China’s push, US permission, an Iranian rapprochement: India’s balancing act in an economic thread

India faces a difficult diplomatic balancing act as rising tensions involving Iran threaten its oil supplies and test New Delhi’s traditionally neutral foreign policy.

The crisis also comes as China pushes for stronger cooperation within the BRICS, the bloc that includes Brazil, Russia, India, China and South Africa.

Chinese Foreign Minister Wang Yi on Sunday urged closer coordination within the group. “We must step forward and support each other in the BRICS presidency for the next two years, to make BRICS cooperation more substantial and bring new hope to the Global South,” Yi said in Beijing during a press conference.

India has not yet responded to that statement.

US protectionism in Trump 2.0 has triggered a resumption of ties between India and China, although the realignment has come without much aplomb as both countries seek to avoid antagonizing US President Donald Trump.

But as the Trump administration choked off economic lifelines by attacking Iran, Wang’s comments suggested Beijing sees a stronger role for BRICS cooperation.

And yet India has maintained a stoic diplomatic stance. Experts told CNBC that this tightrope walk is tied to the nation’s disproportionate economic vulnerability, possibly greater than that of China, which has months-long reserves of critical oil and minerals, compared to India’s weeks-long crude oil reserves and far fewer gas reserves.

Therefore, it may not be surprising that India is the only founding member of the BRICS that has not condemned the attack on Iran.

“India, in particular, has taken a more pragmatic line: calling for dialogue and a reduction in tensions rather than outright condemnation, even as Beijing appears willing to seize the moment to question India’s diplomatic positioning within the BRICS,” said Eerishika Pankaj, director of the New Delhi-based think tank the Organization for China and Asia Research.

He added that if India were to abandon its multi-alignment approach and take a clear side, it could risk supply volatility, pressure on the rupee and fresh fiscal stress due to energy subsidies.

India’s vulnerable position is becoming increasingly clear, with the government raising liquefied petroleum gas (LPG) prices, rationing liquefied natural gas (LNG), the rupee hovering near record lows and its benchmark indices recording its worst week in more than a year.

Recent events have tested India’s political balancing strategy and its traditional non-alignment approach as it appears to lean towards the US-Israel coalition.

Until about 2018, Iran was among India’s top oil suppliers. The relationship was also strategically important, highlighted by New Delhi’s investment in the Iranian port of Chabahar, which gives New Delhi access to Afghanistan and Central Asia without passing through Pakistan. But US sanctions in recent years have sharply reduced bilateral trade and energy flows.

Prime Minister Narendra Modi’s visit to Israel about a day before the nation attacked Iran has raised questions about whether this visit marked tacit approval of the US attack, even if the Israeli ambassador said the opportunity to attack Iran only arose after the Indian leader left Israel.

India was also notably silent when the US submarine sank an Iranian warship, which was returning after participating in military exercises organized by India.

Soon after the attack on the Iranian ship, Indian External Affairs Minister S. Jaishankar was asked if India was the security provider in the Indian Ocean. He replied, “If you ask me a serious question, I will give you a serious answer.” The moderator seemed to let it slide after an attempt to restate the question as if it were really serious.

Then, India’s foreign minister, after the attack on the Iranian ship, visited the Iranian embassy in New Delhi to sign the book of condolence following the assassination of Iran’s then supreme leader Ayatollah Ali Khamenei.

Political economist Zakir Husain said that “these recent developments send a signal that the New India under Prime Minister Modi may have moved away from the traditional policy of balance” and that this has “created confusion among major countries in the Global South, leading them to believe that India has tilted towards Israel and the United States.”

The US government had previously imposed a 25% “penalty” tariff on India for purchasing Russian crude, although this was revoked last month.

Two days after the attack on the Iranian ship, US Treasury Secretary Scott Bessent issued a temporary 30-day waiver “allowing” Indian refiners to buy Russian oil.

The scenario for India was complicated because it was also hosting US Undersecretary of State Chris Landau, while the agenda of consolidating a trade agreement derailed by the US Supreme Court’s annulment of Trump’s tariff agenda took on great importance.

Some say India’s support for the United States and Israel amid the Iranian crisis may be the right economic choice.

“While India has not taken any side in the war, India’s national interests definitely lie more with the United States, Israel and its allies, vis-à-vis Iran… India has every right to continue its interest-based stance, despite the call from the Chinese foreign minister,” said Jayant Krishna, senior fellow at the Center for Strategic and International Studies.