India is considering establishing a payment mechanism in local currencies to allow it to continue trade with Russia, which has been hit with Western sanctions in response to its invasion of Ukraine.
New Delhi is proceeding with purchases of Russian crude at discounted prices despite pressure from the United States.
The state-run Indian Oil Corp. has concluded a deal to buy 3 million barrels of Russian crude, according to local media reports.
Although it has not officially confirmed the deal, India has defended the country’s decision to look at purchasing Russian oil.
“A number of countries are importing energy from Russia, especially in Europe,” Indian External Affairs Ministry spokesman Arindam Bagchi told reporters earlier this week. He said India, which imports most of its oil, is “always exploring all possibilities in global energy markets.”
While the United States has banned Russian oil imports, several European countries, such as Germany, which are dependent on Russian imports of energy, continue to buy it. India, the world’s third-largest oil importer, imports only about 3% of its crude from Russia, but cheap Russian oil could help cushion its economy from spiraling international crude prices.
India will study the impact of Western sanctions against Russia while devising a payment mechanism to settle its trade with Moscow officials say.
“We will await details to examine the impact on our economic exchanges with Russia,” according to Bagchi.
As sanctions limit Russia’s ability to do business in major currencies such as the dollar or the euro, an Indian business body has asked the government to set up a rupee-ruble mechanism to facilitate trade.
“We have proposed that local currency trading may be explored in the given situation. It is one of the plausible options that are on the table,” according to Ajay Sahai, director general of the Federation of Indian Export Organizations. Indian exporters say payments of about $500 million are stuck because Russian buyers cannot pay in foreign exchange.
Work was ongoing to set up a rupee-ruble trade mechanism to be used to pay for oil and other goods, an Indian official, who refused to be identified, has told Reuters.
The trade in local currencies could take place between Russian banks and companies with accounts in Indian state-run banks.
This is not the first time that such a mechanism is being considered — India and the former Soviet Union had a rupee-ruble exchange plan in place during the Cold War to bypass the U.S. dollar.
India has also used a similar program with Iran, under Western sanctions for its nuclear weapons program.
New Delhi has taken a neutral stance on the Russian invasion, calling for a cease-fire and diplomacy to resolve the crisis, but abstaining from condemning Moscow, with which it has longstanding ties.
It has been under pressure from Washington, which has been urging India to the U.S. and other countries’ tough stand on the invasion.
When asked if the U.S. plans to reach out to India for curbs on oil purchases from Russia, White House press secretary Jen Psaki said Friday that Washington has been in touch with Indian leaders but added that countries have different “economic reasoning,” including some in Europe.
“But what we would project or convey to any leader around the world is that the world — the rest of the world is watching where you’re going to stand as it relates to this conflict, whether its support for Russia in any form as they are illegally invading Ukraine,” she told reporters.
New Delhi however has shown no indication that it will weaken trade or strategic ties to Russia — Moscow supplies India with more than 70% of its weapons, which are critical for New Delhi as it faces Chinese troops all along its Himalayan border. During a visit three months ago by Russian President Vladimir Putin to New Delhi, both countries pledged to increase trade in the defense and energy sectors.
Analysts in New Delhi are optimistic that differences over Russia will not harm ties with Washington, which have grown in recent years as both India and the United States look at how to contain a more assertive China.
“It is not as if U.S. and India are on the same page on every issue,” said Sreeram Chaulia, dean of the Jindal School of International Affairs at O.P. Jindal University. Pointing out that India’s focus is primarily Asia and Indo-Pacific region, he said, “We are really fearful of what China could do along our borders and that remains our primary concern. And New Delhi feels that whether or not we take a joint position on Ukraine with the U.S., the Europeans and others, they will still partner with us to counterbalance China.”
That is why India believes that it can navigate its partnerships with both Russia and the United States for the time being, analysts such as Chaulia say.
However, if the war in Ukraine does not wind down and the crisis drags on, he said “then we will have to readjust our position.”