Politics of Oil between the US and Russia: India’s options in view of western sanctions

| Isha Tripathi
  • The heavy dependence of multiple countries, especially from the affluent part of the world, on Russian Energy resources is why many scholars have designated it as the ‘Energy Superpower’.
  • The fact that major European countries like Germany are unwilling to stop their purchases from Russia even in the face of its actions in Ukraine, attests to Moscow’s title as energy superpower.
  • India’s abstentions from anti-Russia UN resolutions and oil purchases have drawn ire from some quarters, such as former colonizer UK.
  • But so far, neither Russian oil nor its purchasers have been subject to any significant sanctions.
  • It is important for India to enhance its war time capabilities and capacities, without counting too much on external support in case of an eventuality. 
  • India needs American support to deal with its two difficult neighbours, and also to consolidate its place in the global order. 

The last major international event to impact the entire world was the protracted Cold War between the USA and Soviet Russia, which ended with the disintegration of the USSR. But despite the defeat of the Communist bastion, the animosity and sense of suspicion between the two nations never gave way to normalization of bilateral relations beyond a point. Russia was always perceived as the greatest potential threat for American supremacy in the liberal world order. On its part, Russia banked on utilizing its vast energy resources to claw its way back to major power status in the world order, without making any real attempts to fit into the liberal democratic model of a nation-state.

Russia as energy superpower

The Russian economy is primarily dependent on fossil fuels. Oil and gas contributed to more than 40 per cent of the Russian budget in 2019, and are the primary export commodity. Russia is the world’s third largest producer of oil, behind the USA and Saudi Arabia. It is the largest exporter of oil in the world, its primary market being Europe. More than half of its oil exports are designated to Europe, and more than 70 per cent of natural gas exports too are Europe bound. Germany, Italy, Belarus and France are the largest European consumers. More than 32 per cent of its coal exports in 2021 were to Europe.China bought an average of 1.6 mb/d of oil from Russia last year. Belarus, Cuba, Kazakhstan and Latvia meet more than 90 per cent of their needs with Russian oil. In 2021, it was the largest natural gas exporting country in the world.

This heavy dependence of multiple countries, especially from the affluent part of the world, on Russian Energy resources is why many scholars designate to it the title of ‘Energy Superpower’, which basically implies such a country that supplies crucial energy resources in large quantities to a lot of countries and can therefore exploit its position to effect international affairs. On this parameter, even other countries like Saudi Arabia can be considered energy superpower, but still it is Russia that is most widely referred to as the energy superpower. Perhaps this is because it is the only major oil and gas exporting country not allied with America, and not particularly adherent to the rules and ways of liberal world order.

The fact that major European countries like Germany are unwilling to stop their purchases from Russia even in the face of its actions in Ukraine, against which these very countries had promised strongest actions in the past, attests to Moscow’s title as energy superpower. Also, Russia’s proximity to the Arctic ought to be mentioned here. Of the five nations with Arctic coastline, Russia’s is the longest. Now that the permafrost is melting, new opportunities will appear from the Arctic, including new trade routes and resources. Russia is already fortifying its claims over the area and its humungous amount of yet unexploited natural resources, including fossil fuels.By an estimate, the area holds 10 percent of world’s oil reserves. The US, being highly aware of all this, has tried to put deterrents in Russia’s ascendency as energy superpower on several occasions.

USA – the swing state

Before the American Shale Revolution in the first decade of this century, US was heavily dependent on energy imports and its economy was very vulnerable to any significant changes in oil prices that could happen not only due to the innate unpredictability of market mechanisms, but also through artificial control over production and supply to the detriment of its national interests. The oil shock of 1973, when OPEC imposed an oil embargo on the USA for its support of Israel in the Yom Kippur War was a brutal reminder of this reality.

On its quest to become more self-reliant for its consumption of fossil fuels, America discovered shale, of which it owns large reserves. At the same time its foreign relations with major oil producing countries improved, especially with Saudi Arabia which lent it influence over OPEC. Washington’s proximity with Riyadh is a major factor affecting its policy on Iran. The world has witnessed, on multiple occasions, America’s eager willingness to go to any lengths to protect its interests. Its actions in Iraq, Syria, and others have been driven by its oil politics. It has used sanctions as tools to this end effectively. Venezuela and Iran are good evidence of this. Because of its ability to impact the energy market, without being a major exporter of energy resources, America is often referred to as the swing state.

