The EU–India trade agreement: Economic gains and strategic blind spots

The EU–India trade agreement: Economic gains and strategic blind spots

Olha Konsevych

The European Union and India have concluded negotiations on what both sides describe as a historic free trade agreement. According to the European Commission, the agreement will create “the largest free trade zone ever concluded by either side,” covering nearly two billion people and strengthening ties between “the world’s second and fourth largest economies” at a moment of heightened geopolitical tension.

While the economic logic of the agreement is clearly articulated in official EU communications, its strategic context is more complex.

India’s role in Russia’s energy re-routing

Since Russia’s full-scale invasion of Ukraine, India has emerged as one of the key beneficiaries of discounted Russian crude oil, dramatically increasing its imports from Russia. Before 2022, Russian oil accounted for only around 2–3% of India’s crude imports. As a result, that figure stands at approximately 18–19%.

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As the EU Institute for Security Studies explains: “For Europe, Russia’s war against Ukraine has recalibrated threat perceptions and blurred the line between economic and security policy. This is pushing the EU to secure some €800 billion in defence-related spending and redefining how Europe evaluates its partnerships. India’s decision to preserve ties with Moscow, refrain from political condemnation, and expand economic engagement, particularly via a sharp rise in energy imports, has become one of the most persistent sources of friction in the EU–India relationship.”

Deliveries of Russian crude oil to Indian ports dropped sharply last month, falling to around 1.2 million barrels per day, the lowest level in the past three years, according to Bloomberg. The decline in India’s purchases has led to a sharp increase in the number of oil tankers idling off India’s coastline and near Oman in recent weeks.

Additional pressure has come from new EU and UK restrictions targeting Russia’s so-called “shadow fleet”, as well as the EU ban on imports of petroleum products produced from Russian-origin crude. These measures have complicated the insurance, logistics, and financing of shipments.

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Additional forms of cooperation

However, this does not indicate a breakdown in cooperation between the two countries. In late 2025, representatives of leading Indian defence companies travelled to Russia for rare talks on potential joint projects. During these meetings, the sides discussed the possibility of manufacturing components for Russian MiG-29 aircraft, air defence systems, and other Russian weapons in India, as well as proposals to establish Indian production facilities for equipment that could potentially be exported to Russia.

India remains highly dependent on Russian military technologies and equipment. So how risky would a rapid break with Moscow be?

Various estimates suggest that the share of Russian-origin weapons in India’s armed forces ranges from around 60% to as high as 85%, depending on the methodology used. This includes tanks, combat aircraft, air defence systems, and other key platforms, many of which are manufactured in or supplied by Moscow.

[European Union High Representative for Foreign Affairs and Security Policy and European Commission Vice-President Kaja Kallas and India’s Foreign Minister Subrahmanyam Jaishankar sign an EU–India Security and Defence Partnership agreement, as European Commission President Ursula von der Leyen, Indian Prime Minister Narendra Modi and European Council President Antonio Costa applaud next to them, at the Hyderabad House in New Delhi, India, January 27, 2026. REUTERS/Altaf Hussain ]

“India is the world’s largest importer of arms and Russia’s largest export market for arms. India’s arms imports policy is undergirded by three requirements: quality, cost, and timeframes. A fourth critical factor for New Delhi is indigenous production, which also affects availability, as some foreign suppliers are unable or unwilling to offer India the opportunity to license-produce weapons,” notes the Center for Strategic & International Studies (CSIS).

By contrast, Moscow is increasingly relying on India to compensate for labour shortages at home, and is seeking Delhi’s support in the production of drones that Russia is using in its war against Ukraine, according to a report by the Institute for the Study of War (ISW).

Implications for the EU–India trade relationship

According to Bloomberg, the most ambitious element of the agreement concerns the automotive sector. India, which has historically protected its domestic car industry with tariffs of up to 110%, has agreed to introduce a quota of 250,000 European cars per year subject to a 10% tariff — six times larger than the equivalent quota granted to the United Kingdom.

Electric vehicles will be subject to a safeguard period: tariffs will be reduced to 10% only in the tenth year of the agreement, allowing time for India’s domestic EV industry to develop. Tariffs on auto parts will be eliminated within five to ten years, Bloomberg reports.

The agreement also provides for a significant easing of market access for food products and alcohol. Tariffs on European wine will be reduced from 150% to 20–30%, duties on spirits will be lowered to 40%, while tariffs on products such as chocolate, pasta, and olive oil will be eliminated entirely.

The formal signing of the agreement is expected to take place only toward the end of this year, following approval by the European Parliament and the European Council.

In parallel with the trade agreement, India and the European Union are also conducting separate negotiations on cooperation in the fields of security and defence, as well as on measures to address climate change.

Both the EU and India face growing exposure to China across critical sectors. As EUISS analysis highlights, Europe’s vulnerabilities span rare earths, clean technologies and advanced manufacturing inputs, while India’s are embedded across electronics, industrial components and digital ecosystems.

The result is not a unified China strategy, but converging incentives to reduce sensitive dependencies. The EU–India FTA is partly framed as a response to this challenge.

U.S. Trade Representative Jamieson Greer criticised the free trade agreement between the EU and India, stating that it is more advantageous for India than for the European Union. “The EU is so dependent on trade that it needs alternative markets if it can no longer freely supply its products to the United States,” Greer said. He also added that the terms of the agreement provide India with broader access to the European market than vice versa.

OLENA KOZII, Forbes Journalist, Lecturer, Rising Leaders Fellow Aspen Institute UK, TEDx Alumni, from London, UK

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