US sanctions have India cornered. BRICS charts an escape route

Beijing: When US Treasury Secretary Scott Bessent declared an 'economic D-Day' against Iran on Aug 24, he was asked about sanctioning globally important financial institutions. His rhetorical reply: 'Why would I want to blow up the global financial system?'

In a 2023 interview, then-senator Marco Rubio helped explain the hesitation. Within 5 yrs, he had warned, so many countries could transact in currencies other than the dollar that Washington would lose the ability to sanction them.

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Wars in Ukraine and Iran have put the dollar, and the sanctioning power it confers, at the centre of world affairs. While the Delhi BRICS summit didn't agree on a single payment channel to bypass the dollar, BRICS has the coordination power to make Rubio's worst-case scenario come true by 2028.

With sanctions, individuals and companies on the US treasury's Specially Designated Nationals (SDN) list have their US assets frozen, and Americans barred from dealing with them. Dollar dominance extends that reach globally. Most international dollar payments clear through US banks. So, a foreign bank moving dollars for a sanctioned party creates a connection to the US. BNP Paribas paid nearly $9 bn in 2014 for doing exactly that.

Secondary sanctions go further. They target non-US companies, like Indian and Chinese refineries, for dealings with no US connection at all. The penalty is being cut off from the US financial system. For a foreign bank, losing dollar clearing is so consequential that most comply rigorously.

In May 2019, threat of secondary sanctions ended India's purchases of Iranian crude, once among its largest suppliers. India imports close to 90% of its crude. So, costlier Gulf replacements were a blow to Indian consumers.

Then came a short sequence that exposed how much India had constrained its strategic autonomy. In Aug 2025, Trump imposed an extra 25% tariff on Indian goods to punish purchases of Russian crude. It was lifted on Feb 7 after the White House claimed India committed to stop.

Three weeks later, the war on Iran closed the Strait of Hormuz. In March, Washington issued two 30-day waivers for oil already at sea: one letting Indian refiners buy Russian crude, another covering Iranian crude. Oil tankers loaded with Iranian oil soon reached India for the first time in 7 yrs.

India was penalised for buying oil, then authorised to buy from the very countries at issue. These waivers, subject to abrupt revocation, left Indian energy subject to US discretion. Now US Congress has codified the pressure. The Lindsey Graham Act that authorises tariffs of up to 100% on the largest buyers of Russian oil. Yet, Trump has also secured a diesel supply deal with Russia to save Republicans from the coming midterm elections.

Last month's New Delhi BRICS Declaration encourages further study of 'cross-border interoperability of payment and messaging channels' and of local-currency settlement. It stresses that no single approach fits every member.

Instead of decentralisation, BRICS could designate China's Cross-Border Interbank Payment System (Cips) and renminbi as the bloc's alternative settlement channel. This is neither a BRICS currency nor a call for central banks to hold renminbi reserves. China is the largest trading partner of most BRICS members, which makes renminbi more practical than rupee or dirham. Renminbi can be spent on Chinese goods.

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There is already a proof of concept. The first Iranian crude cargoes India bought in 7 yrs were paid for in renminbi through ICICI Bank's Shanghai branch.

Decentralisation sounds like a sensible guard against dependence on any one power. But the SDN list's hold over banks gives Washington the power to strangle an alternative system in its infancy. If BRICS adopts one system from the start, it will be far harder to undercut.

India's objection is that Cips raises the same concern that kept India out of BRI a decade ago: participation might amount to recognising a China-led, unipolar Asia. But Cips would not swap dollar dependence for renminbi dependence. China can't abuse its dominance without losing the acceptance Cips needs, and a credible alternative also disciplines the US treasury.

With two parallel systems, no single government holds a veto over India's transactions. India can buy Iranian, Russian or any other crude according to national interest requirements.

The writer is a Beijing-based banking and finance lawyer.