The issue dominating the headlines in the last few weeks was India and China — the two of the world’s top three crude oil importers — becoming wary of buying oil from Moscow after December 5, when European Union sanctions comes into effect.

Another reason for consumers becoming cautious is the proposed G7 cap on oil prices for purchase of Russia. Meanwhile, Moscow has been stating that it will remain a reliable supplier and it will not ship to countries that comply with the cap.

Where does this leave consumers like India who want to take advantage of cheap Russian crude oil which is now available? After December 5 it will also be tough to get insurance for tankers as most of the big insurers are Europeans.

India has been maintaining that it will continue to buy Russian oil because it benefits the country. This was stated by Foreign Minister Subrahmanyam Jaishankar recently after his meeting with his Russian counterpart.

Reacting to the G7 plan to cap the price of Russian oil, Jaishankar had said that as the world’s third-largest consumer of oil and gas, India had to look after its own interests. He added, “... quite honestly, we have seen that the India-Russia relationship has worked to our advantage”.

Both sides are keen to expand the rupee-rouble trade too given that once sanctions come into place it would be difficult for even India to trade in dollars.

Looming sanctions

Sanctions on financial services will come into effect after December 5 for conducting trade with Russia.

On November 15 at the G-20 Summit’s Session I: Food and Energy Security, Prime Minister Narendra Modi in his address said, “...India’s energy-security is also important for global growth, as it is the world’s fastest growing economy. We must not promote any restrictions on the supply of energy and stability in the energy market should be ensured.”

The Prime Minister went on to say, “India is committed to clean energy and environment. By 2030, half of our electricity will be generated from renewable sources. Time-bound and affordable finance and sustainable supply of technology to developing countries is essential for inclusive energy transition.”

By keeping its commercial interests independent of politics, India has made its stand on oil imports clear.

But the challenge will be to deal with the knock-on effect of the sanctions — how to ferry the oil.

On whether India has come of age as far as dealing with its commercial interests in global situations, former diplomat, Ajay Bisaria, said that India values its strategic autonomy in pursuing its national interests, particularly its economic and security objectives.

“India has always tried to defend its core interests but does it more fiercely now. In the current situation crude oil imports were clearly a core interest,” he said, adding that “over the years we have managed to convince the US that our relationship with Russia is a matter of our core interest, just as the Russians accept our strategic partnership with the US as a core interest.”

Bisaria acknowledged that the sanctions on financial services would impact trade with Moscow since the implementation of the deals will face headwinds. “Actual implementation of sanctions is an issue,” he said.

Rupee trade tangle

On rupee trade and why Indian entities are still wary of doing trade with Russia when the government is working out options he said, “we have been nimble in creating a rupee trade ecosystem and pipeline. We had attempted it earlier too but failed. More than capping of oil price what will impact us is the knock-on effect of the sanctions.”

On November 8, Jaishankar after his meeting with Russian Foreign MinisterSergey Lavrov, said, “ is important that I lay out the context for this visit. Normally, that would not be necessary, but these are unusual times. Let me begin by emphasising that India and Russia have a long-standing partnership that has served both countries very well over many decades. This covers a range of practical cooperation in fields like trade, investment, energy, commodities etc. as well as sensitive domains like defence, space and nuclear.

“My objective in coming here today is to sit down with my Russian counterparts — Minister Lavrov and Deputy PM Manturov — and assess how we are doing. There are clearly challenges that we need to address as well as prospects that we are exploring. For this stock-taking exercise, I am accompanied by senior officials from the Indian Ministries of Agriculture and Farmers Welfare, Petroleum and Natural Gas, Ports, Shipping & Waterways, Finance, Chemicals and Fertilizers as well as Commerce and Industry.”

Paul Hickin, Director, S&P Global Commodity Insights said, “Russian crude has found a market in India, China and Turkey among others. What remains to be seen is how the price cap will work. But a bigger challenge will be logistics — how the crude will be transported — particularly for India.”

What also needs to be noted is that Russia will try to avoid using oil for politics, as it does with gas, he said adding, “The three big buyers will continue to buy the Russian oil. Today, it is available at a discount of $20 a barrel.”

“Sanctions have been witnessed earlier too but the key is implementation. Given the price dynamics we may also see grey market getting active — the crude being routed by blending it with other crude, as was seen in case of Iran or swapping. So, trade will happen, but the quantity could come down,” he pointed out.

Earlier attempts to deal with situations like this have failed because of delayed decision making due to bureaucratic hurdles.

A lesson for consumers like India is to strengthen its currency trade and banking mechanism. India recently devised a mechanism to settle trade with foreign nations in rupee terms through vostro accounts of foreign banks in India. But what is needed is strengthening the entire value chain.

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