Oil out for little loss – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-commentary/oil-out-for-little-loss/articleshow/90237127.cms

Synopsis

​​Buying this oil will blur that already blurry line in the sand. Taking up the offer from Moscow will mean India shifting from its customary go-to countries to Russia on account of the favourable price. Nothing wrong with that kind of bargain shopping. In fact, in terms of pure energy economics, it makes sense.

A bstain. That’s the real quick answer to the question, should GoI take up the Russian offer of discounted oil? India has not taken sides in this Russian war against Ukraine. Strategic compulsions have required India to sit it out, even as it has stressed on the primacy of dialogue and diplomacy over war.

Buying this oil will blur that already blurry line in the sand. Taking up the offer from Moscow will mean India shifting from its customary go-to countries to Russia on account of the favourable price. Nothing wrong with that kind of bargain shopping. In fact, in terms of pure energy economics, it makes sense.

But there will be consequences New Delhi may want to do without. Moscow will, as it did with the votes at the UN, present India’s decision as an endorsementof its actions in Ukraine. On this count, India knows that buying Russian oil will be effectively contributing to the Russian war effort. And, by extension, it would mean India moving away from its neutral line.

For a country that has recorded double-digit inflation and is dependent overwhelmingly (80-85%) on imports for its crude requirements, the offer is tempting. The thoughtthrough answer involving a series of choices and considerations is, however, more complex than the seemingly more realpolitik, self-serving one. There is no unified approach to the western sanctions against Russian oil and gas.

The US has banned Russian oil and gas. EU states can continue to buy oil and gas from Russian companies but not invest in them. These European countries voted in the UN — both at the Security Council as well as the General Assembly — condemning the Russian invasion of Ukraine.

Yet, having made their position clear, the EU can argue its energy needs. It has also announced plans to slash dependence on Russian oil, gas and coal to zero by 2027. Should India then, on its part, let up an opportunity to buy crude at a much lower price?

2-3% of India’s crude imports are from Russia. Even with the recently reported additional buys, the share of Russian imports will still be small. India should consider working on an aggressive roadmap for reducing its dependence on energy imports, making this latest purchase just a temporary diversion. How can India — or the EU, for that matter — meet its energy requirements without contributing to the continued suffering of civilians in Ukraine? Even though India abstained from all UN votes, it stressed on the primacy of diplomacy and dialogue in settling contentious issues between sovereign countries.

Perhaps a solution can be found from history: a version of the UN’s 1995 Oil-for-Food Programme that allowed Iraq to sell oil in exchange for food, medicine and humanitarian aid while — at least partially — turning the tap off on funding Iraq’s escalating military programme. India and the EU could propose a payment mechanism that could restrict Russia’s use of its earnings from oil and gas sales. Unlike for energy, India is heavily dependent on Russia for military supplies.

Over the past decade or so, there has been an effort to diversify markets and, more recently, to build up a domestic military industrial sector. Even so, nearly 50% of India’s military supplies today are from Russia. This has defined India’s position on the Ukraine situation. India’s western partners acknowledge the difficulty it faces on the defence front.

So, New Delhi must examine whether buying oil from Russia could upset this precarious acceptance of its difficult position. It must weigh the benefits of buying discounted oil against securing a sanctions waiver for taking possession of military supplies that have already been ordered or paid for.

Then there’s China. The war in Ukraine has strengthened the partnership between Russia and China, and, by extension, Pakistan. As Moscow’s dependence on Beijing grows, Russia will effectively become China’s junior partner. As the cost of secondary sanctions mounts, China could consider a deal with the US and other western countries resulting in are-engagement with China and isolation of Russia.

China poses a challenge to India, the Indo-Pacific and the western world. New Delhi must work out long-term strategies, including partnership with other countries, to address this challenge. As a G20 country with much in common with the G7 as with least developed countries (LDCs), India has consistently advocated a multipolar world. As its economy grows, it rightly sees a global role for itself. That will require taking a stand when required. India can well walk away from Russia’s offer of oil now. It can do so in the name of the suffering of ordinary people, without too much cost to itself.

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