The world watches with bated breath as the war in Ukraine unfolds. Amidst the turmoil, one major international player’s response has fallen under the radar: India’s pivot towards Russian oil imports.
Before the Russia-Ukraine War, Iraq and Saudi Arabia were the major sources of oil for India. But with western sanctions squeezing Russia’s oil sales, they offered India steep discounts. India seized the opportunity, increasing its imports of Russian crude oil by 140% in 2023. This translates to an average of 1.75 million barrels per day. This aggressive buying spree has made Russia India’s second-largest oil supplier.
India, the world’s third-largest oil importer, faces a constant challenge to meet the ever-growing energy demands of its burgeoning population. With global oil prices soaring due to the Ukraine conflict, India has found itself in a precarious position. Enter Russia, offering its oil at significantly discounted rates due to Western sanctions. This price advantage is undeniably attractive. The significant increase (25% year-on-year) in the value of India’s crude oil imports from Russia has sent shockwaves through the geopolitical landscape.
According to estimates, India can save up to $35 per barrel of Russian oil compared to benchmark Brent crude. This translates to significant cost savings, potentially easing the burden on Indian consumers facing rising fuel prices. Additionally, these discounted purchases can free up valuable foreign exchange reserves for India to invest in crucial sectors like infrastructure and social welfare programs. While the discounted prices offer a seemingly irresistible bargain, this move is a gamble with potentially unsustainable consequences.
The India-Russia oil deal is not merely a matter of economics. It’s a strategic move on India’s foreign policy chessboard. India has long maintained a close relationship with Russia, dating back to the Cold War. This partnership extends beyond energy to include defence cooperation and diplomatic support. By increasing oil imports, India strengthens its ties with Russia, potentially securing a reliable energy source and a strategic ally in a volatile world order. This move reinforces India’s long-standing relationship with Russia, offering a counterweight to China’s dominance in the region. Russia’s growing dependence on China creates a strategic dilemma for India. While the discounted oil is undeniably attractive, India may not achieve a true counterweight to China if Russia becomes economically beholden to them. This could limit Russia’s ability to act as a strategic partner against China in the long run.
India finds itself walking a tightrope. They value the economic benefits of the oil deal and their long-standing ties with Russia. However, they also recognize the importance of maintaining a strong relationship with the US and its allies, particularly in the face of a rising China. This may necessitate India diversifying its alliances and strategic partnerships to avoid being overly reliant on any one power.
One possibility is that India attempts to compartmentalize its foreign policy. They could continue to benefit from the oil deal with Russia while simultaneously cooperating with the US and its allies on issues like regional security or economic cooperation in the Indo-Pacific. India’s neutrality allows it to exploit deals like the discounted Russian oil, furthering its own interests without necessarily aligning with one major power over another. However, successfully navigating this complex geopolitical landscape will require significant diplomatic finesse. By increasing oil imports from Russia, India reduces its dependence on the Middle East and potentially strengthens its bargaining power with other suppliers.
Bordered by China, a rising power with unresolved territorial disputes, and Pakistan, a long-standing rival, India needs allies to counterbalance these regional pressures. Russia, with its historical ties and military cooperation, offers a potential counterweight. This complex balancing act makes diversification of trade essential.
But the key question here is whether India’s short-term gamble on Russian oil is sustainable in the long-run. The discounted prices are contingent upon the ever-changing geopolitical landscape. If the war in Ukraine ends or sanctions on Russia ease, the price advantage might disappear. Investing heavily in a single source for such a critical resource leaves India vulnerable to future price fluctuations or potential supply disruptions due to political or economic instability in Russia.
Crucially, as India moves closer to the West, it’s new-found fondness for Russian oil could ostracise it from its other important allies. India could be seen as indirectly supporting a nation accused of war crimes and challenging the West’s capacity to enforce international law through sanctions.
Nonetheless, the gamble looks set to pay off for now. Sanctions on Russia seem unlikely to end in the near future, considering the ongoing conflict. Similar sanctions imposed on Iran for its nuclear program remained in place for over a decade before being partially lifted due to a change in Iranian policy. This example suggests that sanctions can be long-lasting, potentially offering India a sustained period of discounted oil prices from Russia. This prolonged pressure could keep Russian oil prices lower for an extended period, offering India a sustained economic benefit.
Global economic instability shows no signs of abating. Rising energy and commodity prices are a major concern for developing economies like India. Discounted Russian oil provides a much-needed buffer against these economic headwinds. But Indian policymakers must be on alert for signs that their friendship of convenience with the Putin regime does not compromise its wider strategic interests.
