US-India Forge "Mega Partnership" in Oil & Gas: Can It Bridge the Trade Deficit?

US-India Oil and Gas Pact to Boost Economic Relations and Reduce Trade Deficit

Indian Prime Minister Narendra Modi launched a "mega partnership" with the US on February 13, 2025, as part of the major measure to widen economic ties between India and the US. Modi and US officials signed an agreement through a two-day visit to the US to accelerate India's US oil and gas imports. The agreement has been seen as a step to reduce the trade deficit between the two countries and diversify the energy supply of India.

The move came in the wake of ongoing trade tensions since the US has put retaliatory tariffs on a number of its trade partners, including India, in the recent past. The deal, as energy-focused, is an all-important aspect of the overall game strategy of the two countries to strengthen bilateral relations and benefit from one another's economic dividends.

Energy Pact for Economic Stability

The new deal is likely to increase the volume of energy commerce between India and the US, particularly in the crude oil, petroleum products, and liquefied natural gas (LNG) sectors. According to the deal, the US will become a key oil and gas supplier to India, as well as the rising energy needs of the two countries' rapidly growing economies.

The US has become a prominent oil and gas global supplier. There has been increased focus on the energy exports of the US, including oil and natural gas, under the current administration of President Donald Trump. India will be provided with enormous oil and gas imports from the US under the new deal, which will encourage the US to diversify its energy exports and supply India with a steady supply of energy.

Besides the trade accord, the two countries demanded that strategic petroleum reserves be instituted in order to realize economic stability given that energy crises were surfacing. The US and India further committed to forming alliances with grand partners to realize strategic oil reserve agreements that would help the two countries survive through possible interruption of the provision of energy.

The trade deal is compatible with the overall US foreign policy goals. Through increased energy cooperation with India, the US intends to increase India's energy security by providing oil and gas in a safe manner. India will be given increased diversified sources of energy, and this will reduce its reliance on other sources of oil imports.

Reducing the Trade Deficit

One of the major objectives of the pact is reducing India-US trade deficit. India has remained in trade deficit with the US all along, driven mainly by its import of US products, including technology, defence equipment, and energy-related items. Through an increase in US oil and gas imports, India will be helping to narrow down this trade deficit.

US energy imports of India will allow India to diversify the energy supply and break its reliance on countries such as Iran and Saudi Arabia. India has been diversifying the share of its US crude oil imports more and more over the years. In 2017, India was only accounting for 2.7% of US crude exports. In 2020, the share increased to 5.5%, a sign of increasing importance of trade in energy between the two countries.

The new deal is also likely to increase these numbers further. As India's energy requirements are going to rise in the coming years, the increased importation of US oil and gas will help cater to these needs while being economically good for both countries.

US Support for India's Energy Objectives

The US in the agreement also reaffirmed the backing of India's application to become a full member of the International Energy Agency (IEA). India is eager to be a member of the IEA, and as an IEA member, it would get uplifted to join international energy markets and raise its energy security.

US President Trump, while releasing the statement, also laid stress on the strategic importance of the energy alliance, as America has vast resources of oil and gas and has the potential to be a future key supplier of oil and gas to India. The trade agreement is a move towards a bigger change in US foreign policy toward the promotion of fossil fuel export and energy security for strategic partners like India.

This is part of a larger US energy policy trend of highlighting the increase in domestic production and reducing foreign reliance on energy. Trump's administration has further attempted to provide support to the domestic fossil fuel industry, like pulling out of the Paris Climate Accord and pledging to stand behind coal, oil, and natural gas industries.

Looking Ahead

The heightened energy trade between India and America is an encouraging trend in the bilateral relationship as the two countries seek to deepen their economic relationship. The oil and gas imports deal is a strategic move towards balance of trade, enhanced energy security, and diplomatic relations.

India, as one of the world's most rapidly growing economies, has an urgent need for diversified and safe sources of energy. The US, by nature of its natural endowments, is in the best position to meet this need, and in the process, give both nations a priceless opportunity to further their strategic and economic partnership. As the energy commerce becomes increasingly complex, both nations will be well positioned to meet the challenge of shifting global energy trends.

Source: BBC News