Europe was instrumental in passing on technology to Russia which was crucial for creating pipelines for transporting gas. USA imposed sanctions on export of this technology after the 1981 Solidarity movement unfolded in Poland

Since the 1970s, Russia’s supply of fossil fuels to Europe has steadily increased, especially gas. Europe was instrumental in passing on technology to Russia which was crucial for creating pipelines for transporting gas. USA imposed sanctions on export of this technology after the 1981 Solidarity movement unfolded in Poland involving Russian assistance in its curbing. A series of sanctions, including those on energy investments have been imposed by America in reaction to the Russian interventions in Georgia, Moldova and Syria since Putin consolidated his grip in Russia. The Trump administration also imposed sanctions on the Rosneft subsidiary for Russia’s support of the Maduro regime in Venezuela. America was also responsible for the construction of the Baku-Tbilisi Ceyhan (BTC) pipeline for transporting oil to the west from Caspian Sea across Central Asia, specifically to bypass Russia controlled pipelines which could have been way cheaper than BTC. The latest to this list is the ban on buying Russian oil after its invasion of Ukraine in early 2022.It is important to note here that first, these sanctions have had next to no effect on the energy trade between Europe and Russia, and secondly, America itself does not depend on Russian energy in any significant way and can therefore afford to impose these sanctions.

Russia’s Rosneft has voiced concern over Saudi Arabia conspiring with the USA to affect the energy market to hurt the Russian economy, even though Russia is a part of the OPEC Plus mechanism. Russia and OPEC had a major fallout in 2020 over production cuts. Saudi Arabia wanted to cut down on productions which Russia did not want because, as Rosneft lamented,  the policy of production cuts results in ceding of market share to American shale oil and gas which is relatively more expensive than cheaper Russian oil. USA has become the largest oil producing country in the world with almost 20 percent of world’s oil production to its name. And proving the truth of aforementioned Russian suspicions, in wake of the Russian action in Ukraine, in March 2022, USA and EU agreed on a gas deal whereby Europe will buy more gas from USA in order to reduce its dependency on Russia, even though it probably would be costlier. 

India’s options

Russia’s current invasion of Ukraine has been made possible because of Europe’s extreme dependency on Russia for meeting its energy needs. Despite much hue and cry from NATO, and the role it has directly or indirectly played in the precipitation and continuation of this crisis, the oil and gas flow uninterrupted from east to west. At the same time, it is also true that Russian companies have become pariahs in the world market. Most players don’t want to be seen openly buying fuel from Russia as it would imply tacit support to Russian action in Ukraine. In such a tense, high-pressure international atmosphere, India has increased its oil and gas purchases from Russia. In 2021, India imported 16 million barrels from Russia, and 13 million in this year’s February following the discount offered by Russia. How does the current state of US-Russia relationship impact India?

A Tough Balancing Act

While the US demands that India be forthcoming in its support for Ukraine, Russia has been offering oil at discounted prices to India. India’s abstentions from anti-Russia UN resolutions and oil purchases have drawn ire from some quarters, such as former colonizer UK. But so far, neither Russian oil nor its purchasers have been subject to any significant sanctions. In this apparently paradoxical situation, despite the firm stance India has taken so far in favour of its own national interests, the balancing act will keep getting tougher for India here on.

On one hand, Russia is India’s biggest supplier of arms, and has helped India at crucial junctures(such as the 1971 war, nuclear testing etc), when the west including Ukraine had rallied against India. On the other hand, India’s relations with the US have changed over the last decade, because with the expansionist rise of China and its partnership with Pakistan, Indian and American interests, especially in the Indo-Pacific, are beginning to coincide. With China in mind, India cannot antagonize America beyond a point.

As the western buyers will gradually reduce their oil purchase from Russia, Moscow will most likely turn to China to find a market for its export. The two nations have signed agreements for pipeline construction recently. Russia’s increased dependency on China will work against Indian interests. Additionally, since India is the third largest consumer of oil but imports a miniscule 2 percent of its needs from Russia, Moscow will mount pressure on India to buy more of its fossil fuels once it starts losing its major European customers. India’s primary suppliers are Saudi Arabia, UAE and Iraq. It will not be easy for India to reduce its purchases from these countries in favour of Russia.

As the western buyers will gradually reduce their oil purchase from Russia, Moscow will most likely turn to China to find a market for its export.

