The Resilient India-Russia Partnership in a Transforming World
The strategic partnership between India and Russia has been characterized by its continuous expansion beyond mere diplomatic ties. This relationship, which spans various fields such as nuclear energy, space, defense, and trade, has been built on the shared strategic interests and commitment to mutually beneficial cooperation. As the world changes, both India and Russia are looking to enhance their trade relationship with the help of their historical ties. They are focused on various sectors such as oil trade and investment. This article aims to provide a comprehensive analysis of the India-Russian trade relationship, focusing on its current state, prospects, and challenges.
Historical Foundations and Mechanisms of Cooperation: IRIGC and Beyond
The India-Russia relationship started during the Cold War, when the former Soviet Union provided India with support in various areas, such as space technology and defense. Following the fall of the Soviet Union, the relationship was re-evaluated. In 2000, the two countries signed a strategic partnership agreement, which laid the foundation for enhanced trade and investment ties. For a long time now, Russia has been a dependable ally of India. The development of the relationship between the two nations has been regarded as a significant factor in New Delhi's foreign policy efforts. In October 2000, both the nations agreed to establish a strategic partnership agreement. This agreement has significantly enhanced the level of cooperation between the two countries in various areas. The strategic partnership agreement was upgraded to a special category in 2010 following the visit of Russian President Vladimir Putin to India. It provides for regular follow-up on the activities of the partnership. Through the various mechanisms of the agreement, the two countries have been able to maintain a high level of cooperation. The India-Russia Intergovernmental Commission (IRIGC) is divided into two bodies: the Trade, Economic, Technological, and Cultural Cooperation division and the Military and Technical Cooperation division. These divisions are headed by the officials of the two countries. The EAM from India and the DPM from Russia are the heads of these divisions. A new dimension to the partnership was added in December 2021 when the first 2+2 dialogue between the defense and foreign ministers of the two nations was held. This was alongside the Prime Minister's talks with Putin.
Despite the positive trajectory of the relationship, the trade turnover between Russia and India still remains below the potential that both parties have in mind. The trade basket spans various sectors, such as energy, defense, and IT. And even after the lackluster trade turnover between the two countries, the steady flow of Russian investments in India has been a positive sign for the relationship. This is because the two countries are committed to developing a more business-friendly environment. They have carried out various initiatives and policies aimed at making the process easier for companies.
Navigating Challenges: Sanctions and Trade Barriers
Due to the sanctions imposed on Russia, the payment process for petroleum products between the two countries has been continuously updated. Through this process, India and Russia have been able to improve the efficiency of their financial transactions. They have also explored the possibility of using local currencies in their trade. There are still various challenges that need to be resolved in order to improve the trade relationship between India and Russia. These include the implementation of international sanctions, the need to diversify the trade basket, and the hindrances caused by regulatory issues. Nevertheless, these obstacles present promising prospects for both nations to forge new directions in their partnership. The sectors where the two countries can excel are digital trade, renewable energy, ongc and technology.
Both the countries have been working toward diversifying their trade. Since the start of the conflict in Ukraine in 2022, India has been buying more Russian oil. This has contributed to the two-way trade between the two nations reaching $50 billion. This highlights that the relationship between India and Russia is still robust even during difficult times. Both the countries have shown their commitment to developing a more fair and just world order by maintaining their mutual trust.
Russia has been pushing for the establishment of cross-border trade settlements within the Brics nations' national currencies. It has also partnered with China on the group's expansion. In January, countries such as Ethiopia, Saudi Arabia, and Egypt joined the growing list of Brics nations. This rapid expansion of the Brics group demonstrates the desire of various countries to establish a multipolar world. According to the UN Charter, a multipolar world should have mutual respect and equality. On the other hand, Russia is hoping that China and India will be able to resolve their differences and play a significant role in maintaining the security and stability of Eurasia.
Despite the decline in its imports from Russia, India's appetite for Russian crude oil is expected to remain strong for the long-term. In January, it imported 1.2 million barrels of oil a day, which is less than the previous month's 1.32 million barrels and the average of the previous three months. This is still the highest amount of oil that the country has imported in the last 12 months. The decline in Russia's oil shipments to India was attributed to the country's increased sourcing from Iraq. In January, Iraq supplied India with 1.1 million barrels per day, which is more than the previous month's 985,000 bpd. Saudi Arabia's oil supplies decreased to 659,000 barrels per day in January from 668,000 barrels per day in December. As a result, India is still more than 85 percent dependent on oil imports for its fuel needs. Hence, India's appetite for Russian oil grew ever since it started trading at a discount due to the sanctions imposed by the West.
