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.