India is making major policy decisions over trade with Iran and Russia that analysts say are dictated by its national interests while fighting for strategic autonomy despite the looming threat of US financial sanctions.

The US threats of punitive action are driving Delhi out of US arms at a time when Washington needs India’s cooperation in its efforts to contain Chinese expansionism.

The country continues to buy oil from Iran, albeit at a reduced volume despite Washington ratcheting up pressure on Delhi and other consumers of Iranian crude. Efforts are underway to replace US dollar payments with rupee trade for imports in November, the month when the US sanctions against Iran come into effect.

India was seeking to negotiate a window out of the sanctions but its patience ran out given US President Donald Trump's recalcitrance and the ramifications they would have on the Indian economy. As Prateek Majumdar, a strategic analyst and columnist said, "India couldn't afford to wait endlessly as these sanctions are neither backed by the United Nation nor by any other community."

Last week India also signed a long-awaited S-400 air defense system deal with Russia when President Vladimir Putin visited the country. The S-400, known as Russia's most advanced long-range surface-to-air missile defense system, will cost US$5.43 billion and is among India's largest defense deals ever made. The air defense system – which India had been pursuing since 2015 – is expected to be delivered by the year 2020.

The deal is being projected in some quarters as a challenge by India against an increasingly-assertive US. The latter is required under a domestic law, “Countering America's Adversaries through Sanctions Act or CAATSA,” to impose sanctions on any country that has “significant transactions” with Iran, North Korea or Russia.

However, Indian Air Force Chief BS Dhanoa put things in perspective by stating at a recent press conference that more than defiance, India's decision to buy the S-400s needs to be seen in the context of the country's security imperatives. “No country is facing the kind of grave threat that India is … Intentions of our adversaries can change overnight. We need to match force level of our adversaries,” Dhanoa said.

A shortfall of fighter squadrons has severely impacted India's security. A defense survey points out that against an underprepared India, Pakistan and China are both well girded for combat. While Pakistan has over 20 fighter squadrons, with upgraded F-16s, and is introducing JF-17 Thunder fighter jets from China in large numbers, China has 1,700 fighters, including 800 4-Gen fighters.

The US recently sanctioned China for buying the S-400 and Su-35 fighter jets from Russia. A waiver for India for buying the same weapons system would imply that the US is mindful of India’s security needs.

"The S-400 deal shows the gaps in Indo-US defense relations. Despite the close defense ties and the countries staging a large number of bilateral military exercises in recent years, shortcomings in defense trade remain," writes Yusuf Unjhawala, a defense expert, in the Delhi-based Mint business daily.

The Defense Framework and Defense Technology and Trade Initiative signed by the US and India to pursue joint development and co-production of defense equipment has failed to address India’s needs, Unjhawala wrote.

"It has also failed to estimate what the US can deliver and how far India will go in trusting the US for critical weapons systems. Indian decision-makers still seem to be saddled with the legacy of the Cold War and non-alignment. On the other hand, in comparison to Russia –which has helped India with strategic technologies like leasing and developing nuclear-powered submarines – the US is still not open to supplying India with advanced weapons platforms and military technologies."

At a strategic level, the US must consider that India can’t accomplish its strategic role in the Indo-Pacific without Russian-origin assets. "It may be a US objective to reduce India’s reliance on Russia, but it will take more time and trust for that to happen," according to an editorial in The Economic Times.

Since 2008, India has bought about US$18 billion worth of defense items from the US, a significant surge given that both countries discovered and built on their strategic convergences only over the past two decades. Broadly, 60 percent of Indian supplies are today from Russia. The remaining 40 percent is divided between the US, Israel and other countries. Of this, it’s estimated that US corners around 11-13 percent of the business.

It’s important for the Trump administration to understand India’s strategic relevance as a lynchpin in both the global war against terror, especially when it comes to Pakistan, as well as managing China, be it on ground or in the ocean.

On the other hand, any move to impose CAATSA sanctions on India would signal that Washington is trying to equate Beijing with New Delhi. It would also signal that the US wants to dictate India’s relationship with a third country, in this case Russia. Both of these would be unacceptable.

Relentless pressure and interference from the Trump administration in India's policy matters is giving rise to alarm that it may alienate potentially its biggest ally against China in Asia. Whereas China is an emerging rival power, India is seen as an important US strategic ally and a bulwark against Chinese expansionism. India is also a major player in a newly resurrected informal defense alliance known as "the Quad" which is aimed at countering Chinese maritime expansion.

US defense chiefs have also worked towards augmenting cooperation with Delhi in a range of areas in recent years, amid shared concerns over Chinese military expansion in the Indo-Pacific region.

India is also considered among the world's most lucrative markets for arms exporters, a market US defense companies can ill afford to ignore. According to a 2017 report by the UK's Royal Institute of International Affairs, India was responsible for 10.3 percent of global arms imports between 2000 and 2016, with Russia supplying 72 percent of those imports. The US though is catching up fast, becoming India's second largest arms supplier ahead of Israel.

Given the high stakes on maintaining an amicable relationship with India, can Trump afford to annoy Delhi and squander away the goodwill generated between the two countries?

"Future deals, coupled with the need to maintain a strategic regional relationship with India ought to force Washington to overlook India's purchase of oil from Iran and the S-400 from Russia," states Prateek Majumdar. "If not, there's bound to be trouble at the bilateral level more so at this time when China is wooing India to strike trade deals with it to offset US sanctions."

Unmindful of the sensitivities involved, a mercurial Trump stated Wednesday, rather flippantly, that India "will soon find out" about his decision on the punitive CAATSA sanctions after signing the S-400 air defense system. The statement is ringing alarm bells in Delhi.

Neeta Lal is a Delhi-based editor & journalist who tweets at Neeta_com. She is a longtime contributor to Asia Sentinel