Western nations (led by the US) have imposed sanctions against the export of Russian energy products in order to minimize Mister Putin’s access to money via these exports since the beginning of the Russia-Ukraine war.
The sanctions restrict purchase of Russian oil from Russia to the countries of North and South America and Western Europe. However, India and China (among few others) have continued to buy Russian crude oil from Russia; often at significant discount prices. Indian oil imports have made that country one of the largest purchasers of Russian Crude oil to satisfy its growing energy needs and to assist with keeping domestic prices for fuel stable.
The United States previously pressured India to reduce the purchase of Russian Crude oil. Recently, the US provided a temporary waiver to Indian refiners allowing them to continue to purchase Russian Crude oil from Russia until further notice.
Logic dictates that the most recent change in policy by the United States results from the escalation of tensions in West Asia and possible disruption to the shipping supply lanes from the Gulf of Hormuz through the Strait of Hormuz.
Almost 30 percent of the world’s crude oil is shipped through this narrow route. With the recent escalation of tensions in the region, the fear arises in the global market, and therefore prices, that there would be a sudden shortage of crude oil coming out of the Gulf of Hormuz and that prices may spike very rapidly if shipments are blocked from the Gulf of Hormuz.
Given that India relies heavily on the Middle East for its supply of crude oil, the country is especially at risk of being touched by oil supply disruptions caused by other events around the world.
In an attempt to avoid a supply shock resulting from the waiver, the US Treasury Department authorised a 30-day exemption to the ban on purchasing Russian oil from the international market.
Primary Objective: Stabilising Global Oil Prices
According to statements made by US officials, one of the primary purposes of this waiver was to provide relief to the global energy markets. There are millions of barrels of oil that have been locked up on ships because of sanctions and shifting demand for Russian supplies. The US has granted India permission to purchase this oil to facilitate an increase in supply by allowing refineries to process this product sooner.
As a result of this exemption, the price of oil will not spike sharply. Some analysts have stated that if the supply of crude oil were to start tightening dramatically, prices could reach as high as $150 a barrel, creating instability throughout the world. By granting the waiver to India, the US hopes to provide enough crude oil to meet demand and maintain stability in the global energy markets.
Vague Nature of Waiver
The US was quick to tell reporters that this action does not represent a new policy towards Russia, and will not be interpreted as a policy change.
The waiver applies only to:
- The purchase of Russian crude oil that was either in transit or still in the water
- A temporary time period that will not exceed approximately 30 days.
Emergency supply needs due to geopolitical tensions
The U.S. has said that its purpose of this action is to not to substantially raise the amount of revenue Russia receives through oil sales and that this oil had already been produced prior to this time.
There is also evidence that Washington may consider lifting sanctions on additional stranded oil if global price pressures continue to increase.
India’s Response: Energy Decisions are Sovereign
The Indian government has been very cautious about recent media reports alleging that the U.S. has “allowed” India to purchase Russian oil. Officials pointed out that India does not need permission from any other nation in order to make decisions about energy imports.
Throughout, India has maintained the position that its primary duty is to ensure a supply of affordable energy to its population and its economic base. As the world’s third largest consumer of oil, India must rely on oil imports to meet the needs of its domestic demand.
Political Reaction in India
As a result, this situation has become politicized in India. Many political leaders who oppose the government have publicly derided the government based on the premise that the U.S. gave India “permission” to purchase Russian oil. They claim that the issue brings into question India’s national honour and ability to exercise its sovereignty in its foreign policy.
Supporters of the current government assert that this waiver is an employed practical means of providing stability to the international energy market at a time of crisis.
Read also: Trump Cuts India Tariffs in Deal He Links to Russian Oil
Conclusion
In light of global economic conditions and the needs of the region, the United States has made a decision to allow India access to Russian oil on a temporary basis. This decision was not made due to a policy change and is reflective of both the geopolitical issues related to the Middle East as well as the immediate need to provide a solution for ensuring that oil supplies continue to flow at reasonable prices.
The major takeaway for India, through this episode, is how difficult it is to find the middle ground between preserving an independent strategic position regarding energy policy and dealing with, and managing, the complexities of the global geopolitical environment.
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