Russian oil for South Asia

Smruti S Pattanaik :
On February 5, the European Union banned Russian fuels. India decided to import Russian crude oil at a 30 percent discount to strengthen its energy security. It started refining Russian oil to bolster its export to Europe. India’s export of petroleum products to the EU countries rose 20.4 percent year-on-year in April-January to 11.6 million tonnes. In January 2023, India surpassed China to emerge as the largest importer of sea-borne Russian oil, which rose by 260kbd month-on-month in December to reach 1.2mbd in January. India had stopped importing oil from Iran earlier due to US sanctions. In the context of Russia, the United States has taken a lenient view of the import. However, India has strongly defended its decision to buy oil from Russia; Pakistan has joined the game and decided to import oil from Russia in currencies of “friendly” non-western countries. Cash strapped economy of Pakistan is likely to save around $2 billion once it starts importing in April.
Bangladesh also explored the opportunity to import energy from Russia. In August last year, it was reported that Bangladesh negotiated with Russian company Rosneft to import crude oil at $59 per barrel. However, it was shelved as Bangladesh’s trade with Russia was insufficient to pay for the Russian oil in Ruble. However, many attribute this decision to Sheikh Hasina’s decision not to displease Washington. However, Dhaka has decided to import oil from India, which will be cheaper according to some estimates, and it will save $1.5 million per 100,000 tons of fuel oil due to less transport cost given the distance. Considering the dwindling foreign currency reserve, Bangladesh now has sought to import oil from Saudi Arabia on deferred payment. One has witnessed power outages in Pakistan, Bangladesh and Sri Lanka as private producers closed down electricity generation due to the rising oil price in the international market, raising production costs hugely.
Like Bangladesh, Sri Lanka is exploring various options to import oil from a third party. In fact, and quite ironically, the third-party route is also taken by the United States, Australia and Europe. For example, Russia’s Virgin gas oil from two Indian companies. Since the sanction was imposed, oil importers have devised an innovative formula to reliable Russian oil and sell it in the international market. India is increasingly using rupees to settle its oil bill with Russia. Sri Lanka has also opted to pay in Indian rupees as both these countries are allowed to open Vostro accounts.
Most of these countries will go for an election next year. Inflations and local currencies in these countries continue to struggle against the dollar, and unemployment will impact elections. While India has been able to keep the price of petrol in control due to the import of crude oil from Russia, other countries have opted for third-country import to avoid Western sanctions. Though it is difficult to say whether the Western sanction on Russia is successful, one can conclude it has impacted the economies of developing countries caught between Russia and the western world and has borne huge costs due to the rise in crude oil impairing their economic development.

(Pattanaik is a research fellow at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi, India. Abridged from kathmandupost.com).