Dr Cauvery Ganapathy
India’s purchase of Russian crude oil

Dr Cauvery Ganapathy LE Mag V1 Dec 2022

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Live Encounters Magazine Volume One December 2022.

Compulsions of energy security: India’s purchase of Russian crude oil
by Dr Cauvery Ganapathy.

Photo courtesy Bloomberg
Photo courtesy Bloomberg

The war in Ukraine, given its points of origin, its nature, the parties involved, the access or proximity of the parties to nuclear weapons, and the relevance of the parties to international food and energy security, embodies the union of intersections on a most unfortunate Venn diagram of global disorder. It demands, therein, the taking of positions by nations far removed from the battlefield. Nations such as India that are called upon to make very public choices restricted not just to voting and censures but also to decide on more practical matters of basic necessity, such as if it will enhance its energy trade with the recognized aggressor in this situation.

India’s substantively enhanced import of energy resources from Russia post the invasion of Ukraine has in many quarters – erroneously, one believes – been posited as a choice New Delhi made between Moscow’s perceived strategic insecurity underwriting its unlawful invasion of a sovereign state and Ukraine’s right to territorial integrity and self-determination. This commentary argues that this is at best a misrepresentation of the choices India grapples with, and a false equivalence at worst.

Times of war demand that nations not seemingly in its direct crosshairs also take positions. This taking of positions is not restricted to only normative or even perfunctory discussions of which party is at fault but also to how each country chooses to maneuver an international economic and security circumstance affected by the war. This is because a fundamental offshoot of internationalism is that geographic distance from the site of hostilities minimizes only the immediate physical risks to life and liberty but not always to the way of life for countries far removed from it. Not in the case of all wars, no.

The war in Syria- by no means a Civil War- has continued for more than a decade now. Apart from the parties involved and those bordering, very few countries or populations have felt an impact. Yemen has been all but decimated by the continuing conflict for nearly as long, but life outside of it or even newsreels around the world would not have reflected this.

However, when the largest grain exporter in the world attacks its neighbour (also one among the ten largest grain producers in the world), and when the third largest producer of energy is on one side of the divide with the vast majority of the architects and arbitrators of the international financial systems on the other, that there will be an impact on all nations, is natural. The array of complications the Ukraine war brings is visible in many uncomfortable choices that countries around the world have been forced to make. India has been no exception.

About the numbers- Russia has become India’s largest producer of crude oil in October, 2022 with a purchase of 1.07barrels per day (bpd). Between April and September, 2022 India imported $14.o7bn worth of Russian crude. Year on year, the figure for that period in 2021 shows an import of $1.58bn. India’s expenditure on the purchase of Russian crude last year was $2.47bn, a figure that India’s import bill of crude from Russia matched just within the months of April-May this year.

These are significant increases, indeed. One of the problems with touting the increase in the quantity and scale of import through numbers alone, however, is that those that would like to use it as a point of leverage do not seem to factor in the base point of the comparison timeline, i.e. they do not account for – or, do not seem to account for, at any rate – the fact that the previous levels of purchase from Russia were so miniscule that any increase in the trade appears to be a fantastically enhanced trading position- which is not to in any way downplay the fact that there has in fact been a sizeable increase in this case.

Now, up until the war, Russia’s share in India’s energy basket was negligible because it did not make economic sense to import more from Russia given the comparatively high landed cost of the crude they were offering. Russian oil has always been available in the international market that India procures from. It was a conscious decision to not have increased the share of purchase from Moscow despite the abiding bilateral ties between the two States for specific reasons- none of them informed by the nature of Russia’s own domestic or foreign policies.

The reason India preferred to procure from others such as the Middle Eastern and African countries over Russia is attributable to multiple considerations such as price points, the delivery time, the nature of the crude brought in, how complementary a grade of crude may be to the refineries within India, how many of those refineries may be online or offline during that financial quarter based on scheduled maintenance rosters, the freight charges, anticipated bottlenecks in shipping routes etc. Just as the decision to not procure more from them prior to the war was based on hard economic and viability considerations, the reversal of that decision and increase purchase of Russian oil since early this year, was also arguably based on considerations of safeguarding the energy security of a massive population with increasing consumption needs.

Where India’s purchase of Russian oil at appreciably subsidized rates post the start of the war is concerned, it is important to consider if the choice before India is at all one between the human and political rights of Ukrainians and energy trade. Energy security is an important parameter on the index of human security and must be accounted for under the umbrella of human rights.

The choice facing New Delhi, then, will look very different when considered through this prism. A difference of nearly $35-36pb with the price paid for Brent crude, as it was in this period where oil imports from Russia have burgeoned, would allow India to save nearly $850mn plus foreign exchange on its import bill. 3 to 4 months of similar savings would tantamount to multiple developmental and security goals being met, resulting in a budget that would be able to function under substantively less duress even at a time of global financial and trade downturn.

There can be, and most often are, trade-offs between principles and profits. The trade-off New Delhi is faced with in this situation, however, is different – it is arguably one between providing for and securing the most basic needs of its population or choosing to be seen to be as participating in a sanctioning exercise with fellow democracies albeit ones with different levels of developmental and even existential compulsions.

The war, coming as it has, post two very difficult years of the pandemic and the economic and structural hardships caused by it, has upended the import bills and threatened the economic stability of most nations. An increase in the price of energy resources has an immediate and direct impact on food security with connections to variables such as fertilizer rates and utilities. Compounding an already dire situation, are the constant warning signs about global economic headwinds leading to unmanageable inflation in multiple major economies dotting the pathway towards the next global recession. India spent a whopping $119bn on its energy import bill in the fiscal year ending March, 2022.

