Today, on the birth anniversary of Mahatma Gandhi, a national holiday but observed perfunctorily in terms of what he stood for, we can only rue the spectacle of a world hell-bent on war.
The Graham Act of 2026 passed by both houses of Congress in the United States of America, and signed into law on 18 September, visibly places (without explicitly naming) India in the line of fire for being among the top five importers of Russian crude oil.
India stands absurdly implicated thereby for being a financier of the Russian side of the war in Ukraine. Since it is an enabling legislation, the President of the United States is not obliged to act on the powers conferred by the new law to impose tariffs of upto 100% on imports into the US from erring countries, India among them.
Internationally, this is a relatively rare instance of a country finding it fit to punish third parties for having trade dealings with countries formally named and targeted in a piece of legislation despite there being no formal declaration of war against them. By implication, Russia and Iran have been designated as forever enemies of the legislating country.
During the apartheid era, many countries had trade sanctions against South Africa, but sanctions rarely involved one country punishing a third country for trade dealings with South Africa by levying source-specific tariffs on them.
The Graham Act penalizes importers of Russian natural gas differently from Russian crude oil. For natural gas, a floor of 15% of total Russian gas exports has to be crossed before an importing country qualifies for punitive tariffs on its exports to the US.
If total exports of Russian natural gas can be increased by finding new buyers, present importing countries above that floor could fall below it without reducing their absolute imports. With crude oil, by contrast, only the rank order in the importer list matters. Crude oil carries no defined floor for punishability in either percentage or absolute terms.
The lenience towards natural gas clearly gives an advantage to European buyers of Russian energy, paradoxically favouring countries more vocal in their support for Ukraine. Clearly there were other objectives or biases at play. Of course, crude oil is much the biggest export earner for Russia, between double or triple what the country earns from exports of natural gas.
The Graham Act cleared the House of Representatives by a wide margin of 262-159 (14 abstentions), with wide cross-party support. Support for the bill therefore stands at an impressive 60% of the duly elected representatives from a total of 435 Congressional districts.
Even though Congressional districts are drawn to give roughly equal demographic representation across all states, it does not necessarily follow that 60% of the people of the US support the bill. Congressional representatives do not always vote according to majority opinion in their respective districts on every issue.
There is no international court of appeal. The World Trade Organization is in tatters. The Most Favoured Nation (MFN) principle has now become a sad joke. In any case, international bodies can do nothing to oppose a law passed through due process, even if it seriously overrides international treaties.
The office of the United States Trade Representative (USTR) will now be in the business of calculating a 12-month moving average of country-wise purchases of oil from Russia to identify the top five purchasers liable under the Act to punitive levies, whether the President chooses to impose a punitive levy or not. And this average will be reassessed every six months. What a comedown for the USTR, once seen as a powerful enforcer of international trade rules.
The bite of the Graham Act, if implemented, will be a function of how easily oil importers can find replacement from other sources. What seemed like a possible easing of Iranian restrictions on passage through the Strait of Hormuz, reciprocally with US easing of the naval blockade of Iranian ports, took a jagged turn for the worse on Saturday, 26 September, because of renewed attacks on Saudi Arabia by Houthi rebels in Yemen with alleged Iranian support.
Both protagonists in the current phase of the West Asian war are at the mercy of internal dissension. In the US, the forthcoming mid-term elections in the first week of November, and the impact of that on military actions before or after these polls, is completely uncertain at this point. In Iran, a seeming national consensus in support of a diplomatically negotiated peace with the US is snagged on a possibly dissenting faction supporting Houthi rebels in Yemen.
For us in India, even if the long-term objective is to move away from oil towards sustainable sources of energy, oil is immediately needed to keep the wheels of the economy turning. The negotiation channel for a bilateral trade deal with the US remains open, and is the only hope for resolution of an impossible situation.
The wars underway have been extended by reaction and revenge. Of the many utterances of Mahatma Gandhi on peace, the one most relevant in today’s world is this: “An eye for an eye only ends up making the whole world blind.”
The author is an economist.