Why the West will not stop India from buying Russian oil (and why it might not want to)
With the valuable assistance of Nicholas Ferrara and Blake Majerczak
Overview
Amid the global oil unrest, India is the largest buyer of Russian oil products. The population giant makes up 51% of purchases for Russian oil; significantly more than China, one of Russia’s strongest supporters in the war in Ukraine. Prior to the Russian invasion of Ukraine, India only made up a small percentage of the purchases because it mainly imported oil from the Middle East, but post-invasion seized upon the now significantly cheaper Russian alternative. Subrahmanyan Jaishankar, India’s foreign minister, explained India’s reasoning for deciding to buy more Russian oil after the invasion by stating: “It is a sensible policy to go where we get the best deal in the interest of the Indian people.” For the West, this is problematic as it undermines its elaborate and sustained sanctions against Russia over the war in Ukraine. In this piece of writing, we assess what (and if) the West can do by exploring different scenarios for the future of Indian consumption of Russian oil.
Sanctions on India?
The most straightforward action by the West would be to pressure India into discontinuing or lessening its consumption of Russian oil, possibly through sanctions. However, the current appetite for this approach is low among Western policymakers.
In a meeting between the President of the United States and the Prime Minister of India, Biden allegedly told Modi that the U.S. could help India diversify its energy sources. This highlights that the U.S. is willing to help India lessen Russian oil consumption through incentivisation, but no further actions have been taken thus far. Subsequently, when asked about India-US relations, Karen Donfried, the U.S. Assistant Secretary of State for European and Eurasian Affairs, said that the Biden administration accepts India’s purchases of Russian oil and is not going to sanction India. Sanctions then, are clearly not on the table.
Part of why the US will not impose sanctions is that the Indian elite are already very closely invested with Russian oil. The Jamnagar Refinery in India is the biggest oil refinery in the world. It clears over 1.2 million barrels of oil a day and is owned by Reliance Industries, CEO Mukesh Ambani’s multi-billion-dollar oil company. Over half of the refinery's crude oil input comes from Russia now. Mukesh Ambani, the wealthiest man in India, is a strong supporter and ally of Prime Minister Modi and his government. It is alleged that he helped the BJP, Modi’s party, win the parliamentary election in 2019, by spreading disinformation in the BJP’s favour. The Vadinar complex, the second-largest oil refinery in India, is less than 10 miles away from Jamnagar. Both refineries are owned by Nayara Energy, which in turn is owned by Rosneft, a Russian company.
If the West imposes sanctions on Reliance Industries and Rosneft for trading Russian oil, it will likely lead to counter-sanctions. Such counter-sanctions could range from Indian medications for the U.S. market, or, ironically enough, less India refined petroleum for the American market (explored later in the article). In addition, India will likely halt its current deals with the West. For instance, India has recently diversified its weapon purchases by buying Western-made
Ongoing Business (as usual)
It is thus highly unlikely that India will stop consuming Russian oil, at least in the short term. Simple math shows us why India is so keen on purchasing Russian oil. Crude oil from Russia is 60 dollars a barrel compared to the global benchmark of 75 dollars. India buys 2.09 million barrels of oil a day, after one day they can save 30 million dollars when buying Russian oil. This means that there is little to no incentive for India to lessen its consumption. In addition, India is adamant about stressing its neutral stance in the war. The only other incentive would be that another country offers cheaper oil than Russia. It is however very unlikely that any country will dive underneath the bottom prices of Russia for the foreseeable future. It is most likely then, that India continues to purchase Russian oil, either to the same amount or in even larger quantities. Furthermore, India benefits from having Russia as an ally in a geopolitical sense too, specifically as it could leverage Russia’s role as a permanent member of the U.N. Security Council.
Western complacency?
What is more, India is profiting from the resale of Russian oil to Western countries at a higher price. Western countries are actually buying relatively cheap oil from India, which is very likely from Russian origin. The United States buys 15% of its oil and refined petroleum products from India, according to the Wilson Center. This trade virtually ensures that some of the gasoline and diesel that the US buys from India contain Russian molecules, according to Global Witness.
One way that the United States could make sure that they are not buying Russian oil is to make a law to ban the import of oil or petroleum products from refineries that have bought crude oil from Russia within a certain date. This would signal to refineries that the United States will not buy oil that originates from Russia. Through coordination with partners like the EU, the US could ensure that the banning of imports from other oil laundering operations that successfully go around their sanctions on Russia are also implemented and shored up.
For now, intentionally, or not, the West is profiting from Russia’s bottom prices. On top of this, India’s shifting oil consumption has freed up parts of the market for the Western countries that do boycott Russian oil and needed alternatives. Had India not shifted its oil policy, other suppliers would not have been able to meet the demand, with prices soaring even higher and oil shortages in many parts of the world. In addition, many of the crude oil India has imported from Russia left the country as refined petroleum products, including to Western countries. This has prevented a major economic crash.
Conclusion
It is unlikely that India will stop buying oil from Russia for anything other than a change in its financial considerations. It remains unclear how desirable such a stop would even be for Western countries as the market would see a significant contraction in available supply, causing potential shortages, because India’s consumption of Russian oil frees up the oil market. Given that the market is stabilizing again and prices are broadly dropping, India is considering slightly lessening its importation of Russian oil. Such a move would be ideal for India as it retains access to cheap prices while politically pleasing the US and its partners.
Cocaine and Canals: The Risk of Drug Trafficking for Businesses Operating in Belgian and Dutch Ports
Over the last decade, the centre of European drug trafficking has shifted from southern Italy to Northern Europe. This is largely due to the FBI's crackdown on Mexican drug lords and their Italian affiliates. Since then, southern American suppliers, like Peru and Colombia, have sought other partners, which they have found in the criminal networks of northern Europe, particularly the Benelux countries. Antwerp and Rotterdam are the ports of choice for drug trafficking.
