top of page
synergy logo.png

Relationship Strengthened by the Crisis: Russia-India Energy Cooperation - Erkin Sancarbaba

Recent geopolitical crises encourage countries to make new collaborations to protect their interests and eliminate risks. Increasing cooperation between Russia and India in energy can be evaluated in this context. It can be expected that the effects of this regionally important cooperation will also be reflected in the energy markets.

As the third-largest oil importer globally, India meets 85% of its crude oil needs through imports. The increase in energy prices brought by the Ukraine crisis is reflected as a huge burden on the Indian treasury. In line with these developments, the Indian government aims to reduce the effects of the crisis by preferring to cooperate with Russia on a stable and relatively cheap energy supply. The two countries have close cooperation in the energy industry. While Indian oil companies invest in oil fields such as Sakhalin, Vankor, and Srednebotuobinskoye in Russia, the Russian companies such as Rosneft ensure the supply of Russian oil to the world market with investments such as Essar Refinery in India. The cooperation between the two countries with the cross-investment method and based on the gain of both sides also contributed to the transfer of technology in the field of energy between the two countries.

Although India demonstrated strong cooperation with Russia in the energy industry, less than 5 percent of India's total oil imports were supplied from Russia. One of the reasons for this situation is the high shipping costs associated with oil supply from Russia to India. However, Russia's role in the Indian oil market is increasing as the Ukraine crisis deepens and the sanctions imposed on Russia under the leadership of the United States also cover the energy sector.

In parallel with Russia's tendency to stable and long-term cooperation, the energy demand from Russia is increasing in countries such as India. The $25-30 discount per barrel applied by Russia in Urals crude oil prices to India is an indicator of the aforementioned situation. Conditions that made Russian oil attractive brought India's oil imports from Russia to unprecedented levels. India's average rate of Russian crude oil purchases increased to 360,000 bpd (barrels per day), which corresponds to four times the average of daily purchases last year.

Increasing cooperation between Russia and India on energy supply can be an example of a partnership that can exceed the expectations of both sides.

However, it is important to prohibit some difficulties caused by the current crisis environment to sustain the bilateral cooperation in a stable manner.

Developing a mechanism on how to make payments between countries without being subject to the jurisdictions of the United States and European countries due to sanctions can be evaluated in this context. Here, the main sources of the complications are the sanctions imposed on Russian banks, as well as the barriers to commercial transactions with Russia through reserve currencies.

According to the information shared with the public, the Reserve Bank of India plans to take steps to establish a payments mechanism that will operate in local currencies so that trade with Russia can continue without interruption. It is aimed to increase the bilateral trade volume by providing a trade mechanism based on the rupee-rouble arrangement between the two countries. Undoubtedly, establishing and maintaining this mechanism after the feasibility assessment will pave the way for India to conclude long-term energy contracts with Russia. The cooperation that can be achieved through the aforementioned mechanism can be an important step for India in overcoming the obstacles to the diversification of energy importing countries and establishing an energy policy that promises long-term stability. In terms of Russia, it can be considered as a successful result of efforts to seek alternative energy markets.

Despite crises, countries can maintain successful policies by continuing their strategic cooperation and focusing on economic security. In this context, the political debates in energy today stand out. Since they are based on political value judgments, most of the arguments could not successfully emerge from the crises. In this direction, energy policies based on rational decision-making mechanisms can contribute to people's welfare and stability. The energy cooperation between Russia and India, which does not focus on political discussions and aims to benefit the parties, has the potential to contribute to the two countries and the region. The existing cooperation in the oil trade may also lead the two countries to a stronger partnership in the trade of other energy resources. These two countries, one of which needs energy export revenues and the other, which is highly dependent on foreign energy resources, have found common ground in producing common energy policies. The fact that the aforementioned energy cooperation sets a successful example for the region depends on the continuation of the rational approach of both sides.


bottom of page