India’s Crude Oil Trade with Russia

Q Why is it in News ?

A The Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) has bought two million barrels of Russian crude oil as Indian energy majors forge ahead with attempts to secure a part of the Russian energy supply.

Q What is the news?

A 

• India is exploring alternative payment channels for trade with Russia and the possibility of sourcing additional oil at a discount, even as the West reduces its exposure to Russian oil.
• Now India needs to make some necessary adjustments in the financial front because of the challenges posed by the American sanctions.

Q How much is India’s import dependence and Russia ?

A 

• India is heavily dependent on oil imports, the bulk of which comes from the Middle East, Africa, Europe, North America, South America, and South-East Asia.
• Russia’s oil-related exports to India are only about $1 billion.
• However, Russia is keen to scale this up even as the US has announced a ban on oil imports from the country and the UK has adopted a more gradual reduction.
• This offers the opportunity for a lucrative supply deal with the second largest oil exporter after Saudi Arabia.

India’s nuclear power project in Kudankulam in Tamil Nadu is built with Russian collaboration.

Q What is at stake in oil trade with Russia?

A 

• India, however, needs to find alternative payment channels due to the evolving crisis.
• This is also crucial for bilateral non-oil trade.

Q What are the risks posed by payment crisis ?

A 

• Western curbs cutting off some Russian banks from the SWIFT payment system has proven to be a setback for bilateral trade.
• Many payments worth $500 million to Indian exporters for goods already shipped reportedly being stuck.
• A steady supply of critical commodities such as fuel and fertilizer from Europe is crucial in India’s efforts to manage inflation.
• A spike in natural gas in global markets is pushing up the cost of procuring commonly used urea, which is sold at a subsidized price to farmers.

Q Why is oil supply from Russia important?

A 

• As much as 85% of India’s oil requirement is met through imports.
• The government has tried diversifying its supply sources.
• This would add more gas into the energy basket, giving a strong push to electric mobility, building strategic reserves and blending ethanol in auto fuel to reduce oil import dependence.
• Extra oil supplies from Russia could aid in this effort.

Q How’re the two nations handling the situation?

A 

• India and Russia are exploring a Rupee-Rouble trade mechanism using currency of a third country as a reference.
• This would allow Indian exporters to be paid in rupees.
• This would need an Indian and a Russian bank opening shop on each other’s soil.
• Another option is routing payments via a bank with limited overseas exposure so that it will not attract curbs.
• For additional Russian oil shipments, India needs access to more vessels and containers.
• Indian refiners’ ability to process larger quantities of crude oil also needs to be assessed.

Q How is India extending the collaborations ?

A 

• New Delhi has for long followed the policy of acquiring energy assets abroad to reduce risks related to heavy import dependence on oil.
• Oil and Natural Gas Corp. Ltd’s investment in Russia’s Sakhalin project is one example.
• Besides, Russian company PJSC Rosneft Oil Co. is a stakeholder in Nayara Energy Ltd that runs the second largest single-site refinery in Gujarat.