Why in News?
· Economic sanctions are shifting from conventional restrictions on states to network-based economic coercion, targeting banks, payment systems, insurers, shipping, technology and supply chains.
· The idea of ‘weaponised interdependence’ explains how control over critical global networks can generate geopolitical leverage.
· Example: U.S. sanctions against Iran and Russia have increasingly affected third-country banks, traders, tankers and insurers.
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For India, the impact can move through finance → shipping → energy → domestic prices, making sanctions an economic-security issue.
Emerging Nature of Sanctions and Economic Coercion
· Secondary sanctions: Third-country entities may face penalties for specified dealings with sanctioned actors.
- Example: U.S. measures against facilitators of Iranian oil trade increase compliance risks for Indian firms.
· Financial chokepoints: Dependence on dollar clearing and internationally connected banks can disrupt transactions even when permitted under Indian law.
- Example: Sanctions on Russian banks after 2022 complicated India-Russia payment arrangements.
· Whole-transaction targeting: Sanctions increasingly encompass producers, traders, tankers, insurers and technology providers.
- Post-2022 Russia sanctions demonstrate the shift from individual entities towards entire commercial networks.
· Maritime chokepoints: Strategic waterways can transmit geopolitical shocks into global trade.
- Example: Disruption in the Strait of Hormuz can simultaneously raise freight, insurance and energy costs.
· Sanctions and tariffs: Financial restrictions can be supplemented by trade measures.
- Example: U.S. legislative proposals have considered higher tariffs on countries purchasing Russian oil.
India’s Vulnerabilities and Institutional Challenges
· Energy dependence: India's high dependence on imported crude makes external disruptions capable of increasing inflation and the import bill.
- Example: Restrictions affecting Russian crude can force refiners to seek alternative suppliers and grades.
· Hormuz exposure: Directorate General of Shipping advisories have highlighted heightened risks for vessels operating around the Persian Gulf and Hormuz.
· Insurance vulnerability: International shipping depends substantially on marine and war-risk insurance.
- Example: Withdrawal or sharp repricing of insurance can make otherwise lawful cargo movements commercially difficult.
· Legal framework: India implements UN Security Council-mandated sanctions, while unilateral sanctions raise separate issues of jurisdiction and sovereignty.
- Example: India's sanctions architecture operates through laws including FEMA 1999, FTDR Act 1992, Customs Act 1962, PMLA 2002 and UAPA 1967.
· Institutional fragmentation: A single transaction may involve MEA, Finance, Commerce, Petroleum, Shipping, RBI and enforcement agencies.
- Example: An oil cargo can require simultaneous decisions on payment, insurance, shipping and customs.
Building Economic and Maritime Resilience
· Integrated sanctions mechanism: An Economic Security and Sanctions Office under the Cabinet Secretariat can coordinate foreign policy, finance, commerce, energy, shipping, law and defence.
- Example: It could map the complete chain from foreign listing → payment → insurer → vessel → port → delivery.
· Early-warning system: Distinguish legal prohibitions from private-sector de-risking.
- Example: Banks may reject permissible transactions because of perceived secondary-sanctions exposure.
· Maritime insurance: The Bharat Maritime Insurance Pool (BMIP) was approved in 2026 with a ₹12,980-crore sovereign guarantee, covering cargo, hull and machinery, protection and indemnity, and war risks.
- The scheme is designed to maintain insurance availability during geopolitical disruptions.
· Energy buffers: Expand strategic petroleum reserves, LPG storage and diversified LNG contracts.
- Example: Larger inventories provide time to arrange alternative supplies during Hormuz disruptions.
· Payment and shipping diversification: Local-currency settlement and greater Indian-controlled tanker capacity can reduce dependence on foreign networks.
- Example: RBI's Special Rupee Vostro Account mechanism expanded possibilities for India-Russia trade settlement.
Way Forward
· India-China difference: China's larger domestic market, manufacturing ecosystem and leverage over critical supply chains provide greater capacity to absorb external pressure.
- Example: China's economic structure gives it greater bargaining space in responding to foreign sanctions.
· Balanced diplomacy: India must protect energy security, fertiliser supplies, lawful trade and maritime interests while maintaining relations with the U.S., Russia, Iran and Gulf countries.
- Example: India's continued diversification of crude suppliers illustrates this balancing approach.
· Diversification over isolation: Multiple payment channels, suppliers, insurers and maritime routes can strengthen resilience.
- Example: BMIP demonstrates how domestic capacity can reduce external vulnerability without withdrawing from global markets.
· Whole-of-government preparedness: Economic security requires decisions based on the complete transaction chain, ensuring that India's independent foreign-policy choices are supported by adequate financial, energy and maritime resilience.
