India & Russia: Trade Titans or Temporary Truce? A Look Ahead

Despite a considerable surge in various other geopolitical instabilities in the world in the last few months, it is crucial to remember that the war between Russia and Ukraine is far from over. As the conflict between the two countries approaches its second year, we shed light upon the multifaceted story of the trade relations between India and Russia during such uncertain and incalculable times. Despite a wobbly past since the collapse of the Soviet Union, India's ability to weather external instability and precariousness while maintaining robust ties with Russia even during such turbulent times reflects the symbiotic relationship between the countries and India's capacity to evolve amidst adversity.

To constrain Russia's ability to finance its war with Ukraine, the finance ministers of the G7 group of nations agreed to lower the price of Russian oil and petroleum products on September 2, 2022. A restriction of $60 per barrel on the price that Russia may charge for its oil was also set by the G7 in an attempt to cause potential damage to Russia while, at the same time, maintaining a stable global supply. The cap went into effect on December 5, 2022.

Regardless of the global scenario, India's ties with Russia remain distinct from a typical alliance. India's so-called "strategic ambivalence" regarding the Russia-Ukraine war seems to be a calculated decision. Amid this geopolitical upheaval, India and Russia's relationship can be more accurately described as a strategic partnership than an alliance. This results in an abstention from UN votes and avoiding a declaration of any firm stance regarding the war. Understanding these complex and intertwined interests is crucial in analyzing their unique partnership beyond traditional alliances.

Since the beginning of the war, India has emerged as one of the primary buyers of Russia's vast supply of crude oil. Despite the sanctions imposed by the USA on Russia, India now purchases nearly 1.2 million barrels of crude oil a day from Russia.

An analysis of secondary data related to the Indo-Russian trade through the Holt-Winters econometric model, particularly focusing on petroleum crude imports between 2020 and 2023, reveals that this period, marked by the unprecedented disruptions of the COVID-19 pandemic and the Russia-Ukraine war, presented a unique challenge for forecasters.

The year 2022 presented an unexpected twist in India's trade ties with Russia, as depicted in the graph. While the econometric forecasting model predicted a steady trajectory for petroleum crude imports, the graph for actual imports of petroleum crude from Russia reveals a dramatic surge, defying expectations. This major shift can be caused by the combination of the war between Russia and Ukraine and the sanctions imposed by the USA on Russian oil imports that followed.

As the Western nations abstained from purchasing Russian oil due to the imposition of the US sanctions, it turned towards alternative means and markets by offering huge concessions on its crude oil. Thus, India saw this as a golden opportunity to capitalize, leading it to become the second-largest buyer of Russian crude, following China. This led to India getting an opportunity to save a fortune, estimated to be in billions of dollars, specifically during a term of sharply rising global oil prices due to the chaos caused by the war.

The discounted oil price wasn't just a financial boon for the country; it also helped India maintain its energy security at a critical point when its own domestic oil production has been stagnant. The discounted Russian oil helped the country attenuate the impact of rising prices on its consumers and industries, thus potentially contributing to its economic stability.

(Written by Aditi Raj, under the guidance of Dr Taru Saigal.Aditi Raj is a student of Economics with a passion for international relations and a keen eye for data analysis. Currently pursuing a BA in Economics (Hons.) at CHRIST (Deemed to be University) in Bangalore, Aditi is set to graduate in 2024.)

Published on: Friday, April 05, 2024, 02:54 PM IST