In December 2021, India imported 36,255 barrels per day of oil from Russia, which is less than the 1.05 million barrels per day that it received from Iraq and the 952,625 barrels per day that it received from Saudi Arabia. After a couple of months, India resumed its imports from Russia in March following the outbreak of the Ukraine war. In June last year, the country's imports from Russia reached an all-time high of over 2.1 million barrels per day. Almost 40 percent of the country's total oil imports came from this country. The decline in Russia's oil imports in recent months can be attributed to the narrowing of the country's discount to Middle Eastern crude and the US' sanctions against Russian shipping companies. Some state refiners in India were compelled to fulfill their obligations to Middle Eastern suppliers, while others were able to start purchasing from South American producers. The easing of sanctions on Venezuela also encouraged private refiners in the country to resume their purchases from the country.
After three years of suspension, Indian refiners started buying Venezuelan crude oil in September 2020. This development led to a decline in the country's purchases from Russia. Despite the various factors that affected its imports from Russia, industry officials noted that the country's long-term oil demand remains intact. For its oil purchases, Indian state refiners have to make arrangements for the transportation of the product through a contracted vessel. This method is different from the Middle East, where the buyer usually pays for insurance and shipping. In December 2023, the US imposed sanctions on vessels and individuals that are involved in the transportation of Russian oil. These entities are prohibited from selling their products over the USD 60 a barrel limit set by the G7 nations. Several vessels had to divert due to the restrictions. Service providers and banks were also asked to ensure that the cargoes do not violate the price limit. According to Pushp Kumar Joshi, the chairman of HPCL, about 30% of the company's oil imports were from Russia. He noted that the company has been able to secure supplies from other sources and Russia until April.
2024: A Year of Significant Improvement in Trade Relations
In 2024, India and Russia's trade relations significantly improved. Engineering exports to Russia have increased significantly, reaching over $1 billion in nine months ending December 2023. This is due to the country's decision to settle its trade in rupees, which is part of its efforts to diversify its trade with other countries affected by Western sanctions, such as Iran and China. According to the EEPC, Indian companies are expected to receive more than a billion dollars worth of payments from Russia during the financial year 2024. During a state visit to Russia by Subrahmanyam Jaisamhankar, India's External Affairs Minister, the two countries were able to reinforce their relations. They discussed their strategic and trade ties. According to him, the two-way economic relationship has already reached $50 billion. Whereas, during President Vladimir Putin's visit to India, the two sides discussed various topics, such as high technology and crude oil. This highlighted the significant role that India plays in Russia's economic development, especially since its imports have increased despite the sanctions imposed by the West. The agreements signed during the visit were also aimed at developing the Kudankulam Nuclear Power Plant, which is being built with Russian help.
Conclusion:
The strategic importance, historical ties, and economic interests of India and Russia are all reflected in their relationship. Despite the various challenges that they face, such as international sanctions, geopolitical shifts, and trade imbalances, the partnership between these two countries is still evolving and adapting. This is because they are committed to maintaining a multipolar world order and mutual benefit.
Both the governments are committed to developing their economic ties, and they are actively looking into ways to overcome the various barriers that prevent them from reaching their goals. The focus on simplifying procedures and increasing connectivity are some of the steps that the two nations are taking to improve their trade. Economic ties are expected to play an important role in the future of the India-Russia alliance as the two countries continue to expand their strategic partnership. The strategic importance of India-Russia relations cannot be overstated, especially when it comes to global geopolitical developments. As the world experiences significant changes, the two countries' partnership will remain relevant. It is a testament to their shared interests and historical ties. The two countries' trade relations have significantly improved in the past few months. Despite the imbalance in Russia's favor, both the governments of these nations are working to resolve this issue. They are also exploring new ways to increase the export of Indian products.
Pic Courtsey-RT Today
(The views expressed are those of thE author and do not represent views of CESCUBE.)