A new generation of criminals seized this opportunity and took the drug market by storm, cooperating with the Italian ‘Ndrangheta and Camorra clans, the Irish Kinahan group, and Balkan clans in what has been dubbed a “super cartel”. Because of its markedly multicultural make-up, the Dutch chapter of this super cartel has been called the “Mocro Maffia”. It is in fact a collection of different drug trafficking groups that emerged at the same time in the Netherlands and Belgium, giving these two countries the status of Europe’s leading drug hub. As a result, the Benelux has reached new levels of violence, threats and criminal influence, with some commentators referring to “narco states”. Although many high-ranking members have been arrested and are currently before the courts, their operations remain uninterrupted. The organisation is even held responsible for the assassination of lawyers and journalists from prison. This Spotlight assesses the influence of this situation on Benelux societies and economies, focusing on firms working with and in the ports of Antwerp and Rotterdam.
Scope
The strength of Northern Europe’s trade infrastructure is a double-edged sword. While it enables large-scale trade, it also makes it vulnerable to exploitation by criminals. This is the case for the ports of Rotterdam and Antwerp, respectively the largest and second largest in Europe. Rotterdam processes about 9 million containers a year, while Antwerp processes nearly 7.5 million. This is where Europe gets its supplies of raw materials, high-tech products and, above all, foodstuffs. This legal economy is exploited by its illegal counterpart, helped by the high-quality infrastructure, good connections with the rest of Europe and impressive processing speed of these ports. Cocaine in particular, with its high profit margins, is placed illegally in containers at the originating destination, to be picked up by traffickers in the port. The ever-increasing demand for cocaine in the European party scene is driving up profits. Currently, only about 1% of all the containers, or 10 per-cent of the fruit containers from Latin America, are scanned. As these are perishable goods and controls take time, it is challenging to check more containers. Additionally, drug traffickers are creative in finding new goods and new ways of transporting their drugs, for example by concealing them inside pineapples. Simultaneously, corruption and extortion among customs officers and port officials are commonplace. Due to the very nature of corruption, exact figures are unknown, but examples of corrupt customs officers in ports abound.
Threat to businesses
This endemic drug trade represents a growing risk for businesses. The first risk is that businesses are used as cover for drug trafficking, which can have devastating effects on them. When cocaine is placed in a company's container and the authorities suspect attempted trafficking, the cargo will inevitably be delayed due to extended searches of the goods and background checks on staff. This has a negative impact on commercial relations. In the case of perishable goods, the delay is even more detrimental. Customers can invoke a breach of contract if they have not received their goods on time. Claims and additional costs are therefore to be expected.
Another consequence is the possibility of a fine. Take the example of MSC, the world's largest shipping company. Over the years, large quantities of cocaine have been found in its cargo. In one major operation, 20 tonnes of cocaine with a street value of $1 billion were seized from the MSC Gayane, one of the largest ships sailing the oceans today. It was found that many crew members were complicit in the trafficking, including the chief mate. Most of them had been recruited by the Balkan Cartel. These shipments usually make a stopover in the United States before continuing on to Rotterdam and Antwerp. This time, the stop was made in Philadelphia, Pennsylvania, where the American authorities seized the drugs. To set an example and out of frustration at what the American authorities considered to be insufficient efforts on the part of MSC to prevent drug trafficking, the company was fined $600 million. In addition, the Gayane was temporarily seized. Companies face a permanent risk of confiscation.
Businesses can also be subject to threats, extortion, and even violence from drug gangs if their trafficking activities are hindered by the companies affected by the trafficking. The case of fruit importer De Groot in May 2019 is a case in point. their smuggling of 400kg of cocaine. Employees found the drugs and called the police to report it. What should have been the end of the matter was the beginning of two disastrous years for the company. Shortly after the police found the drugs, the director began receiving threatening text messages demanding compensation. In a year-long campaign, (former) employees were threatened, their homes were set on fire, shots were fired and, on one occasion, a grenade was left at an apartment complex.
Finally, companies can also suffer reputational damage. In the case of De Groot, the media and the perpetrators themselves raised the suspicion that the company director was complicit in the trafficking. But even when rumours are not actively spread, companies can still suffer reputational damage. It is not always a question of a normative judgement on the association with drugs. Even the practical consequences of delays due to drug checks and seizures can deter companies from doing business with the company concerned, such as MSC, which was simply unable to handle its normal quantities of cargo because one of its largest ships was confiscated.
Outlook
The growing drug trade in Northern European ports is creating major risks for companies operating with or through these ports. The increasingly reckless behaviour of drug traffickers is putting businesses at risk. Companies need to be aware of this, and prepare accordingly. Measures that can be taken to mitigate the risks range from hiring security guards to minimise the risk of drug gangs placing drugs in containers, to working closely together with authorities and customs officials. Perhaps the most important thing is to exercise caution when recruiting staff. Thorough security checks must become company standards to minimise the effect of corruption. The reasons for engaging in corruption should also be considered. If they are financial, companies could consider increasing their employees' salaries to make them less vulnerable to offers from drug gangs. Investments in legal teams in case of a drug seizure will also prove beneficial.
In conclusion, the global trade that passes through the ports of the Benelux contains a dark side that threatens the economic structures it exploits. There is no straightforward solution to this problem, as the highly profitable drug trade has proved to be adaptable and creative. However, precautionary measures can be taken to minimise the impact on businesses operating legally. This might not dry up European ports of cocaine, but it can keep businesses and drug traffickers on separate lanes.