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There’s no reason why India should turn down Russian oil discounts

The Indian Oil Corporation reportedly bought three million (30 lakh) barrels of Russian crude oil last week at a discounted price. (AP)Premium
The Indian Oil Corporation reportedly bought three million (30 lakh) barrels of Russian crude oil last week at a discounted price. (AP)

India could be buying Russia’s flagship Urals grade at discounts of as much as $35 a barrel on prices before the war. Given that Brent prices have risen more than that since the war began, substantial savings can accrue from the deep discounts

New Delhi: India is buying Russian crude in defiance of Western, especially US pressure, to isolate the country economically and financially. India could be buying Russia’s flagship Urals grade at discounts of as much as $35 a barrel on prices before the war. Given that Brent prices have risen more than that since the war began, substantial savings can accrue from the deep discounts. Indian producers are confident of their capacity for refining increasing quantities. Reuters has reported that India has already bought at least 13 million barrels in the weeks since Russia invaded Ukraine compared with some 16 million barrels for the whole of last year.

The US isn’t pleased, going by the noises that came out of a press meet in New Delhi called by the deputy national security adviser for international economics in the Biden Administration, Daleep Singh. The Western sanctions seeking to isolate Russia in international trade and finance are his work mostly. For which, the western media has given him the sobriquet, ‘Mr. Sanctions’.

Singh made three main points in the press meet: None of the Western sanctions prohibits at present energy imports from Russia; The US stands ready to provide alternative sources for oil imports, much like is the case for defence resources, over a period of time; The Biden Administration would not like to see a rapid acceleration of India’s energy imports from Russia or trade in non-Western currencies, for that will help in resurrecting the ruble, which sank considerably on the initial impact of the sanctions but is slowly correcting.

Should India pay heed? Not really. India should go ahead and buy all the discounted Russian oil it can, paying in the national currency, the rupee.

First, as Singh said, the sanctions do not cover Russia’s energy trade. There’s a reason, and that is Europe’s dependence on Russian gas. Europe will take more than a year to replace the volume of energy imports it receives from Russia and in the meantime households and businesses will pay a lot more for fuel, electricity and heating. The US has completely banned all Russian oil; its shale production becomes viable at higher prices. But Britain says it will phase out in a year’s time. Germany has said that it will reduce its dependence on Russian gas over time; it isn’t in a position to turn off the supplies immediately.

And so, even as the war is on, Europe is buying oil and gas from Russia at rising prices, paying for Putin’s war. There’s no move to cut back consumption. In fact, Europe has forgotten all about the anti-fossil fuel slogans and climate change and is beginning to subsidize consumption. Country after country is introducing blanket fuel tax cuts and subsidies, something that wasn’t done when global crude prices were at all-time high a few years ago. If Kremlin insists on ruble-denominated payments rather than euros, as some of its recent statements suggest, will Europe stop buying? And if it doesn’t, will we see Singh tell Berlin publicly to refrain from challenging the dollar’s hegemony? Similarly, India can trade in its national currency, the rupee.

Second, rising crude prices imply each one of us is already paying for Putin’s war anyway—directly or indirectly. The savings from the discounted Russian oil, even after accounting for higher transportation and other associated costs, will soften the blow of rising global crude prices for India’s energy-intensive pandemic-ravaged economy and millions of poor Indian households.

Third, India’s stand is that Russia stood by India in the past and India supports resolving the crisis through diplomacy. It’s alright to argue that the US considers a democratic India to be its potential ally in its superpower rivalry with China, and therefore, the revival of rupee-ruble denominated trade, essentially to help Russia bypass the dollar-based global financial and trade system, and work around the sanctions, doesn’t sit well with the building of trust with the US. But the argument ought to run both ways. In 2013, at the peak of the taper tantrums, the Reserve Bank of India reached out to the US Federal Reserve for a rupee-dollar swap—as dollar investments pulled out of India, triggered by the US central bank’s policies, sinking the rupee to its life-low (at the time)—but never heard back at all.

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