India is exploring alternative payment channels for trade with Russia and the possibility of sourcing additional oil at a discount, even as the West reduces its exposure to Russian oil. Mint takes a look at where India stands to gain or lose:
What is at stake in oil trade with Russia?
India is heavily dependent on oil imports, the bulk of which comes from the Middle East, Africa, Europe, North America, South America, and South-East Asia. Russia’s oil-related exports to India are only about $1 billion. However, Russia is keen to scale this up even as the US has announced a ban on oil imports from the country and the UK has adopted a more gradual reduction. This offers the opportunity for a lucrative supply deal with the second largest oil exporter after Saudi Arabia. India, however, needs to find alternative payment channels due to the evolving crisis. This is also crucial for bilateral non-oil trade.
What is at risk because of the payment crisis?
Western curbs cutting off some Russian banks from the SWIFT payment system has proven to be a setback for bilateral trade with payments worth $500 million to Indian exporters for goods already shipped reportedly being stuck. In the April-January period of FY22, India imported goods worth $7.8 billion from Russia and exported goods worth $2.8 billion. A steady supply of critical commodities such as fuel and fertilizer from Europe is crucial in India’s efforts to manage inflation. A spike in natural gas in global markets is pushing up the cost of procuring commonly used urea, which is sold at a subsidized price to farmers.
Why is oil supply from Russia important?
As much as 85% of India’s oil requirement is met through imports. The government has tried diversifying its supply sources, adding more gas into the energy basket, giving a strong push to electric mobility, building strategic reserves and blending ethanol in auto fuel to reduce oil import dependence. Extra oil supplies from Russia could aid in this effort.
How’re the two nations handling the situation?
India and Russia are exploring a rupee-rouble trade mechanism using currency of a third country as a reference. This would allow Indian exporters to be paid in rupees. This would need an Indian and a Russian bank opening shop on each other’s soil. Another option is routing payments via a bank with limited overseas exposure so that it will not attract curbs. For additional Russian oil shipments, India needs access to more vessels and containers. Indian refiners’ ability to process larger quantities of crude oil also needs to be assessed.
What is the scope of engagement?
New Delhi has for long followed the policy of acquiring energy assets abroad to reduce risks related to heavy import dependence on oil. Oil and Natural Gas Corp. Ltd’s investment in Russia’s Sakhalin project is one example. Besides, Russian company PJSC Rosneft Oil Co. is a stakeholder in Nayara Energy Ltd that runs the second largest single-site refinery in Gujarat. India’s nuclear power project in Kudankulam in Tamil Nadu is built with Russian collaboration.