India To Buy More Russia Oil, Working On Rupee-Ruble Settlement Mechanism; West “Understands”

In the latest sign that western sanctions against Russia are really just that, and exclude much of the non-western world, Delhi announced overnight that it wants to keep its key trading partner on board despite Western attempts to isolate Moscow through sanctions with Reuters reporting that according to two Indian officials, India may take up a Russian offer to buy crude oil and other commodities at a discount.

And while U.S. officials have said in recent weeks they would like India to distance itself from Russia as much as possible, they recognize its heavy reliance on Moscow for everything from arms and ammunitions to missiles and fighter jets. In other words, India quietly gets a carte blanche to continue trading with Russia in violation of western sanctions.

India, which refuses to side with the west in the escalating Ukraine conflict, has not condemned the invasion of Ukraine and abstained from voting at the United Nations calling out Russia’s aggression. One person within India’s security apparatus told Reuters that “the West understood India’s position, given that it needs to keep its armed forces well supplied amid simmering territorial disputes with China. “

In other words, all sanctions are created equal, but some are more equal – and can ignore the sanctions – than others.

India, which imports 80% of its oil needs, usually buys only about 2-3% from Russia. But with oil prices up 40% so far this year, the government is looking at increasing this if it can help reduce its rising energy bill.

“Russia is offering oil and other commodities at a heavy discount. We will be happy to take that,” one of the Indian government officials said. The official added that such trade required preparatory work including transportation, insurance cover and getting the right blend of crude, but once that was done India would take Russia up on its offer.

Apart from oil, India is also looking for cheaper fertiliser from Russia and its ally Belarus, according to one of the officials.

Indian officials said they could not suddenly replace Russia with other suppliers, particularly in the defense sector. India’s dependence on Russia for its military hardware still runs as high as 60%, despite a significant reduction over the last decade.

U.S. officials have declined to say if India would be sanctioned should Russia send S-400 missile systems as part of a $5.5 billion deal signed in 2018 for five of them (that’s because the answer is no, it won’t, as the last thing the US wants is to alienate the world’s second most populous nation – after all, it has already done that with the first). Initial supplies of the system started late last year despite a U.S. law aimed at deterring countries from buying Russian military hardware.

Ely Ratner, U.S. Assistant Secretary of Defense for Indo-Pacific Security Affairs, told a U.S. Congress hearing last week that India was diversifying its defense suppliers.

“We recognise that India has a complicated history and relationship with Russia. The majority of the weapons that they buy are from the Russians,” he said.

“The good news is that they are in a multi-year process of diversifying their arms purchases away from Russia – that’s going to take some time. But they are clearly committed to doing that, including the indigenisation of their own defence industry and that’s something we should support.”

British Foreign Minister Liz Truss also said last week that London should pursue closer economic and defense ties with India to help it reduce its reliance on Russia. Since 2011, New Delhi has cut its defence imports from Russia by 53%.

That said, D. Bala Venkatesh Varma, a former Indian ambassador to Russia, said New Delhi should not be expected to pay a price for a standoff between global powers. “This is not a fight we have created,” he told an online seminar on Monday.

Separately, Reuters also reported that in order to streamline purchases of Russian goods, Indian officials are working to set up a rupee-rouble mechanism with Russia to continue bilateral trade.

Indian officials are concerned that vital supplies of fertilizer from Russia could be disrupted as sanctions intensify, threatening India’s vast farm sector. Officials said the plan was to get Russian banks and companies to open accounts with a few state-run banks in India for trade settlement, a banking source involved in the discussions said.

note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White

MUMBAI, Feb 25 (Reuters) – India is exploring ways to set up a rupee payment mechanism for trade with Russia to soften the blow on New Delhi of Western sanctions imposed on Russia after its invasion of Ukraine, government and banking sources said.

Indian officials are concerned that vital supplies of fertilizer from Russia could be disrupted as sanctions intensify, threatening India’s vast farm sector.

India has called for an end to violence in Ukraine but refrained from outright condemnation of Russia, with which it has long-standing political and security ties.

Russia invaded Ukraine by land, air and sea on Thursday in the biggest attack on a European state since World War Two, prompting tens of thousands of people to flee their homes.

Russian forces pressed their advance on Friday and Ukrainian President Volodymyr Zelenskiy pleaded with the international community to do more, saying sanctions announced so far were not enough. read more

Officials said the plan was to get Russian banks and companies to open accounts with a few state-run banks in India for trade settlement, a banking source involved in the discussions said.

“This is a proactive move assuming that the conflict escalates and there could be a slew of sanctions in place,” the source said.

“In this case we would not be able to settle the transaction in dollars and so an arrangement has been proposed to set up a rupee account, which is being considered.”

Funds in such accounts act as a guarantee of payment for trade exchanged between two countries, while the parties barter commodities from each other to offset the sum, the source said.