Although India’s foreign policy is increasingly aligned with that of the West, especially the US, it also has strategic relationships with major powers like Russia in a multi-polar world. For such reasons, it has preferred a delicate balancing act in not joining the chorus of Western nations in condemning Russia’s ongoing war in Ukraine while appealing for an immediate cessation of violence.  

The West led by the US has announced unprecedented financial sanctions, including bans on imports of Russian oil and gas (US and Japan) and is exerting pressure on India not to increase its reliance on energy imports from that country. India, for its part, has held firm in its resolve to purchase deeply-discounted Russian oil to enhance its energy security.

This contentious issue featured in the meeting between Indian Prime Minister Narendra Modi and US President Joseph Biden as a prelude to the 2+2 bilateral dialogue. Although Biden stopped well short of pressuring India to stop buying Russian oil, other administration officials have tacitly cautioned of consequences if countries circumvented sanctions on Russia (although energy purchases are exempt).  

In briefings after the 2+2 dialogue, India’s External Affairs Minister S Jaishankar forthrightly responded to media queries stating: “If you are looking at energy purchases from Russia, I would suggest your attention should be focused on Europe…. Probably, our total purchases for the month would be less than what Europe does in an afternoon.”

Indian options 

India is exercising its option to purchase cheaper Russian oil -– although it is a fraction of its current requirements of 5.15 million barrels a day -- as global oil prices are nudging $104 a barrel which adversely impacts its economy as it imports 85 percent of its crude oil requirements.  

These purchases are on favourable terms wherein the seller bears the costs and pays the freight including insurance charges. In March, Russian oil purchases have been estimated at 203,000 barrels a day based on shipment schedules according to a report in the Financial Times, which meets barely 4 percent of India’s daily consumption of crude.

“Even if we were to scale these up considerably, it would still be a drop in the larger basket,” stated India's Minister for Petroleum and Natural Gas Hardeep Singh Puri to Parliament. The minister explained that 60 percent of India’s requirements of oil came
from the Gulf countries. To enhance its energy security, India has been seeking alternative and reliable sources of supply like from the US.  

American oil amounted to 14 million tonnes or 7.1 percent of total imports in 2020-21. Russia then only met 0.3 percent of India’s imports. US oil imports are projected to have risen to 16.8 million tonnes in 2021-22 while from Russia only 419,000 tonnes were imported in the first 10 months of the financial year, according to Puri.

More at stake 

The allure of Russian oil for India, however, is more than the imperatives of energy security. It also has deep stakes with $16 billion of investments in various oil and gas projects in Russia. ONGC Videsh Ltd has a 20 percent stake in the Sakhalin-1 project in Far East Russia from where ExxonMobil has exited. Shell, too, is winding down its presence in Russia.  

India simply cannot write off these investments and must be alert to seize opportunities that open up to deepen its involvement, including developing pipelines to transport oil from the Russian Far East to India. Besides oil from Sakhalin and other projects, the Ministry of Petroleum is considering ways of bringing oil and gas from India’s 52 overseas fields across 22 countries to bolster energy supplies.

Although India’s purchasing Russian oil despite pressures from the US, its balancing act includes being mindful of Western financial sanctions. These include a growing list of Russian banks being removed from SWIFT, a network that connects thousands of financial institutions around the world, besides bans on transactions with its central bank.  

Such measures impact Russia’s trade and financial transactions with the rest of the world. India, for its part, has so far not announced the payments mechanism in national currencies for what it trades with Russia although Indian exporters are worried as they have payments of $400-600 million pending.

Paying Moscow 

The Reserve Bank of India’s Governor Shaktikanta Das firmly stated that “we are sensitive to sanctions and the entire thing is under examination. No decision has been taken”. The delays in firming up the payments mechanism in national currencies, however, flies in the face of the reality that rupee-rouble trade – like in the days of the erstwhile Soviet Union – has been very much on the table since Russia annexed Crimea in 2014.  

There are bound to be uncertainties for India if the ambit of sanctions keeps widening with Russia’s military operations dragging on. If the existing carve-out for energy purchases is revisited, how then will it pay for Russian oil?

(The writer is an economics and business commentator based in New Delhi. Views are personal. He may be contacted at nchandramohan@rediffmail.com)