The global crude oil scene has seen a significant shift in trade after Russia’s invasion of Ukraine. While the invader was Europe’s big supplier of hydrocarbons before hostilities cleaved it apart from the West, its export map has pivoted eastwards, with India and China its big customers now. Since the onset of the war in February 2022, Russian crude has grown to dominate the pie of Indian imports sliced up by source countries. Last week’s aborted Wagner uprising against Moscow, however, led risk analysts to ask what a Kremlin weakened and exposed to further internal strife could imply for the reliability of its oil exports. That the world oil market gave up early price gains after the weekend turmoil in Russia suggests traders do not foresee any major disruption. Yet, India’s risks are more direct. Given that we import 85% of our crude oil and a discount deal with Moscow underpins a significant bulk of these shipments, is it time to re-evaluate this strategy?

Under current circumstances, no urgency is called for. As oil is a fungible commodity, like other importers, we could buy the stuff from anywhere. It’s just that Russia has been selling it cheaply, in rupees, and this suits New Delhi. The benefits have been broad. If India’s trade gap that had widened last year is no longer a worry, access to cheap oil in a softening market must get its share of credit. It also resulted in some relief on other counts such as inflation. As for what the US-led West makes of our oil equation with Russia, it need not figure at all in our calculation. While the West has not just turned away from Russia but also sought to squeeze its oil revenues by placing a G7 cap of $60 per barrel on the price of its oil exports, what matters most is oil’s global availability in terms of volume. The fact that India has been welcoming tanker-loads of Russian output has played a role in keeping the overall market somewhat stable after last year’s war shock. Without Indian purchases, tighter supply conditions might have prevailed, which would have empowered OPEC+, a cartel of suppliers led by Saudi Arabia that has struggled lately to harden prices by reducing production. The current scenario, with a barrel of crude trading under $75 globally, could be viewed as a sweet spot by India as well as other countries whose economies are oil-sensitive. All this adds up to weigh in favour of the status quo.

Since Russia appears to have piled up more Indian currency than it needs for its imports from India, as reports indicate, we must admit that a regime change in Moscow could yet disrupt our bilateral trade ties if this aspect of it comes under review there. But then, in most such matters, hard interests usually come into play and it’s difficult to picture New Delhi being let down by a partner of long standing. It is reasonable to expect that so long as the basic logic of the relationship works for both, it will survive. What Indian diplomacy could do is try nudging the US to rethink its sanctions-led approach to foreign policy. It has widened its arsenal of economic warfare in response to Moscow’s aggression. It froze Russia’s overseas assets, for example, and tried to isolate its banks as part of a financial onslaught, but could not choke off the Kremlin’s war funding. It wasn’t a realistic goal. Although the Wagner rebellion could yet set into motion events that let US sanction-wielders claim success, we must ask whether the setback suffered by globalization was a price worth paying.
Source: Livemint