India has become a major buyer of Russian crude. But some caution is needed

The cold reality of modern life is that more than love, crude oil makes the world go round. Crude is the raw natural resource extracted from the earth and then refined into widely used products like petroleum, jet fuel and heating oils. The price of crude impacts the cost of essentials like food and clothing – since every good we access daily has been transported over long distances.

An important consequence of Russia’s invasion of Ukraine was the rise in the price of oil. Russia is the world’s largest exporter of petroleum products to world markets and the second largest exporter of crude oil behind Saudi Arabia. About 60% of Russia’s oil exports go to Europe and 20% to China.

In response to the invasion, Western countries, including the United States and Europe, imposed a series of sanctions against Russia. Europe and the United States have seen the price of oil rise steadily after reducing their purchases from Russia. Today, gasoline costs an all-time high of nearly $5 a gallon in the United States, up nearly 50% from last year. President Joe Biden has been forced to consider a gasoline tax exemption in light of growing American public discontent, even though the taxes make up about a third of the price of gasoline.

India, on the other hand, has chosen a different path. We are the third largest importer and consumer of oil in the world and have increased our purchases of Russian oil to meet rising oil prices elsewhere. This week the the wall street journal and the New York Times both noted India’s emergence as a major buyer of Russian oil. According to the wall street journal, India has increased its imports of Russian crude by more than 25 times since the start of the invasion on February 24, 2022. As of June 1, 2022, India was importing an average of one million barrels per day. We also refine crude oil or turn it into products like jet fuel and diesel and sell it to Europe and other countries. Importing Russian crude also helps us curb inflation which has been made worse by rising fuel prices. The purchase of Russian oil at a discount is a government effort to drive down prices and halt the decline in the value of the Indian rupee which has now crossed Rs 78 to the dollar – from an average of Rs 73.93 the last year.

India’s behavior is governed by our best interest, which is the most important element of any shrewd foreign and economic policy. We have historically imported oil and crude from Iran, Iraq and Russia, countries that have been placed in a precarious position due to war and/or sanctions.

For now, Russia has been able to ease the sanctions by selling crude oil and coal at reasonable prices in larger volumes to new wholesale buyers like India, to fight against Europe trying to weaning off Russian crude. In May, Chinese imports of Russian oil increased by 28%. While purchases of Russian crude in Europe fell by 5.54,000 barrels per day, Asia’s consumption increased by 5.03,000 barrels. Russia therefore did not suffer a significant loss in terms of crude oil sales.

Currently, the European Union has imposed a partial embargo on the purchase and import of Russian oil. However, the West plans to introduce more comprehensive sanctions. The sanctions announced include a ban on the maritime import of Russian crude oil by December 5, 2022 and a ban on the import of petroleum products from February 5, 2023. The European Union also announced a ban on ensuring the vessels carrying Russian oil, to begin this December. Countries like India, China and Turkey that are increasing their oil purchases from Russia have six months to find a solution to the insurance ban by using non-European insurance companies. As the the wall street journal reports, European companies own most of the ships carrying Russian oil to India. These insurance sanctions will also have an impact on the companies that own these vessels. It remains to be seen what impact all this will have on the global economy in general and on the Russian economy in particular.

While waiting for the full impact of the sanctions on Russian crude, we must take into account the new global realpolitik. China has become a superpower, while the two Cold War powers, Russia and the United States, have been radically changed. Some might say they are in decline. The United States faces deep social divisions within the country and could enter a recession. While Russia has been able to absorb the impact of these sanctions for now, it is unclear how it will withstand the full force of the West’s planned response plan.

However, this ability to buy cheap Russian crude may only be a temporary solution to our long-term fuel needs. Besides the geopolitical shifts around the world indicating China’s rise to power, there is one major shift: electric vehicles and electric batteries are replacing non-renewable resources like oil and diesel.

As I wrote in a previous column (“Driving a new world order”, IE, October 31, 2021), there is a concentration of battery factories/suppliers in China and South Korea. We might have been able to buy cheaper crude from Russia and weather this “crude storm”. India cannot afford to depend on an unfettered supply of electric batteries from China, given geopolitical considerations and border disputes between the two nations. To weather the new electric era that will no doubt be riddled with turf wars and national security concerns, India would do well to anticipate shortages in the arena – setting up factories that will build the electric batteries that will power our future. What the invasion of Ukraine has taught us is that we need to be more self-sufficient and have internal energy sources.

The author is a Senior Advocate at the Supreme Court of India

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