Thursday, 10 Oct, 2024
By: Yash Gupte
India now imports twice as much crude oil from Russia as it does from Iraq, the country's traditional main oil supplier, reaching a new high of 1.64 million barrels per day in March. Image Source: IANS
Considering the surge in the trade between India and Russia dominated by the crude oil imports, External affairs minister S Jaishankar, however, highlighted the urgent need to address the trade imbalance created by the recent increase in two-way trade to $45 billion
As the majority of western nations are collaborating to isolate Moscow over the conflict in Ukraine, India and Russia have begun "advanced negotiations" for a free trade agreement that intends to strengthen their economic ties. The trade ministers of Russia and India indicated on Monday that their two nations were in negotiations to reach a free trade agreement, which is sure to increase tensions in the capitals of Washington, London, and the EU. Speaking on a visit to New Delhi, Russian deputy prime minister and trade minister Denis Manturov said, “Together with the Eurasian Economic Commission, we are looking forward to intensifying negotiations on a free trade agreement with India.” External Affairs Minister of India, S. Jaishankar said, “The Covid pandemic had disrupted discussions between India and the Russian-led Eurasian Economic Union on a trade deal, and I hope our colleagues will pick up on this because we do believe it will make a real difference to our trade relationship.”
The announcement of FTA negotiations with Russia comes as New Delhi is already holding FTA negotiations with the United Kingdom, the European Union, and the Gulf Cooperation Council.
Last month, Iraq was replaced by Russia, a longtime supplier of defence equipment, as India's main crude oil supplier. The total value of Russian imports into India surged by almost four times to $46.33 billion in fiscal year 2022-23. Throughout his visit to Delhi, Manturov has a number of bilateral engagements planned. His visit coincides with a resurgence in trade between India and Russia, particularly due to New Delhi's rising purchases of discounted crude oil from Moscow. Two major meetings held at the end of March and the beginning of April, as well as the opening of the Russian Chamber of Commerce and Industry's office in India, significantly strengthened trade and business ties between India and Russia. In 2022–2023, bilateral trade exceeded $40 billion, and in 2023–2024, it is anticipated to surpass $50 billion.
Considering the surge in the trade between India and Russia dominated by the crude oil imports, External affairs minister S Jaishankar, however, highlighted the urgent need to address the trade imbalance created by the recent increase in two-way trade to $45 billion. Jaishankar said, “The two sides need to work urgently to address this imbalance by tackling impediments, including market access, non-tariff barriers, payment-related matters and logistics. The two sides can also diversify and expand the basket of goods by exploring possibilities in automobiles and spare parts, electronics goods, medical devices, solar photovoltaic modules, textiles, food and agricultural products.”
Source: Ministry of Commerce and Industry
India has been highly importing the Russian crude oil since the outbreak of Russia-Ukraine war in February 2022. The western nations had heavily sanctioned Russia and economically isolated it from the rest of the world. At such a point of time, Russia decided to export crude oil at cheaper prices. Both, India and Russia have benefitted from the cheap import of Russian crude oil as New Delhi has been importing oil at very cheaper rates, saving a lot on oil bills and Moscow has been able to counter the sanctions imposed by the western world.
Russia is making improvements to trade with India as part of a plan to increase trade with other Asian superpowers like China in order to reduce the effects of Western sanctions. Moscow is also attempting to deepen or preserve its ties with other South Asian nations. Most recently, it agreed to accept Yuan as payment for the construction of a nuclear power station in Bangladesh and talked about offering Pakistan subsidised oil exports.
“India will continue to buy oil from Russia", finance minister Nirmala Sitharaman had declared even as the West mounted pressure on New Delhi to isolate Moscow. True to her words, India has not only continued to buy oil at discounted rates from Russia, but has increased the intake by a whopping 4.7 times since April 2022. Not just oil, India-Russia overall trade has increased to a whopping five times since the outbreak of Russia-Ukraine war. India now imports twice as much crude oil from Russia as it does from Iraq, the country's traditional main oil supplier, reaching a new high of 1.64 million barrels per day in March. Prior to the start of the Russia-Ukraine conflict in February 2022, Russia had a market share of less than one percent in India's imports; by March 2022, that percentage had increased to 1.64 million barrels per day (bpd), or 34 percent.
Saudi Arabia ranked as the second-largest crude oil exporter to India in March, selling 986,288 bpd, according to Vortexa. Iraq was the third largest provider, selling 821,952 bpd. With 313,002 bpd, the UAE surpassed the US to take over as the fourth-largest supplier. US exported 136,464 bpd.
Despite criticism from the West, India has continued its trade relations with its erstwhile cold war partner. Time and again, India has defended its decision to buy discounted Russian oil citing national interests. The total annual bilateral trade between the two countries stood at $39.8 billion in 2022-23, $13.12 billion in 2021-22, and $8.14 billion in 2020-21. Pre-COVID, it was $10.11 billion in 2019-20, $8.22 billion in 2018-19, and $10.68 billion in 2017-18. In FY2021-22, India had a trade deficit of $6.61 billion with Russia.
The free trade agreement will provide a further boost to the economic relations between New Delhi and Moscow and will also address India’s concerns of rising trade deficit with Russia. But it should be marked that though the trade deficit has been rising due to increase in India’s crude oil imports, it has proved beneficial for New Delhi as it has been able to purchase crude oil at cheapest prices, minimising its oil bills.
