Russia-Ukraine War: India’s Neutrality ‘Fueled’ By Economic Opportunism

by Satyajit Mohanan

India’s neutrality on the Russian invasion of Ukraine, conspicuous by its lack of condemnation of the war, has become a matter of great debate around the world. Majorly a debate between realism, a school of thought which considers national interests as the prime drivers of foreign policy or international relations, and normativism, which considers both national interest and values or ideology to be the prime drivers. The west, primarily the United States views the world from a realist lens and has now taken a normative approach persuading India to condemn Russia and uphold the values of democracy, human rights, and sovereignty. However, India’s stance on the Russia-Ukraine war is greatly influenced by the need to safeguard its national and strategic interests. On the 2nd of March, India abstained from the vote in the UN General Assembly on Ukraine. India reiterated the international community’s call for an ‘immediate ceasefire’, and conveyed its belief in the territorial integrity and sovereignty of all states. However, it fell short of condemning the invasion and criticizing Russia. India’s neutral policy on Russia’s invasion of Ukraine is constrained by various factors.

Factors Influencing India’s Neutrality:

Firstly, India’s stance could be used as leverage to induce Russia to restrict Chinese aggression and adventurism along its borders in the Himalayas. Over the years, tensions have risen along the disputed regions of the Indo-China border, the most recent being the Galwan Valley skirmish. In the future event of further escalation or a full-scale conflict, Russia could be a potential powerful mediator who could moderate such aggression. Secondly, India’s high reliance on Russia for its military equipment majorly restricted its choices and influenced its stance. India is Russia’s largest importer of its defense products. The erstwhile Soviet Union and present-day Russia in total had supplied nearly 85% of India’s military equipment. About 97% of Indian fighter aircrafts and 100 percent of its armored fighting vehicles are of Russian origin, this reflects the deep-rooted strategic dependence on Russia for its defense equipment. Thirdly, Russia’s historical support for India at diplomatic forums, during past wars, and on the issue of Kashmir has made Moscow a reliable and trustworthy partner. The Soviet Union in 1957, 1962, and 1971 and Russia in 2019 vetoed UN Security Council (UNSC) resolutions that called for international intervention in Kashmir. The same cannot be said for the West, primarily the US which has often not sided with India on many issues including Kashmir, and even sent military aid to Pakistan during the 1971 India-Pakistan war. 

India & Discounted Russian Oil: The X Factor?

Having taken all these factors into account, a critical component instrumental in ‘fueling’ India’s neutral policy on the invasion, is the purchase of discounted Russian oil. Rarely highlighted by analysts, India’s colossal purchase of discounted Russian oil is a classic case of economic opportunism, one that was too good for India to refuse. In a move to deprive Russia of economic resources, US President Joe Biden in March signed an Executive Order banning the import of Russian oil. This along with severe economic sanctions that included cutting Russia from the international financial system were carried out to impose severe costs on Moscow. While the European Union’s proposed ban on Russian oil had hit a roadblock amid opposition from Hungary, the bloc expects to reach a compromise and phase out Russian oil gradually. This ban, if fully implemented by the West, will certainly impose a negative effect on Russia. However, Russia has gradually reshuffled its oil exports since late February and is hoping to replace the European demand for oil with that of Asia, especially India. 

Russia has successfully wooed India with competitive offers in the wake of rising global fuel prices and inflation. Reports in the media suggest that Russia had offered oil at a stark discounted rate of $35 a barrel. Moscow is reported to have also offered to cover transport and insurance costs. For a country like India which is highly dependent on energy imports, where 85% of its oil needs are imported, the purchase of discounted oil is a win-win scenario. But here’s the catch, Russia up until the Ukraine Invasion was a marginal supplier of oil to India. Russian imports amounted to merely 1% of India’s requirements. Presently, it accounts for nearly 17% of Indian imports, this percentage is expected to increase in the coming months. Commodities data and analytics firm Klper states that in March India’s import of oil was nearly four times higher than it was in the corresponding period in 2021. Russia was India’s ninth largest importer of oil, preceded by the US, the Middle East, and even Nigeria. India did not import any oil from Russia in January and February of 2022. However, soon after the invasion, total crude imports from Russia skyrocketed to approximately 14 million barrels for March and April.

Source: BBC

The White House has made constant appeals and has sent emissaries to persuade India to decrease Russian oil imports. Reports suggest that President Biden had also told Prime Minister Modi that buying Russian oil was not in India’s interest and that taking a harder line on Russia was essential. However, India has continued to increase its purchase of cheap Russian oil.

Key Internal Gains:

India’s opportunistic behavior is highly influenced by various domestic factors. By agreeing to the deal in return for its neutrality, India has safeguarded its energy security needs and will also control its rising inflation. India’s Finance Minister Nirmala Sitharaman was quoted saying, “I would put my energy security first. If the fuel is available at a discount, why shouldn’t I buy it?. It is critical for India to meet its energy demand in a cost-effective manner at a time when the Indian economy is expected to rebound after its pandemic slump. Simultaneously, lower oil prices in its domestic market will keep its inflation in check and will help avoid a surge in oil prices. In March, the war-induced global surge in oil prices resulted in a 26% rise in fuel prices in India. This caused a great sense of worry and discomfort among the working class and businesses. In February and March, food and retail inflation also hit a new high, breaching the central banks targeted levels. The rise in fuel prices had a cascading effect on food and other commodities. While the government had no intention of slashing fuel taxes, as it would cut off an essential revenue stream that is critical to India’s post-pandemic recovery. Russia’s oil offer was the best option to protect its national interests. The Modi government, which is also very conscious of the electoral impact of its policies, is aware that a rise in fuel prices will hurt the chances of the ruling party in the upcoming state elections which includes PM Modi’s home state of Gujarat, at the end of the year. 

Taking this deal has also proved beneficial for India’s oil sector. While the west has either banned or is gradually phasing out Russian oil, it is keen to find alternative oil suppliers. European countries have now approached India to buy the same Russian oil but refined in India. Indian exports of refined oil products to western countries are expected to increase in the coming months. Public, as well as private refineries, are expected to sell their products at a price above usual margin. For instance, India’s Reliance Industries, which has the world’s largest refinery complex in Jamnagar, Gujarat has now capitalized on this deal. It is reportedthat the company has also deferred maintenance work at the refinery complex to produce more diesel and oil products and export it to other markets. This will be very profitable for companies like Reliance, which earns 60% of its income from oil. 

There is always something more than what meets the eye in International Politics. India’s neutrality in the Russia-Ukraine war ‘fueled’ by its oil interests is one such instance

The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.

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