Oil and Peace: India's Ukraine Policy

Aryan Chaudhary tracks India’s stance on the Russian invasion of Ukraine, tracking all Indian actions, and the consequences of those actions in the wider geopolitical landscape. This story is one of delicate balance and interconnectedness. One that involves the oil trade, and diplomatic relations, and one that challenges the norm on Western-backed stances on policies, while managing the sea of complex bilateral relations. India’s sympathies for Russia came from a shared history of friendship and cooperation between the countries. The Soviet support for India in the 1971 war against Pakistan goes to show the positive extremities for relations between New Delhi and the leadership in the Kremlin.  

Timeline of Events:

20th February 2014: Russian invasion into Crimea and Donbas begins,
2nd August 2017: Bill in the US Senate is passed, Countering American Adversaries through Sanctions Act (CAATSA) sanctioning Russia for its annexation of Ukraine,
24th February 2022: Russia launches a full-scale invasion of Ukraine,
26th February 2022: Operation Ganga is carried out by the Government of India to rescue stranded citizens, in and around the conflict regions; UNSC votes on ‘Russian Federation’s aggression against Ukraine’ (India abstains),
7th April 2022: UNGA resolution ES-11/4 condemns the Russian invasion of Ukraine (India abstains on the vote of the resolution),
3rd December 2022: US-led sanctions put on Russian Crude Oil,
 

In light of Russia's invasion, India’s immediate priorities were, a) to bring back all Indian nationals that might be stuck near the conflict-affected regions, and b) to choose a firm stance on the conflict, to navigate the sea of relations with both Russia and the Western bloc. Operation Ganga, planned and carried out by the Ministry of External Affairs and the Indian Armed Forces, turned out to be a success. [1] However, the second priority proved to be much more complicated and difficult. In continuation of the longstanding Russo-Indian relations, Russia also remains India’s biggest defense partner, buying the largest volume of defense equipment from Russia. [2] The United States remains India’s biggest trading partner and a major ally in the Quad Alliance against China. [3] The Indian position in all the cases demanded an immediate ceasefire and peaceful coexistence. [4] This position, while been taken up by other countries who have abstained and remained neutral on the issue. However, India became subject to heavy criticism by the Western media. With even White House Press Secretary Jen Psaki urging India to not be ‘on the wrong side of history’.

On 3rd December 2022, a US-led sanctions regime was placed on Russian Crude Oil, with a price cap being set at $60/barrel. However, India kept buying Russian Oil above the price cap. While Russia wasn’t willing to sell its oil for $60/barrel, India still got a cheap and discounted price from Russia. As India has kept buying this Russian oil at a discounted rate, so has China, and the interdependence of Russia has increased on both China and India. So, the question to ponder here could possibly be explored in the extremities of the situation. If India were to comply with the Western-backed price cap, and not buy Russian oil, it would first reduce the strong-knit Russo-Indian relations, and increase Russian dependence on China, which would be a major geopolitical loss for Indian geopolitical interests. [5] Thus, in December 2022, the Indian stance on the issue remained a secure economic partnership with Russia, citing ‘national interest’ as its primary interest, while urging all parties in the conflict to resort to negotiation and peaceful resolution.

One might argue, why doesn’t the West sanction India for its negligence of the sanctions, or perhaps sanction all Russian oil trade, even ones below the $60/barrel limit? The simple answer to the question lies in the interconnectedness of economies around the world. Since Russia produces 10% of the world’s oil, if it were to stop its supply of oil, the decrease in the supply of oil will push the oil prices upwards, which then the other oil-producing countries can leverage to sell more expensive oil. The result of this would have ripple effects and ramifications in economies around the world. Thus, this forces the hand of the West to live with the situation as is. If India and China keep buying oil above the price cap, it also helps stabilize the price of oil globally, since Russian oil is still being sold, and the supply isn’t affected as much. However, there exists a caveat to this situation that can be seen as time progresses. The shipping industry’s supply chains rely on individual companies for services like insurance and logistics. A Centre for Research on Energy and Clean Air report stated, ‘Over half of all ships transporting Russian oil are still insured or owned in countries implementing the price cap policy.’ [6] This means that the implementation of the sanctions by the countries under the price cap themselves wasn’t up to standard.

This regime could only last if such companies providing services to Russian oil-containing vessels would not have strict compliance. Once the compliance strengthens, Russian delivery charges would go up, since the supply chain would be disrupted. This is what has started to happen, with Russian delivery charges costing $11-$19/barrel, which is double the normal rates. [7] Another factor seems to be hampering the trade between India and Russia. Since it is easier for the US to sanction the Russian oil trade in dollars, Indian traders had to resort to the trading of Russian oil in UAE Dirhams. However, even though India doesn’t officially recognize the price cap, banks like the State Bank of India (SBI), started to refuse to process payments exceeding the price ceiling. [8] In addition to all of this, it seems as if the Israel-Hamas conflict has caused oil prices to rise, which has enabled Russia to sell its oil at a slightly higher rate, increasing its profits. [9]

In conclusion, the disbalances between the oil trade with Russia, India’s story of neutrality has been one of both pursuing its strategic, and economic interests, as well as trying to navigate the sea of geopolitics, balancing relations with both the US and Russia, keeping in mind an increasing involved Chinese policy.

Bibliography

1. Ministry of External Affairs, Government of India. "QUESTION NO.2667 OPERATION GANGA." MEA. https://www.mea.gov.in/lok-sabha.htm?dtl/36962/QUESTION+NO2667+OPERATION+GANGA. 

2. Bureau. "Russia Remains India’s Top Arms Supplier: SIPRI Data." Mint, 12 June 2023. https://www.livemint.com/news/world/russia-remains-india-s-top-arms-supplier-sipri-data-11678888059801.html.

3. Congressional Research Service. "Russia’s Invasion of Ukraine: Related Sanctions on Russia." CRS Reports, 9 December 2022. https://crsreports.congress.gov/product/pdf/IF/IF11678. 

4. Ministry of External Affairs, Government of India. "QUESTION NO.230 INDIA'S ROLE DURING RUSSIA-UKRAINE WAR." MEA.
https://www.mea.gov.in/rajya-sabha.htm?dtl/35022/QUESTION+NO230+INDIAS+ROLE+DURING+RUSSIAUKRAINE+WAR. 

5. "How China-Russia Alliance Affects India." Deccan Herald, 23 April 2023. https://www.deccanherald.com/opinion/how-china-russia-alliance-affects-india-1208709.html. 

6. Centre for Research on Energy and Clean Air. "Russia's Shadow Tankers." CREA, September 2023, p. 8. https://energyandcleanair.org/wp/wp-content/uploads/2023/09/CREA_Russias-shadow-tankers_09.2023.pdf.

7. Bureau. "India Faces Complex Payment Situation as Russian Oil Tops $60 Barrel Cap." Business Standard, 14 July 2023. https://www.business-standard.com/india-news/india-faces-complex-payment-situation-as-russian-oil-tops-60-barrel-cap-123071400570_1.html. 

8. "The State Bank of India Has Joined the Sanctions Against Russian Oil." USM Media, 20 June 2023. https://en.usm.media/the-state-bank-of-india-has-joined-the-sanctions-against-russian-oil/. 

9. "A Price Cap on Russian Oil Aims to Starve Putin of Cash, but It's Largely Been Untested Until Now." The Times of India, 14 November 2023. https://timesofindia.indiatimes.com/world/europe/a-price-cap-on-russian-oil-aims-to-starve-putin-of-cash-but-its-largely-been-untested-until-now/articleshow/104644342.cms. 

Author: Aryan Chaudhary

Research & Publications Division