Trump’s tariff shock is India’s wake-up call for energy sovereignty

India’s energy vulnerability has never been more exposed than it is today. The imposition of a 50% tariff on Indian exports by President Donald Trump—ostensibly in retaliation for India’s continued import of Russian oil—has triggered a diplomatic and economic storm. India’s response to this external pressure has been firm, strategic, and unapologetic—the punitive measures are unreasonable, unjustified, and unfair—especially given India’s consistent stance that its energy sourcing is guided by national interest and economic logic.

Even the Indian Prime Minister Narendra Modi has stated that the “Goal is to make India Aatmanirbhar in the sector. Focus has shifted from revenue to production maximisation,” in his interactions with top global oil and gas executives and experts.

But beneath the surface of trade tensions lies a more fundamental issue: India’s chronic dependence on imported energy. This moment demands not just a tactical response, but a strategic transformation of India’s energy policy. Rather than retreat, India must double down on its domestic energy ambitions.

World’s 3^rd largest energy consumer, India currently imports nearly 85% of its crude oil requirements – a staggering figure that leaves the economy at the mercy of global price fluctuations and geopolitical whims. In FY 2024–25, crude oil production declined to 28.7 million metric tonnes (MMT), and self-sufficiency in petroleum products stagnated at a mere 12.3%. Meanwhile, the country’s energy demand continues to surge, with primary energy consumption expected to nearly double to 1,123 million tonnes of oil equivalent by 2040. This imbalance is unsustainable.

The urgency is compounded by the financial burden of rising imports. Analysts warn that India’s annual oil import bill could rise by an additional $9–11 billion, given the recently imposed tariffs. These figures underscore the economic strain of energy dependence and the urgent need to unlock the hydrocarbon potential of India.

A critical step in this direction is to empower Upstream Operators to manage operations in Production Sharing Contracts (PSC blocks)under the sane terms as empowered in Revenue Sharing Contracts (RSC blocks). The PSC model with its complex cost recovery mechanisms has led to delays, disputes, and inefficiencies. The limited time horizon in the contracts is another obstacle that hinders investments in the oil and gas sector, as majority of the operating and producing fields in the country are matured and approaching the contract expiry date. Granting the contracts until the economic life of the field can immediately evince investor interest and boost production growth.

India is largely a virgin territory with vast reserves of crude waiting to be discovered. India's Union Minister for Petroleum and Natural GasHardeep Singh Puri has been actively advocating the policy reforms brought about by the Govt. to encourage private participation. He has been quoted saying that the government’s recent reforms and aggressive exploration drive are laying the groundwork for a major find and that a large-scale oil discovery in the Andaman region. However, while companies such as BP and Total have shown some interest, it has largely been in partnerships with PSUs or in the downstream space. So far, there has not been any major indication of active interest from large global upstream players.

Incentivising private investment is essential, as exploration and production (E&P) activities—especially in deepwater and ultra-deepwater zones—require substantial risk capital. The government’s decision to open previously restricted “No-Go” areas under OALP Round X is a welcome step opening blocks in deep and ultra-deepwater zones. But unlocking these reserves will demand billions in investment, best mobilised through international consortiums and strategic partnerships. India must create a conducive business environment that encourages such risk-taking.

Financial stability is another pillar for energy sovereignty. Every barrel produced domestically reduces the import bill, strengthens the rupee, and eases pressure on foreign exchange reserves. It also creates jobs in frontier regions and boosts investor confidence. The government must support this transition with targeted incentives—tax breaks for marginal and matured fields, royalty waivers, and tax rationalisation for enhanced oil recovery and unconventional drilling.

Further, there is a strong case to bring oil and gas industry under the ambit of GST regime to avail input tax credits. This has been a long outstanding demand of the industry and is already on the radar of the GST Council but has not come up for discussion in recent times.

If left unaddressed, India’s energy dependence could spiral into a full-blown economic crisis. Therefore, it is a national imperative that India no longer allows its energy choices to be dictated by foreign tariffs or shifting alliances but takes immediate and firm actions in reforming its domestic energy sector to attract investments in indigenous production. India can transform this moment of crisis into a catalyst for long-overdue change.

Dilip Shenoy is the former secretary general at the Federation of Indian Chambers of Commerce and Industry (FICCI).