Iran War, U.S. Courts tariff ruling delays India trade deal — but a bigger risk lies ahead

The India-U.S. trade deal remains unsigned after months of negotiations, with the Iran war and a U.S. court ruling against tariffs creating room for fresh bargaining — a delay experts warn could come at a cost.

The first tranche of the deal was expected to be finalized by mid-March, but talks are still ongoing, leading to further delays.

“[The] Iran conflict is pulling diplomatic bandwidth toward energy security and geopolitical crisis management,” said Reema Bhattacharya, head of Asia research at Verisk Maplecroft, adding that this could stall trade talks further as a result.

An Indian trade delegation wrapped up its visit to the U.S. on Thursday, but the talks have not led to a conclusive announcement.

“Both sides are working towards a balanced, mutually beneficial, and forward-looking trade agreement, taking into account each other’s concerns and priorities,” a spokesperson for India’s Ministry of External Affairs said on the same day.

The delay in finalizing the deal could prove to be expensive for India as the U.S. administration will wrap up the investigations under Section 301 of the Trade Act of 1974 in June, a move that would shift leverage towards the U.S., experts said.

In March, the U.S. administration launched trade investigations into China, India, the European Union, and more than a dozen other economies, in a bid to replace PresidentDonald Trump‘s reciprocal tariffs, which were ruled illegal by the Supreme Court on Feb. 20.

“It’s critical that the agreement [between India and the U.S.] is sealed by the end of May,” Mark Linscott, former assistant U.S. trade representative and senior advisor at the U.S.-India Strategic Partnership Forum, told CNBC via email.

India could face the risk of higher tariffs than what was agreed upon in February if it fails to sign off on the deal before the Section 301 probe ends, he said.

In August last year, the U.S. slapped India with some of the highest tariffs, of 50%. A part of this levy was punitive, intended for curbing India’s Russian oil imports.

In early February, the U.S. reduced those tariffs to 18% in return for New Delhi lowering duties on U.S. goods to zero, replacing Russian oil with supply from the U.S. and Venezuela, and buying $500 billion worth of American goods.

Both sides called the deal a success and were eager to sign a pact by mid-March, at least for the first tranche of the deal. But a few weeks later, the U.S. Supreme Court struck down Trump’s tariffs as “illegal,” after which the administration imposed a 10% tariff rate for all its trading partners.

India would then be paying a higher rate than other countries if it agreed to the terms of the deal agreed with Washington. Speaking on the sidelines of the India-Korea Business Forum on Monday, Piyush Goyal, India’s commerce minister, said that India’s trade negotiators were bargaining to get a preferential access to U.S. markets.

India does not have an unlimited room to maneuver, Harsh Pant, vice president for studies and foreign policy at New Delhi-based think tank Observer Research Foundation,told CNBC. “A tougher negotiating stance can pay off,” but prolonged delay raises the risk of losing the strategic gain, he said.

India needs to secure first-mover advantage before the Section 301 investigations conclude, he added.

The U.S., meanwhile, has been pressing India to buy more American energy, as New Delhi scrambles to secure energy supplies amid the disruption caused by the conflict in the Middle East.

For India, the partnership with the U.S. for energy has limited benefits. High freight costs, incompatible refinery infrastructure, and longer delivery times are among the key obstacles that stand in the way of a greater reliance on the U.S. for energy supplies.

On the other hand, New Delhi’s reliance on Russian crude has increased significantly in March to nearly 50% of its oil imports.

“I don’t see the return of a 25 percent penalty tariff associated with Russian oil purchases,” said Linscott, but he added that “more attention needs to be given to concluding the trade agreement.”

The only win-win for both the U.S. and India would be to sign the interim agreement soon, he said.