As sanctions over Ukraine war mount, Russia turns to India to buy oil and arms

India’s Prime Minister Narendra Modi waves next to Russia’s President Vladimir Putin ahead of their meeting at Hyderabad House in New Delhi, India, December 6, 2021. REUTERS/Adnan Abidi

NEW DELHI – When Russia faced international condemnation and sanctions after President Vladimir Putin launched his Feb. 24 invasion of Ukraine, India stayed on the diplomatic sidelines.

Now, as those economic sanctions begin to bite, Moscow is again turning to India.

India, the world’s biggest oil importer behind China and the United States, has agreed to purchase 3 million barrels of Russian oil at a heavy discount, an Indian official said Thursday. The purchase, which was first reported by the Wall Street Journal, is relatively small given Russia’s production and Indian demand. But the volume could increase in the coming months and reinforce a growing perception that India is determined to preserve its extensive trade and military ties with Moscow, even as the United States and its allies urge governments around the world to isolate Russia.

Aside from the oil deal, the Indian government is also exploring ways to maintain trade with Russia by reviving a Cold War-era arrangement called the rupee-ruble trade, according to two other Indian officials with knowledge of the matter. The mechanism, which would be akin to a ledger of trade between the two countries, would let Indian and Russian firms do business while bypassing the need to use U.S. dollars – the predominant currency of international trade – and lowering the risk of potential U.S. sanctions.

The three Indian officials spoke on the condition of anonymity to discuss a sensitive matter. “Eighty-five percent of India’s oil comes from imports, so we always look for good options,” one of the officials said. “If that includes a good package coming from the Russian side, and there’s no bar on buying from Russia, then let’s accept that.”

The Indian officials characterized the ruble-rupee ledgers, which will probably be set up at Russian and Indian banks that are not exposed to the U.S. financial system, as a solution to help the Indian economy and its exporters rather than a way to evade potential U.S. sanctions. India trades with Iran, another country under U.S. sanctions, using a similar riyal-rupee trade arrangement.

In recent weeks, India has drawn condemnation from some U.S. lawmakers after it repeatedly abstained from criticizing Russia at the United Nations. But Biden administration officials have often stopped short of criticizing an Asian giant that is seen as a crucial part of its strategy to counter China.

On Tuesday, White House press secretary Jen Psaki told reporters she did not believe that Indian purchases of Russian oil would violate existing U.S. sanctions.

“But also think about where you want to stand when history books are written about this moment,” Psaki added, without explicitly naming India. “Support for the Russian leadership is support for an invasion that obviously is having a devastating impact.”

India’s special relationship with Russia was highlighted this month when the Russian military gave India “special input” about when and to where its stranded citizens should flee the besieged Ukrainian city of Kharkiv, while Russian military officers offered to fly Indians, specifically, out of the war zone.

India is not the only country that is maintaining trade relations with Russia. Many European countries, including U.S. allies in NATO, continue to purchase Russian energy even though the United States and Britain have announced domestic bans. And India’s oil purchases probably would not amount to a game-changer for Putin’s war effort. Russia’s most important customers are Europe and China; India accounted for about 3% of Russia’s exports in 2021 and sources most of its oil from the Persian Gulf, according to S&P Global Commodity Insights.

But the two countries’ cooperation in the energy sector has deepened in recent years. In 2016, Indian Prime Minister Narendra Modi and Putin oversaw a $13 billion deal between Rosneft and a refinery in Modi’s home state of Gujarat that represented India’s largest-ever injection of foreign investment and Russia’s largest-ever outbound deal. Indian energy companies, meanwhile, have invested $16 billion in Siberian oil fields.

As talk about the oil purchase ramped up last weekend, Russian Deputy Prime Minister Aleksander Novak called Indian Oil Minister Hardeep Singh Puri to express Russian interest in “further attracting Indian investment to the Russian oil and gas sector and expanding Russian companies’ sales networks in India,” according to a statement issued by the Kremlin.

Puri said in the Indian Parliament this week that the Modi administration was working hard to keep gas prices low and that he was in talks with “all levels” of the Russian government about a deal. The Indian Oil Ministry has otherwise not publicly commented about the matter.

Many Indian industry executives and observers argue it would be unfair for the West to pressure India to quit Russian oil. The European Union said this month it would wean itself off Russian energy “as soon as possible,” but large countries that depend on Russia, such as Germany, have not immediately cut imports.

“Has Europe or any other significant taker of Russian oil and gas reduced its consumption yet?” said Subhash Kumar, the former chairman of the Indian state-owned Oil and Natural Gas Corporation, the country’s largest crude-oil company. If India, which is not involved in the Ukraine conflict, did not buy discounted Russian oil, there would be other takers on the market, he said.

Other prominent commentators have cautioned against proceeding with the purchases, mostly due to its optics. “From a moral standpoint, the decision to buy Russian oil and gas at a discounted rate because of the crisis in Ukraine could be questionable,” Vikram Singh Mehta, the former chief executive of Shell India and former chairman of the Brookings Institution’s India arm, told local media outlets this week.

In the coming months, India’s trade with Russia is likely to continue in another crucial realm besides oil: defense. Largely as a legacy of the Cold War – when the Soviet Union gave India everything from help setting up steel plants to blueprints for MiG fighter jets – around 85% of Indian weapons today came from the Soviet Union or Russia, according to a 2021 analysis by the Stimson Center, a nonpartisan think tank in Washington.

Amit Cowshish, a retired Indian defense ministry official who previously oversaw India’s military acquisitions, said the armed forces would be badly crippled within a year if India could not trade with Russia.

“There’s ammunition, subassemblies, critical licenses, all of which would run out, and it wouldn’t be in the U.S. interest to see an Indo-Pacific partner be crippled or alienated by sanctions,” he said.

So far, Biden administration officials have avoided criticizing India’s continued relationship with Russia. During a House Armed Services Committee hearing last week, lawmakers asked Ely Ratner, the assistant secretary of defense for Indo-Pacific security affairs who has argued for a tougher U.S. posture against Beijing, why India was not siding with the West on the Russian invasion of Ukraine.

“We recognize that India has a complicated history and relationship with Russia,” Ratner responded.

India is trying to diversify away from Russia, but it will take time, Ratner added. “From the U.S. perspective,” he said, “India is an absolutely essential partner as we think about our strategy in the Indo-Pacific.”

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