Russia’s offer of cheaper oil is tempting, but India must be cautious

News: Global crude oil prices have now risen above $100 a barrel due to the Russia-Ukraine Conflict 2022.  

Impact of high crude prices on India 

Indian government is under tremendous pressures. It has to spend twice as much to import oil. It cannot pass on these high oil costs to consumers, and will have to bear these costs.

This can severely hamper the government’s ability to spur the economy through increased capital expenditure.  

Russia has offered to sell oil at lower prices to India.

What can be the consequences of India accepting the Russian offer? 

Russia’s offer is tied with some hidden costs for India. It may be similar to the situation when the IMF offered help to India based upon some conditions that included India to adopt measures for economic reforms in 1991.   

The US has cautioned India against buying Russian oil. It may lead to secondary sanctions against India for buying discounted Russian oil. 

The US may be antagonized due to the cascading de-dollarization phenomenon. It is because India cannot not buy Russian oil using US dollars. So, Russia may insist on payment in rubles. Similarly, China, which is the second-largest trading partner of India, may also insist on payments in Chinese yuan.  

India may also become the centre of geo-economic war as a result of the cascading de-dollarization phenomenon. 

What is the way forward?

Exports remain India’s biggest hope at present. It is because India is facing weak domestic demand, lack of private investment and fiscal bottlenecks to government expenditure. Therefore, it can lead to a long-term sustainable economic recovery, job creation and also address problems arising out of high crude prices at present 

The Russia-Ukraine conflict can be an opportunity for India. India can step up and capture global market share in goods and services. For example, India is looking forward to capitalising on wheat exports amid the global sanctions against Russian wheat.  

India should equally negotiate with its trading partners i.e., the US, Russia, China and others for its best possible National interests. It is because the US and China are India’s largest trading partners. And, The Russia-Ukraine conflict has reshaped the world order. Now, there are two axes, i.e., the US and its allies v/s China and Russia.  

Source: The post is based on an article “Russia’s offer of cheaper oil is tempting, but India must be cautious” published in the Indian Express on 22nd Mar 22.