Availing discounts

India should continue to buy cheaper energy resources from Russia as long as feasible. The Indian economy is still battling the jarring effects of the Wuhan virus pandemic and the tense situation internationally is causing an upswing in the global oil prices. India is a developing country with the second largest population in the world and a considerable number of its population living below or just above the poverty line. Its demand for energy is ever growing in tandem with the growth of its economy, and most of this demand is met with use of fossil fuels that are largely imported. India cannot and must not give up on the chance to shore up its oil reserves and ease pressure on its finances. It should be remembered here that the amount imported from Russia by India is limited.

The Iranian Alternative

As the Ukraine situation is unfolding, Europe will presumably learn lessons from this situation and seek to quickly find alternatives to end its dependency on Russian energy resources. Once the conflict ends and things settle down, it is unlikely that Europe and Russia’s trade relations will resume unaffected. Germany halting all work on Nord Stream 2 is a case in point. Australia, Canada too have banned the import of Russian oil. In looking for alternative supply sources for oil and gas, it is likely that two particular countries will not be overlooked- Venezuela and Iran, which have amongst the highest proven oil reserves in the world.

There were reports of talks between American officials with Iranian and Venezuelan officials. This could evolve into a potentially beneficial situation for India with respect to Iran. If the oil related sanctions on Iran are laxed, India can greatly benefit in terms of energy supplies as well as in terms of geo-politics. Currently due to the American sanctions, India is unable to buy oil from Iran and this has strained the efforts to improve its relations with Iran. Iran can act as a counter to Pakistan for India, and be its gateway to Central Asia. Meanwhile, China has continued its oil purchases from Iran and hence improved relations with Iran, at India’s cost. Europe’s need to decouple from Russia for its energy needs might result in the US easing its stance on Iran, and this would be very much in India’s interests.

The Ukraine scenario should also serve as a wakeup call for India. 

India-US: Needs based friendship in making?

An interesting development to observe in the current global scenario is how the relations between New Delhi and Washington will evolve, because as things stand today, there is an increasing degree of convergence in the interests of these two nations. Over the last few years, it has been observed how India has been given more elbow room than others by America, for instance in buying Iranian oil, or obtaining the Russian S-400, etc. America has also adopted a tougher stance with respect to Pakistan and severely curbed the financial assistance it has historically granted to Islamabad. It would not have been possible to keep Pakistan in the FATF grey list without American consent. America needs India as a stable and capable ally in South Asia/Indian Ocean in order to have leverage over China.

At the same time, India needs American support to deal with its two difficult neighbours, and also to consolidate its place in the global order. In the context of the current situation between USA and Russia, India will not take Russia’s side in a full-fledged manner even if Russia is its biggest arms supplier, its proven friend, and currently source of cheaper fossil fuels. India might prove useful for America if it seeks to prevent Russia from being a dependent ally of China. America’s correction of statements issued in wake of India buying Russian oil in early April showcase that it is seeking to build an ally out of India. While suspicions as to American fickleness driven by self-interest undeniably have ground, America is indeed India’s best bet in rallying the alliances and the resources it needs to safeguard its national interests.

Atmanirbhar Bharat

The Ukraine scenario should also serve as a wakeup call for India, at two levels. 

First, despite the loud vocal support and military equipment support that Europe (read NATO) is providing to Ukraine, it is blatantly evident that they haven’t rushed to Kiev’s aid as the global audience as well as Ukraine itself had anticipated. India might come face to face with a similar scenario if China decides to scale up aggression, and in such case, in light of the high degree of enmeshment of the Chinese economy with the global economy, and the dependence of the west on China, India cannot count on external support. Their muted responses to the Wuhan virus pandemic bear testimony to this. So, it is important for India to enhance its war time capabilities and capacities, without counting too much on external support in case of an eventuality. Additionally, as the Russia-Ukraine war has progressed, analysts have keenly watched the performances of various Russian armaments. Since India fulfills a large part of its arms’ needs from Russia, it might want to diversify the list of its sellers in future. 

Second, India should push forward on the way towards reducing its dependence on fossil fuels to meet its energy needs. India should invest in building domestic capacities in alternative energy sources to avoid devastating impacts of such uncertainties. Fossil fuels have become an indispensable commodity for the human civilization of this age. All economies, national security, national interests, the day to day lives of billions of people are inadvertently linked with it. Societies and governments today depend on the supply of natural gas and oil resources for growth and survival. The world has witnessed chaotic upheavals taking place for the sake of this particular natural resource.Ending dependency on fossil fuels is a distant goal, difficult even for the more advanced developed countries, but that is the preferred way forward in the long run.

(Views expressed are author’s own)

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