With a daily consumption of nearly 5mn barrels, which is expected to grow to 6.5mn-7mn bpd over the next few years, India’s oil import bill will not see frugality anytime in the near future. Russian oil is reported to have been purchased by India at heavy discounts close to 27%. Given the circumstances and the economic realities of the day, it would seem almost a dereliction of duty on the part of the Government of India to then, not have made use of the opportunity and bought Russian oil at the time, the quantity, and at the price it did.

The reasons behind purchasing Russia’s ESPO crude from late February of 2022, are just as pertinent as the logic of choosing to reduce the purchase of that same resource in September of 2022. An increase in both freight charges and time of delivery for ESPO which has to travel from the Russian Far East and around the African continent to reach India has meant an increase in its landed cost. This, coupled with a reduction in the prices of Middle Eastern and African crude during this timeline, has meant that New Delhi has purchased much less of it in September- although reversals in those same factors led to an uptick in purchase again in October.

The singular logic of India’s actions between late February, 2022 and September, 2022 have been the same- the cause of its energy security. To then suggest that India is profiteering from a war or that the crude it buys from Russia is tainted by “Ukrainian blood” are disingenuous accusations to make.

It is true that India processes the crude it gets from Russia – just as it does with crude from the other sources – and the finished products are then exported to Europe. To again qualify this as profiteering is a mendacious argument to make given that New Delhi has not been deceptive about the provenance of the raw materials used for the finished products, and that European countries which have been continuing to rely on purchases from Russia at least in part, until the December deadline for the start of the embargo sets in, choose willfully to buy these products from India being fully aware of India’s stance.

Also, when one is in the market for energy resources in the present- or, even historic – milieu, it may be duplicitous to suggest that it is the provenance of crude from Russia alone that justifies a clamour for political correctness or concerns about the violation of human rights.

The removal of Russian energy supplies from the world markets will in the near to medium term, create considerable deficit and resultant instability. That, with the absence of Iranian and Venezuelean oil, is a recipe for imminent disaster. There are a million domestic political and structural reasons that bring

hardships to the populations of Venezuela and Iran, but one among the panoply of reasons is the continuing embargo on their most lucrative export commodity. Autocratic regimes have never chosen democratic processes because of embargos, and they are not about to start now. To not change an approach when it decidedly fails to achieve the objectives it set out to or creates more issues than it resolves, is an exercise in futility and not one that must be recommended.

Along that same line, the steps towards the resolution of the Ukrainian tragedy lie elsewhere, and is by no means as simplistic or unilinear as trying to ban Russian energy resources from entering the markets – admittedly, it is one of the many in the toolkit of sanctions against Russia. Among other considerations, the discussions regarding Ukraine- and, some of the other post-Soviet states– should ideally have been factored into calculations that were made at the inception of the Nordstream project, for instance. Transitions to alternative sources of energy, let alone alternative forms of it, is ideally a most urgent peacetime project and not a wartime preoccupation.

The pursuit of national interest is the predominant task of all governments- not least that of a democratically elected government of a country of 1.4bn where scarcity and lack of access to basic livelihood requirements continue to fester. The US administration, at least in part, appears to have made their peace with this choice made by a critical strategic partner. Choosing to act on the moral compunctions of being seen to be doing business with an obvious aggressor, over and above its own energy security compulsions, is not a luxury India can afford.

It is the debated but necessary logic cut from the same cloth that supposedly underwrote the refusal of countries to share vaccines with others much less equipped to dealing with the pandemic. It would seem an abomination and terrible failure of the human rights agenda when countries were left without access to vaccines by virtue of them not having the financial wherewithal or the political/strategic clout to get ahead in the line of procurement for even the first dose of vaccines, when richer countries considering double doses were continuing to hoard.

The optics may have looked bad but if the metric were about securing your own house strongly first then, there is very little condemnation that would stick on any of the nations that indulged in this practice. A less inhumane version of that same logic can surely apply to the choice New Delhi – which shared its vaccines with many countries in desperate need of it, despite struggling with massive domestic needs of its own, and remains the most ardent advocate of getting a comprehensive TRIPS waiver passed at the WTO so as to enable greater and a more just access to vaccines for the poorest in the world – is today making through the purchase of Russian resources in the interest of its energy security.

What is happening in Ukraine is a humanitarian tragedy of monstrous proportions. No perceived insecurity justifies the assault that the Ukrainians are facing, and there must be every effort made by the international system to effect an immediate cessation of hostilities. However, to expect nations to jeopardize their inalienable national interest tied to concerns of energy security on the altar of a situation that they had no role in creating, aggravating or perpetuating, is to expect them to carry the cross in a fight where the rules of the game are neither equitable nor non-partisan, and that were most definitely not drawn by them.

© Dr Cauvery Ganapathy

Dr. Cauvery Ganapathy is a strategic affairs analyst and currently works as a Strategic Risk Management Consultant. She has been a Research Associate with the Office of Net Assessment under the US Department of Defense previously. As a Fellow of Global India Foundation, she has presented and published at various national and international forums. She has been a recipient of the Pavate Fellowship to the University of Cambridge as Visiting Research Faculty and a recipient of the Fulbright-Nehru Doctoral Fellowship to the University of California, Berkeley.”

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