Oil deal with Pakistan signals shift in US strategy amid tensions with India

In a surprise move, on July 30, US President Donald Trump announced that the United States had reached a trade deal with Pakistan, agreeing to jointly develop the South Asian nation’s underexplored oil reserves. The deal, touted by Trump as a major step forward in bilateral relations, aims to unlock Pakistan’s “massive” oil potential, which remains largely untapped due to limited technical expertise and infrastructure challenges.

In a post on Truth Social, Trump expressed optimism about the partnership: “We have just concluded a deal with the country of Pakistan, whereby Pakistan and the United States will work together on developing their massive oil reserves.” He added that officials were in the process of selecting the oil company that would lead the effort, hinting at a future where Pakistan might even sell oil to India. “Who knows, maybe they’ll be selling oil to India some day!” he said, a remark likely aimed at putting pressure on neighbouring India over its continued purchase of Russian energy.

Oil reserves and unclear prospects

Details of the agreement remain sparse, particularly regarding the size of Pakistan’s oil reserves. While Trump referred to them as “massive,” Pakistan's proven reserves are much smaller than India’s. As of 2016, Pakistan’s reserves stood at around 353 million barrels, just under 10 per cent of India’s reserves, which were estimated at 4.8 billion barrels. However, Pakistan has made recent offshore discoveries that could potentially increase its oil reserves, although the full extent remains uncertain.

What is clear is that Pakistan’s energy sector faces considerable hurdles. The country has historically relied on oil imports from West Asia, and although it has identified offshore oil deposits, limited technical expertise and financial resources have hindered the development of these reserves. Pakistan has made several attempts to attract foreign investment, but these efforts have faced challenges, including geopolitical instability and security concerns, especially in its offshore areas.

Even if the US helps Pakistan unlock these reserves, the oil market dynamics suggest limited impact on India’s energy needs. India remains heavily dependent on oil imports, but it is far better positioned than Pakistan to meet its own energy demands, producing significantly more crude oil per day and holding much larger proven reserves. India’s proven reserves and daily production far exceed Pakistan's, with India producing over 600,000 barrels per day in February 2025 compared to Pakistan’s 68,000.

Trump's criticism of India and trade tensions

The announcement of the oil deal with Pakistan coincided with President Trump’s sharp criticism of India. In a separate Truth Social post, Trump declared a 25 per cent reciprocal tariff on all Indian goods and a penalty for India’s ongoing purchases of Russian military equipment and energy. Trump accused India of being one of Russia’s largest energy customers, alongside China, and suggested that the country’s continued reliance on Russian oil amid sanctions was unacceptable.

Trump’s jibe at India, which has long been a strategic partner of the US in the Indo-Pacific region, reflects growing trade tensions. His administration has been vocal about India’s tariffs on American goods and its reluctance to open its agricultural and dairy markets to American imports. Trump’s new trade measures, set to take effect from August 1, could significantly impact India’s exports to the US, particularly as the two nations had been negotiating a broader trade deal.

While the US helping Pakistan develop its oil resources could have some economic benefits for the country, analysts suggest that the main motivation for the deal is geopolitical. The US is likely seeking to strengthen Pakistan’s energy sector while applying pressure on India to diversify its energy imports away from Russia and consider purchasing more oil from the United States. This could reduce India’s dependence on Russian energy and, in turn, improve the prospects for American oil exports.

A new era of US-Pakistan ties?

The oil deal is seen as a sign of thawing relations between the US and Pakistan, which have long been marred by tension over issues like counterterrorism and military cooperation. Just weeks ago, President Trump hosted Pakistan’s army chief, Field Marshal Asim Munir, for rare talks at the White House, signalling a shift in diplomatic ties. The two countries have also been discussing expanding cooperation in critical minerals, with Pakistan offering to boost American imports of cotton and soybeans.

The deal to develop Pakistan’s oil reserves may not drastically change the regional energy landscape, but it could mark the beginning of a new chapter in US-Pakistan relations, with economic and geopolitical implications for the wider South Asian region.

(With inputs from agencies)