Despite criticism from the West, India is not backing down on its commitment to buying Russian oil.
As Brent crude retreats back to near $100 a barrel, foreign policy experts say India’s drive to buy oil will only escalate as inflation concerns take center stage.
“India is getting negative attention for the acquisition of oil by the U.S. and Europe… but India has made a judgement that its national interests dictate — keeping oil prices in the best position that it can is vital for domestic stability and economic interests,” said Frank Wisner, former U.S. ambassador to India and an international affairs advisor at Squire Patton Boggs.
As the world’s third largest oil importer, India is vulnerable to rising oil prices. Further, pressure is growing on Prime Minister Narendra Modi to tame rampant inflation for his 1.3 billion citizens.
“The availability and price of Russian oil is too attractive,” added Wisner.
Analysts at Nomura say for every $1 increase in the price of oil, India’s import bill increases by $2.1 billion.
Since Russia invaded Ukraine in late February, India’s imports of Russian oil have surged. Early data from June shows India’s supply of Russian crude reached nearly 1 million barrels per day, up from 800,000 barrels per day in May, according to Again Capital. Currently, Russian oil makes up 25% of India’s energy imports, due in part to the sanctions placed on Iran. Still, critics blame India for financing Russia’s wartime efforts in Ukraine.
However, Americans frustrated with higher prices should take note of this observation: “Oil prices would likely be $8 to $10 higher if India was not buying the volumes of Russian crude that it is,” said John Kilduff, founding partner of Again Capital. Experts say recession concerns could reduce the amount of oil India buys, but they are making no major changes in estimates at this point.
Last week, G7 leaders floated the idea of implementing a price cap on Russian oil. However, strategists — including RBC Capital’s Helima Croft — say this could backfire, especially now that the price of oil is trading off its highs.
“I don’t think the Russians are ever going to accept a price cap… discounts become more challenging in a lower priced environment,” said Croft.
Punishing India could backfire
It’s less likely that the U.S. would punish India for its oil purchases, given the important role the country plays in the U.S.’s efforts to challenge China’s rise in the East, foreign policy experts said.
“The United States prioritizes its Indo-Pacific strategy: Without India, there is no ‘Indo’ in Indo-Pacific,” said Manjari Chatterjee Miller, senior fellow for India, Pakistan and South Asia at the Council on Foreign Relations.
“The rest of the Quad countries are all Pacific powers,” she added, referring to the Quadrilateral Security Dialogue, which includes the U.S., Japan, India and Australia.
Rolling out sanctions or other measures to reprimand India could also cause a blowback.
“India is also a very touchy power as the U.S. has realized in its long dealings with the country: Penalizing India would be a very serious setback to the bilateral partnership, and even the Quad,” added Miller.
Why Russia matters to India
The relationship between Russia and India also has considerable history, going back more than 50 years.
“This was the 1970s… during the war between India and Pakistan. Russia stood by India whereas the U.S. condemned India,” said Akhil Bery, director of South Asia Initiatives at the Asia Society Policy Institute. At the time, then-President Richard Nixon and Secretary of State Henry Kissinger were working with Pakistan to open China to the West, he said.
While U.S. alliances in Asia have dramatically changed and its relationship with India has improved, officials still remember the conflict in the 1970s. “There’s still a long memory there,” added Bery.
The Council on Foreign Relations’ Miller said that as the geopolitical threat of China grows, India will continue to maintain relations with Russia, which continues to be its No. 1 provider of defense equipment.
“… Although India has been diversifying its military imports away from Russia since the end of the Cold War, the fact remains that much of its military hardware is still Russian, which means that it has to rely on Russia for parts, upgrades and software,” Miller said.