Hi, This is Hot Mic and I’m Nidhi Razdan.
It’s been well over 40 days since Russia’s invasion of Ukraine. As the world continues to express outrage, India has found itself at the epicenter of hectic diplomatic activity and increased pressure from the West, especially on the issue of Russian oil imports. The US has openly expressed unhappiness with India’s stand, with the Deputy NSA Daleep Singh warning of consequences for any country, including India, that conducts local currency transactions through Russia’s central bank or constructs a payment mechanism that circumvents US sanctions against Russia. Now, the language that the US Deputy NSA used was uncharacteristically undiplomatic but it did not move India.
Finance Minister Nirmala Sitharaman bluntly said, “India had started buying cheaper Russian oil and will continue to do so. I would put my country’s national interest and energy security first,” she said. “If there is fuel available at a discount, why shouldn’t I buy it?” Russia has offered crude oil to India at sharply discounted rates of $35 a barrel. Now, according to data compiled by Reuters, India has booked at least 16 million barrels of Russian oil since the invasion of Ukraine on the 24th of February. And that’s close to the level of its overall imports of 2021. 80% of India’s oil needs are imported, only about one to two percent is actually from Russia.
Most of our needs come from the Middle East, the US and Africa. As the debate rages over oil and whether it amounts to endorsing Russian actions in Ukraine, the fact is that several Western countries are doing the same. Indeed, there was a sharp exchange last week between Foreign Minister Jaishankar and the visiting UK Foreign Secretary, Liz Truss, where Jaishankar pointed out that Europe was buying more oil from Russia than before the war. He said that in March, Europe had bought 15% more oil and gas from Russia than the previous month. So who is actually buying Russian oil in the world and who isn’t?
Now the United States, Britain, Canada and Australia have all imposed complete bans on importing any oil from Russia. But the European Union is divided. The EU, which comprises of 27 member countries, relies on Russia for 40% of its gas and 30% of its crude imports. When the US and the UK announced the ban, the EU had said it would cut Russian gas imports by two-thirds within a year, with a long term goal of ending Russian energy imports by 2030.
Several EU states are ready to impose more sanctions against Russia’s oil majors like Rosneft, Transneft and Gazprom Neft but they will continue to buy oil from them. Germany has been among those holding out on an outright ban. It has warned against any hasty steps that could push its economy into recession. A significant part of Germany’s energy needs, 55% actually, comes from Russia, and the country has said that it can start phasing out its dependance on Russian oil imports gradually, hopefully by the end of this year. Germany’s economy, therefore, would be devastated by any sudden ban on Russian gas and oil. Russian crude continues to account for 14% of the intake at Germany’s largest refinery, MiRO.
They are, however, now looking at alternatives and have secured a long term partnership with Qatar to buy LNG. The problem for Germany and some other countries is that they have made themselves heavily dependent on Russian oil over the years. They haven’t really looked at alternative sources. Poland has said that it will take steps to cut Russian oil imports by the end of this year. Meanwhile, neither the Dutch government nor the Rotterdam Port have banned Russian oil. Around 30% of the oil that goes through the Rotterdam Port is from Russia.
China’s state refiners like Sinopec have been honoring their existing Russian oil contracts but they are avoiding new ones, despite the steep discounts that they are being offered because they don’t want to be seen as openly supporting Moscow. India’s main oil imports still come from the Middle East and the US. A major obstacle in making Russia India’s main supplier is how India can pay for this oil. Now, because of the sanctions imposed on Russia, there needs to be an alternative payment system. Russia wants India to start a Rupee-Rouble trade for all future purchases of goods. But there is no clarity yet on how this will work. But if India bypasses US sanctions on this, it may attract sanctions on itself. Russia has demanded rouble payments from Western nations as well, which have completely rejected it, arguing that it would undermine the sanctions regime.
Germany has called on consumers, in fact, to save energy, with concerns growing that Russia may actually cut off their oil supplies until they are paid in roubles, with Germany’s Energy Minister, warning that Russia could abruptly cut off these supplies and that the country’s gas storages are filled to about 25% of their capacity. How long this would last is unknown, and therefore the appeal to people to cut back.
Now, all of this proves that imposing energy sanctions on Russia has been easier said than done for many Western countries. And India too is only looking out for its own interests.
