so far has been pragmatic diversification. As supplies from the Iran-Russia-Venezuela (IRV) basket have become politically costly, Indian refiners have turned elsewhere. Imports from Colombia, Canada and the Middle East have increased. Purchases from the United States itself have surged to their highest levels since March 2021. This American crude binge is driven by three calculations: the ambition of a $500bn bilateral trade target under Mission 500,’ the need to blunt the sting of reciprocal tariffs, and the desire to pre-empt secondary sanctions on Indian refiners.

Balancing Act

Yet buying more American oil is not a panacea. It risks replacing one dependency with another, while doing little to resolve the underlying vulnerability: India’s exposure to externally imposed economic coercion. New Delhi therefore faces a delicate balancing act in continuing economically rational imports from sanctioned countries where possible while concluding trade negotiations with the United States and broadening its supplier base.

This balancing act is already visible. Indian companies are cautiously expanding imports from Latin America and from West Africa, including Nigeria, Ghana, Togo and Senegal. At the same time, supplies from Russia and Venezuela are being moderated but not abandoned. This reflects an economy-first realism. A sudden rupture with the IRV basket would be neither pragmatic nor affordable. What India seeks instead is a diversified energy portfolio that preserves strategic autonomy without courting unnecessary confrontation.

From Cold War non-alignment to today’s strategic autonomy, New Delhi has learned to operate in a multipolar world by engaging many powers without binding itself to any single bloc. This multi-alignment irritates Western capitals accustomed to loyalty, but it has served India well. The question, however, is whether incremental diversification is enough to guarantee energy sufficiency in an era of sanctions as statecraft.

The answer is probably not. Energy security can no longer be left to diplomats and refiners alone. It demands a whole-of-nation response. The government must deepen efforts to build economic resilience on multiple fronts: identifying new suppliers, optimising consumption, boosting domestic production and preparing contingency plans for sudden disruptions. Strategic petroleum reserves need expansion. Indigenous exploration, long neglected, requires renewed urgency.

Equally important is accelerating the transition away from oil. Scaling up renewable and nuclear power is not merely an environmental imperative but a strategic one. Making electric vehicles affordable and widespread would reduce exposure to volatile oil markets. Hydrogen fuel and electric propulsion must move from pilot projects to industrial reality, particularly in transport, one of India’s largest oil consumers.

Industry, too, must adapt. Private firms need to assume that disruptions are no longer exceptional events but a permanent feature of global trade. That means diversifying supply chains, investing in domestic capabilities and shifting a portion of energy demand to renewables. The financial sector has a role as well. Alternative payment mechanisms, expanded currency-swap arrangements and policy-backed financial innovation can reduce reliance on Western-dominated systems without cutting India off from global capital.

Some experts have floated a more confrontational option in mooting legislation to block extraterritorial sanctions, akin to the European Union’s Blocking Statute. Such a move would prohibit Indian entities from complying with secondary sanctions imposed by foreign governments. It would signal resolve, but it carries risks for Indian companies operating abroad. Any such law would require careful calibration, alongside the creation of a domestic sanctions-governance framework linking the foreign ministry, finance ministry, RBI, national-security apparatus and industry. The aim would not be defiance for its own sake, but anticipation and management of sanctions risk.

In the short term, India will continue to juggle competing pressures. It must keep channels open with Washington even as it engages Beijing and Moscow. This is not fence-sitting; it is the practice of power in a fragmented world. If India responds constructively by diversifying supply, reducing dependence and asserting its interests with quiet confidence, it can turn today’s constraints into tomorrow’s leverage.

Energy security, after all, is all about sovereignty. How India navigates this moment will help define not only its economic future, but its place in the emerging multipolar order.

(The author is a retired naval aviation officer and a defence and geopolitical analyst. Views personal.)