To protect the economy from the negative effects of the recent crude oil price spike, India is exploring the possibility of importing additional oil at a discount from Russia, which faces sanctions and a global response to the Ukraine conflict.
According to commodity data and analysis firm Kpler, Indian crude oil imports from Russia in March this year were almost four times higher when compared to the same period last year.
Indian crude oil imports from Russia averaged nearly 360,000 barrels a day in the first half of this month. According to the current delivery schedule, the average oil trade between the two countries is around 203,000 barrels a day.
“Oil cargoes that have been made from Russia that can’t find buyers in Europe are being bought by India,” the Financial Times quoted Alex Booth, head of research at Kpler, as saying.
“Exports to India soared in March before any official announcement by New Delhi,” Booth said.
There are no government-to-government (G2G) arrangements for oil trade between India and Russia. Indian Oil Corporation has made most of its crude oil purchases from Russia for India.
While the United States has acknowledged that India’s purchase of crude oil will not violate U.S. sanctions, it has warned that it will put India on the wrong side of history.
The US has increased pressure on India to distance itself from Russia.
White House Press Secretary Jen Psaki said on Friday in Washington that the United States is in touch with Indian leaders at various levels over the issue of India’s decision to buy oil from Russia at a discount.
“We will project and convey to any leader around the world that the whole world is watching, where you will stand, as it relates to this conflict, (and) whether it is support for Russia, in any form as they invade Ukraine illegally, “Psaki said.
India has so far adopted a neutral approach in the Russia-Ukraine conflict. It is among the few countries that have not condemned Russia’s aggression on Ukraine. India also avoided voting on a US -sponsored UN Security Council resolution that frustrated Russia’s aggression against Ukraine.
India’s decision to increase crude oil trade and economic engagement with Russia will have significant diplomatic and economic implications.
It is important to note that India is heavily dependent on imports to meet its oil needs. Nearly 85 percent of the country’s average daily crude oil requirement of around 5 million barrels is met through imports.
Rising crude oil prices are putting huge pressure on the Indian economy. High crude oil prices pose inflationary, fiscal and external sector risks. India’s budget calculations for the financial year 2022-23 have been made assuming crude oil prices range from $ 70 to $ 75 per barrel.
Crude oil prices have soared as a result of the Russia-Ukraine conflict. It jumped to nearly $ 140 a barrel earlier this month.
India, as a major importer, needs to continue to explore competitive pricing. The huge discounts offered by Russia are an opportunity. It is important from an Indian economic perspective.
Commenting on India-Russia oil trade, Foreign Ministry spokesman Arindam Bagchi said as a major importer of oil, India sees all options at all times. “India imports most of its oil needs, it is met by imports. So we are always exploring all possibilities in the global energy market because of this situation we are facing importing our oil needs,” Mr Bagchi said.
Russia is the second largest exporter of crude oil behind Saudi Arabia. Nearly three -quarters of Russia’s crude oil exports go to OECD member states.
Central European countries such as Germany, France and Italy, also members of the North Atlantic Treaty Organization (NATO), are heavily dependent on Russian oil supplies. If NATO member states continue to import Russian oil for economic reasons, India must also prioritize economic interests.
A major challenge in the Indo-Russian oil trade is the payment system. According to sources, the two countries have ventured to create a rupee-ruble trading mechanism to pay for oil and other goods.
Several other issues need to be resolved, apart from the payment mechanism. It includes insurance and transportation.
During military conflicts, insurance costs increased significantly. Indian oil imports from Russia have traditionally been low due to high transportation costs.
Union Minister for Petroleum and Natural Gas Hardeep Singh Puri said recently that the Indian government was evaluating Russia’s crude oil import offer at a discount in the Rajya Sabha.
“Discussions are underway. Several issues need to be discussed, such as the amount of oil available either in Russia or in new markets or with new suppliers that may enter the market. In addition, there are issues related to insurance, transportation., And various other issues, including. payment arrangements, “the minister said.
Russia has become one of India’s closest and most reliable allies. It is its largest arms supplier to India. According to data available with the Ministry of Foreign Affairs, Russian investments in India amount to $ 18 billion while Indian investments in Russia amount to $ 13 billion.
The trade balance is in favor of Russia. India’s imports from Russia totaled $ 7.75 billion, while India’s exports to Russia totaled $ 3.22 billion in 2018.
Despite the threat of U.S. sanctions, the government of Prime Minister Narendra Modi in 2018 signed a $ 5.43 billion deal with Russia to buy the S-400 defense system. Delivery of the missile system will begin in 2021.
However, India needs to take prudent steps. The United States and other western allies are also very important.