Big Indian businesses benefit from sanctions on Russia

Meeting between Prime Minister Narendra Modi and President Vladimir Putin in 2019 | Pic courtesy: @narendramodi

Contrary to expectations, Russian national day celebrations in Delhi were awash with people and merriment. The tastefully illuminated embassy at Delhi’s Chanakyapuri betrayed no signs of the Western sanctions except that a clutch of their diplomats did not show up. However, there were people from all walks of life that came to express solidarity with Russia. It was apparent that notwithstanding the sanctions, Russia was in business.

Victory banner displayed by 1000 volunteers from 13 nations in Moscow at the Poklonnaya Gora Memorial Complex to celebrate Russia Day. Russia Day, also called the day of adoption of the declaration of state sovereignty of the Russian Soviet Federative Socialist Republic (RSFSR) is celebrated annually on June 12 since 1992.

It was possible to spot diplomats from all the non-European countries, but those who really showed thunderous support were Indians, including many ruling party faithful, public sector executives and businessmen who traded with Russia when the Rupee-Rouble arrangement existed between the two countries to beat the Western sanctions.

Now with the return of the sanctions against the Russians and the possibility that their ample services would be needed by Moscow, these people who prospered in the 80's and 90's are back in the hunt. Many of them trade the usual tea, tobacco and tannery goods. Yashwant Place in Delhi was the beneficiary of this Rupee-Rouble system, but when the Soviet Union collapsed, so did the fortunes of this market. 

There are expectations that this time, the range of products that would be needed from the Indian market would be far more. If there is any merit in Russian President Vladimir Putin’s assertion that Indian retail chains would be opened up in Moscow and other cities, then the exposure of Indian businesses to the sanctioned country would be considerable.

Reports suggest that Reliance and Adani could open some retail outlets in Russia. This display of spine stems from the support Russia enjoys in India. Its precursor state, the Soviet Union, had stood by New Delhi in every crisis. It provided weapons and its veto in the security council in wars and conflicts with neighbouring countries. No other country has come to the country’s rescue as Moscow has. This fact is not forgotten, which has allowed the government of Narendra Modi to increase its purchase of oil and coal after the conflict. US sanction enforcer had threatened the government with “consequences” if New Delhi did not stop buying oil from Moscow, but the opposite has happened.

India has increased its crude oil purchase from a low of being just 1 per cent of its total needs to about a million barrels every day. That way, it has knocked off even Saudi Arabia as its leading supplier. This is despite the fact that the crude that is brought from Russia, Urals, is very high in sulphur and needs to be mixed with other crude varieties to be used without causing any harm to downstream industry. The Urals is being sold at 35 per cent less than the prevailing price allowing refiners in India to make a whopping profit by selling diesel and other petroleum products to the western and US market. Indian public sector refiners, in turn, are supplying to the domestic consumers. The big private sector refineries like Ambani’s Jamnagar and Nayara, owned by Russian company Rosneft are the actual beneficiaries of these new circumstances. An executive of one of the refiners stated that their refining companies never had such a good time. Market sources claim that the Indian refiners are perhaps the biggest grossers in this crisis.

Increased purchase of Urals by both India and China, both big guzzlers of fossil fuel, have ensured that the prices in the global markets dampen. There is no longer pressure on crude from Saudi Arabia and other middle eastern countries. Expectedly, in the past few weeks, crude oil prices have decreased.

Russian flags at Russia Day celebration in Kherson, Ukraine | Photo courtesy: @PLnewstoday

As elucidated above, India is not just buying crude oil but is also buying coal to tide over its power crisis so manifest over the past few months. All this transportation would not have been viable - even with the discount - if New Delhi and Moscow had not used the new North-South Corridor, which cuts down the travel time for the Russian oil from 16,000 kilometres to about 7,000 kilometres. Now the oil tankers are leaving St Petersburg and, after negotiating land and sea routes, reach Bandar Abbas in Iran, from where it is taken to Nhava Sheva. The saving of time is considerable, and it is also recharging the Iranian economy, which benefits from transit fees.

There are still many issues that need to be thrashed out between India and Russia. Till now, most of the tankers are flying flags from Western countries. Once the European crude and gas imports to Europe are totally banned, insurance companies, too, would make it difficult to ferry any goods between the two countries. Both would then have to devise different ways to reach out to each other. Russia is underwriting the cargo, but this will run into problems till it works out an arrangement for payment to other countries. This has become necessary after the US ejected Russian banks from the SWIFT arrangement.

Indian companies are waiting for the Rupee-Rouble agreement between the two countries so that there is clarity on how the business would be conducted. As of now, some kind of barter is taking place, or defence goods are being bought cash down like in the case of the Indian purchase of the anti-missile system, S-400. It is a complicated way and is hurting small businesses that deal with Russia.

“We are hoping that the two governments quickly put a regime in place, and we can take advantage of the growing needs in the Russian market”. This businessperson said that the trade is taking place at the government level and has not percolated to ordinary businessmen. There are fears that history may not repeat itself like last time. Unlike in the 90's, thousands of small businessmen that benefited may be edged out by the big boys, Ambanis and Adanis could set up retail businesses in the empty showrooms of Moscow. Ambanis have benefited from the Russian oil, and it could be the turn of other big businesses to prosper in this crisis.