The Big Picture

India's Russia Moment

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  • India has faced financial and diplomatic fallout from Russia’s war in Ukraine, including skyrocketing LNG prices.

  • Its biggest challenge now is to ensure that (discounted) crude oil supplies from Russia are not disrupted when EU bans and the proposed G7 price cap come into effect from Dec. 5.

  • India assuming the presidency of both the G20 and UN Security Council from December raises the possibility of New Delhi playing a peace-broker role between Russia and Ukraine.

India faces a winter of uncertainty. The G7 price cap and EU and UK bans on shipping and related services for Russian crude will put pressure on tanker availability and could spike oil prices given Russia's pledge not to sell oil under the cap — threatening India’s energy security while undermining its economic growth. The trajectory and outcome of war could also alter the Asian geopolitical order, strengthening hand of India’s biggest rival, China. Neither would bode well for Prime Minister Narendra Modi’s Bharatiya Janata Party ahead of local elections in nine states next year.

Meanwhile, media speculation in the run-up to Indian Foreign Affairs Minister Subrahmanyam Jaishankar’s trip to Moscow this week was that New Delhi could play a role as a mediator between Russia and Ukraine, especially given India’s upcoming G20 and UN Security Council presidencies. Modi reportedly offered assistance on peace talks last month, but Ukrainian President Volodymyr Zelensky rejected the offer. At a press conference in Moscow, Jaishankar noted the current challenging environment caused by the Ukraine crisis and said both sides should return to diplomacy and dialogue. But he also called Russia a “steady and time-tested partner” and — with reference to Russian crude flows — said the relationship had worked to India’s advantage. India as a major consumer cannot afford to buy oil at high prices, Jaishankar reiterated.

December Oil Trade Unclear

That energy security appeared to dominate Jaishankar’s visit was not surprising after Russia emerged as India’s top crude supplier in October, shipping over 900,000 barrels per day or roughly a fifth of India’s demand. The two countries’ biggest concern is ensuring that Russian oil continues to flow after the Dec. 5 EU and UK bans and related G7 price cap.

But despite Jaishankar's bullish stance in Moscow, India's state refiners have not placed orders for crude lifting beyond Dec. 5 due to uncertainties about whether shipping and insurance will be available, Energy Intelligence understands. And a recent attempt by an Indian buyer to use the price cap in negotiations with a Russian seller prompted the latter to abandon the deal, market sources said.

An executive at Indian Oil told Energy Intelligence that since its imports from Russia are not a very significant part of its total monthly imports, steering clear of Russian cargoes will not immediately have much of an impact. But for the country as a whole, Russian imports are significant.

Indian refiners have the capacity to soak up another 600,000 b/d of Russian crude, provided it outcompetes the staple Mideast grades that are the lifeline of the country’s 5 million b/d refining base. But the availability of shipping and insurance — and payment channels — is key. From Dec. 5, tankers and shipping insurance linked to EU and G7 countries — which dominate oil shipping globally — will be barred from trading Russian crude unless those volumes are sold under the price cap, as yet undetermined.

About 90% of India’s liquids trade is shipped by foreign tankers, presenting challenges, independent energy analyst Narendra Taneja said. Insurance does not appear as problematic, and analysts say that Russian and Chinese firms can handle it.

India and Russia have meanwhile been trying to formalize rupee-ruble trading. The Reserve Bank of India in July set up rupee settlement system for international trade. Media reports say that Russia’s Sberbank and VTB Bank have opened a special “vostro” accounts (accounts held for foreign banks in the domestic bank's currency) in New Delhi. But the exchange rate remains a point of contention.

Indian oil companies are active in upstream projects in Russia (including Sakhalin-1, Taas-Yuryakh and Vankor), and ONGC Managing Director Videsh Rajarshi Gupta told the Eurasia Economic Forum last month in Baku that the company is interested in additional equity rights in Russia. But no new deals were struck in Moscow, where Jaishankar's meetings also dealt with fertilizer and defense — highlighting bilateral ties that stretch beyond energy to food and military security.

Great Game

India has not supported UN resolutions condemning Russia’s invasion, despite Western pressure, and Modi putting India’s national interest first has won him applause from India’s strategic community. India’s trade with Moscow ballooned to $18.2 billion between April and August of the current fiscal year that began Apr. 1, compared to just $13 billion for the full year ended Mar. 31. The aim is to reach $30 billion, according to Lavrov.

Analysts also say India has little choice over its Russia ties. In addition to benefiting from discounted crude, any break with Moscow is seen as likely to push Russia closer to China, India’s biggest rival in Asia. But there could be a shift in India's calculus if Russia uses tactical nuclear weapons or overtly tilts toward China, the Council on Foreign Relations’ Manjari Chatterjee Miller said during a recent podcast. There are also concerns that wider acquiescence to Russia’s invasion of Ukraine could embolden China when it comes to Taiwan or even India, with which it has a disputed border.

So, without seeking to antagonize Russia, India is keeping all options open. It will participate in high-altitude military exercises with the US this month near the Line of Actual Control along the disputed border with China, and in talks on the US-India Economic and Financial Partnership with US Treasury Secretary Janet Yellen on Friday. Yellen, in New Delhi, is also likely to discuss India’s Russian oil imports and the price cap — although Washington’s approach has shifted from warning India about its rising Russian crude imports to arguing that the price cap will give India leverage to negotiate even bigger discounts. Yellen is also expected to promote so-called “friend-shoring” as the US seeks to diversify supply chains away from China.

Perhaps uniquely, then, India right now has the ear of both Russia and the US. One question is whether India will use that position, and its new roles from December, to attempt to play mediator or apply pressure over the Ukraine war — or instead take a more narrow, opportunistic path as it seeks to maximize benefits from both sides’ attention. Should crude prices spike next month, some of those benefits will quickly fade.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

Sanctions, Elections, Macroeconomics , Military Conflict, Oil Supply, Oil Trade, Ukraine Crisis
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