Context

This week the Wall Street Journal and the New York Times both reported on India emerging as a major buyer of Russian oil.

Background of rising fuel prices due to Ukraine crisis

• A significant fallout of Russia’s invasion of Ukraine has been the rising cost of petroleum.
• In response to the invasion, Western countries, including the United States and Europe, have imposed an array of sanctions against Russia.
• Reduced purchases from Russia: Europe and the United States have seen the price of oil steadily rise after they reduced their purchases from Russia.
• For now, Russia has been able to mitigate the impact of sanctions by selling crude, oil and coal at reasonable prices in greater volumes to newer bulk buyers like India, to combat Europe trying to wean itself off Russian crude.

Why India increased purchase of Russian oil

• India has chosen a different route.
• Cope with rising fuel prices: We are the third-largest importer and consumer of oil in the world and have increased our purchase of Russian oil to cope with rising oil prices elsewhere.
• We are also refining crude oil or turning it into products like jet fuel and diesel and selling it to Europe and other nations.
• Curb inflation: Importing Russian crude also helps us curb inflation that has been made worse by rising fuel prices.
• Halting the fall of the rupee: Procuring discounted Russian oil is an effort by the government to bring down prices and halt the decline in the value of the Indian rupee.
• India’s behaviour is governed by our best interest, which is the most important element of any astute foreign and economic policy.

Issues with purchasing oil from Russia

• The European Union has announced a ban against insuring ships carrying Russian oil, to commence this December.
• Insurance ban: Countries like India, China and Turkey that are increasing their oil purchases from Russia have six months to find a work-around to the insurance ban by using non-European insurance companies.
• European companies own most of the ships carrying Russian oil to India.
• These insurance sanctions will impact the companies that own these ships as well.
• Dependence for batteries: Apart from geopolitical changes in the world indicating the rise of China, there is a major change: Electric vehicles and electric batteries substituting for non-renewable resources like petroleum and diesel.
• India cannot afford to be dependent on an unhindered supply of electric batteries from China, given geopolitical considerations and border disputes between the two nations.

Way forward

• To weather the new electric era that will no doubt be dotted with territorial wars and national security concerns, India would do well to preempt shortages in the arena – by putting in place factories which will build the electric batteries that will power our futures.
• What the invasion of Ukraine has taught us is that we need to be more self-reliant and have in-house energy sources.

Conclusion

India needs to factor in the implications of comprehensive western sanctions as it increases its purchase of discounted Russian oil.

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