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As Indian Prime Minister Narendra Modi makes his first visit to Washington in the second Trump administration, energy will likely take a front seat in United States-India relations. Due to India’s $46 billion trade surplus with the United States, the country has drawn the ire of President Donald Trump, who has threatened tariffs on India. The US market is the largest destination for Indian exports, and the threat of tariffs comes at a time when the Indian economy is slowing down.
Consequently, the visit by the prime minister this week must balance trade tensions and domestic economic concerns, setting the tone and tenor of US-India relations for the next four years. Likely areas of discussion between Modi and Trump, given the two countries’ history of energy cooperation, include increased Indian purchases of US oil and gas, the potential to expand nuclear collaboration, and energy challenges associated with USAID funding cuts.
Energy a Constant Pillar of US-India Ties
At the highest levels of government, energy has been a constant feature of bilateral cooperation, which has grown in the last 25 years. During Democratic administrations, focus shifted to climate and clean energy. During Republican administrations, focus shifted to fossil fuels and an “all-of-the above” approach to energy supplies. While US presidential administrations have changed the focus of bilateral energy ties, several factors have defined these ties:
Economic Development
Bilateral relations have recognized that secure, affordable, and sustainable energy is key to India’s economic growth, and thus its increasing stature in geopolitical and economic affairs.
Technology
Much of the activity in technology happens through bilateral technical cooperation, undertaken by a number of US government agencies. Technical cooperation reflects India’s pursuit of energy technology to increase domestic capabilities.
Trade and Investment
Bilateral oil and gas trade has grown, with US supplies satisfying Indian demand. Fossil fuels have grown to be the single largest portion of goods bought by India from the United States: about 36 percent of the $40 billion in US goods exported to India in 2023 were oil, gas, and coal. Figure 1 shows the rise of total US energy exports to India over the last couple of decades.
Notably, investments occur through the US International Development Finance Corporation (DFC), a US agency that promotes international development through private sector investments. Indian companies form the largest portion of the agency’s $60 billion portfolio: about $5.1 billion, with approximately $1 billion in solar manufacturing projects alone.
Underscoring this investment is growing Indian exports of renewable energy equipment to the United States. Figure 2 shows the growth in US energy imports from India over the past couple of decades, including for renewables, which totaled $2.1 billion in 2023.
Limits to India’s purchases of US oil and gas
India’s purchases of US fossil fuels form a key lever to reduce its $46 billion trade balance with the United States. However, exercising this lever has its limitations.
First, while Indian state-owned enterprises can directly buy energy on behalf of the government of India, the fossil fuel trade between the two countries is largely market driven. Short of drastic actions (e.g., sanctions), neither government has extensive influence on these market dynamics.
Second, there are public finance consequences for India. Importers like India are subject to the vagaries of global prices. Buying more expensive oil and gas to bring geopolitical goodwill may inefficientlyallocate public capital anddeplete foreign exchange for the country. Likewise, price- sensitive Indian consumers may need furthersubsidies to afford expensive fuel and end-products like fertilizers.
Lastly, increasing India’s purchases of US oil and gas for geopolitical aims constrains the country’s own energy security and import choices. Since 2022, India has taken advantage of discounted Russian oil imports, but recent tighter US sanctions will likely dampen future imports. In the past, India yielded to US pressure to reduce imports of Iranian oil and received US waivers for imports of Venezuelan oil.
Nuclear Sector a Bilateral Opportunity
In its 2025-26 budget, India announced increased investments and legal reforms to encourage private sector participation in the country’s nuclear sector. The budget allocated $2.3 billion (₹20,000 crore) for research and development of indigenous small modular reactors (SMRs), with a target to operationalize these technologies by 2033.
India’s nuclear energy sector has traditionally been state-controlled, but with a 100 gigawatt target by 2047, the government recognizes the need for expanded domestic private sector participation. To facilitate this, amendments to the Atomic Energy Act of 1962 (AEA) and the Civil Liability for Nuclear Damage Act of 2010 (CLND Act) have been proposed. This is not the first attempt to attract private participation; in mid-2024, the government soughtprivate capital for captive power projects, but legal restrictions in the AEA and CLND Act kept operations under government control.
The CLND Act has long been cited as a key sticking point to foreign participation, especially from the US, as it could require reactor suppliers to assume greater liability for accidents. Realization of US nuclear reactors in India is dependent on passage of the proposed amendments to the aforementioned acts, which remains unclear. The CLND Act currently assumes only state entities can operate nuclear reactors, raising uncertainty about whether amendments will only benefit domestic private players or also provide comfort to foreign reactor suppliers. Modi and Trump’s relationship could influence changes to the CLND Act. While the issue remained unresolved during Trump’s first term, the Modi government’s push to amend the law, along with looming tariff threats, could help push the amendments through.
While the liability law has been a major obstacle to fully realizing the landmark 2008 US-India civilian nuclear deal, in which India agreed to purchase US reactors, the higher costs of American AP1000 reactors compared to India’s domestic reactors has also been a concern. Russian state-owned Rosatom has managed to navigate India’s liability law hurdle and reached an agreement to build six VVER-100 reactors (two units in operation and four under construction). Russia also financed the project, which may have been leveraged as a bargaining chip along with the 1988 Kudankulam Agreement, in which India assumed sole responsibility for nuclear liability. Similarly, the US could facilitate financing through the US DFC as a strategic move to overcome India’s nuclear liability law. The US DFC has already agreed to finance a Westinghouse reactor in Poland, demonstrating the potential for similar arrangements to support US reactor deals in India.
USAID Spending Freeze Brings Energy Complications
The Trump administration’s spending freeze and planned layoffs at the US Agency for International Development (USAID) could complicate the substance of bilateral energy ties. While both countries hold annual strategic energy dialogues, the implementation of these strategies largely happens through technical cooperation: technical assistance, exchanges, and research and development partnerships. Much of these activities depend on foreign assistance funding from USAID. Since 2010, over 80 percent of US foreign assistance to India in the areas of energy and environment has come from the agency (see Figure 3).
While these foreign assistance figures do not include financial commitments from the US DFC, they illustrate that implementing any energy outcomes from this visit could face delays. Throughout the Biden and previous Trumpadministrations, both governments touted technical cooperation via these funds during annual ministerial dialogues. Nonetheless, non-technical cooperation could continue through dialogues, regulatory harmonization, and trade policies, as well as private sector investments from DFC.
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