NShort other Direct war and plague will hurt the Indian economy as much as the rise in oil prices. Imports of petroleum products last year accounted for more than a quarter of the country’s total spending – more than any other major economy. Can cheap Russian reduce crude bills?
Despite Western sanctions, India has refrained from condemning Russia’s aggression in Ukraine. But it has become isolated from Russia’s big banks Swift Messaging systems used for cross-border transactions and American measures have largely blocked the use of the dollar, complicating trade. As we write this, Russian Foreign Minister Sergei Lavrov was scheduled to visit Delhi on March 31. One item on the agenda was expected to find ways to work around sanctions to enable Russian oil sales in India.
The oil and gas companies of the two countries are already working together. ONGC Overseas, the foreign oil-and-gas exploration and production branch of the Indian government is involved in three projects in Russia, for example; Rosneft, a 49% owner of Nayara Energy, a Russian state-owned giant, is a Mumbai-based firm with 6,000 filling stations and a large refinery in Gujarat.
However, overall oil trade between the two countries is limited: According to the Indian government, less than 1% of its oil imports came from Russia last year. The fact that trade is a hoax is a reflection of geography rather than politics. India bought oil from Iran, another country facing US sanctions until 2019. But Iran has separated from India only through water. In contrast, there is no direct overland route or small water crossing from Russia to India.
A report in the Indian media in recent weeks details a new purchase agreement for Russian crude by Indian state-owned oil companies. Hindustan Petroleum reportedly bought 2m barrels and Indian Oil 3m barrels; Mangalore Refinery and Petrochemicals wanted to buy 1m. Others have reportedly bid for Russian oil.
All told, the amount probably comes to 15 million barrels, about three days of India’s cost. But it is seen as the first sign of close engagement. Russia has offered to pay transportation and insurance costs, with steep discounts reportedly available.
The main disadvantage, though, is the payment. To deal with Iran after the sanctions were imposed in 2011, India used UCO Bank, a state-run firm with foreign operations that extended only to Singapore, Hong Kong and Tehran and was outside the Western regulatory net. At this point, however, Singapore has cracked down on Russian transactions, meaning UCO cannot be used.
The Government of India and the Central Bank are therefore considering other options. An idea being considered is used SPFSRussia’s alternative Swift, To manage cross-border transactions, which would impede the financial fluctuation of the dollar. Another proposal, accordingly Economic Times, The opening of Rupee accounts for Russian exporters involves the use of Indian activities by several large Russian banks as a carrier of transactions.
The problem, however, is that trade between the two countries is unbalanced: India imports more than twice as much from Russia as it exports, which could hold Russian sellers hostage. Plenty to chew on Mr. Lavrov and his hosts. 3
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This article was published in the Finance and Economics section of the print edition under the title “Side Channel”.