India’s crude oil trade with Russia

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This topic of “India’s crude oil trade with Russia” is important from the perspective of the UPSC IAS Examination, which falls under General Studies Portion.

Context

Russia – Ukraine War

  • 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.

What the editorial is about?

  • Why does India need now to make some necessary adjustments on the financial front because of the challenges posed by the American sanctions?

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India’s oil import dependence

  • 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

  • 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.

What is at stake in the oil trade with Russia?

Alternative payment channels

  • 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?

SWIFT Payment System

  • 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.

Fuel and fertilizer

  • A steady supply of critical commodities such as fuel and fertilizer from Europe is crucial in India’s efforts to manage inflation.

Natural gas

  • 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 the oil supply from Russia important?

Oil requirements met through imports

  • As much as 85% of India’s oil requirement is met through imports.

Diversifying the supply sources

  • 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.

Russia can be a helping hand

  • Extra oil supplies from Russia could aid in this effort.

How’re the two nations handling the situation?

Rupee-Ruble Trade Mechanism

  • India and Russia are exploring a Rupee-Ruble trade mechanism using the 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.

Bank  with  limited  overseas  exposure

  • Another option is routing payments via a bank with limited overseas exposure so that it will not attract curbs.

Access to more vessels and containers

  • For additional Russian oil shipments, India needs access to more vessels and containers.

Need for an assessment

  • 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 which runs the second-largest single-site refinery in Gujarat.
  • India’s nuclear power project in Kudankulam in Tamil Nadu is built with Russian collaboration.

Conclusion

  • In order to shield the economy from the negative impact of the recent surge in crude oil prices, India is exploring the possibility of importing additional oil at discounted rates from Russia, which is facing sanctions and global backlash due to the Ukraine conflict.
  • India needs to make a cautious move. The United States and other western allies are also crucially important.

Practice Question for Mains

  1. Russia’s offer of cheaper oil is tempting, but India must be cautious. Discuss. (250 Words, 15 Marks)
Referred Sources

Live Mint

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