A Case of Euro Tunnel Vision

THERE IS MONEY laundering and then there is oil laundering. That is exactly what India and a clutch of other countries have been accused of. Last week, a little-known Finnish think-tank, the Centre for Research on Energy and Clean Air (CREA) issued a report that alleged India had whitewashed Russian crude oil and then re-exported it to the European Union (EU) and other countries. In no time, news outlets followed the ‘story’ and the old allegations that India was helping Russia in its war effort surfaced again.

It was a storm in an oil barrel. The reality, even as the report admitted, was something very different. While India’s imports of crude oil from Russia rose dramatically from just 3.85 million tonnes one year before the war in Ukraine began to nearly 56 mil­lion tonnes, its exports to the ‘price cap coalition’ countries were just a tad higher at 2.4 per cent in volume terms. The price cap coalition includes the G7 countries, Australia, Japan and the EU. The idea behind the price cap on Russian oil exports was that lower the price cap, lower the Russian revenue from sale of energy products. This, in theory, would make it more difficult for Russia to fight the war. The price cap came into force on December 5, 2022 and was fixed at $65 per barrel and was supposed to be reviewed periodically.

This was a ham-handed approach unlikely to work. For one, the coalition was thin. The Organization of the Petroleum Exporting Countries (OPEC) did not join it and large oil-consuming coun­tries like India also refused to enter the arrangement. For another, the economics of fixing a price cap to squeeze a target country’s revenues is also dodgy. The original calculation of the price cap made by the International Working Group on Russian Sanctions in late November last year said that a price cap of $75 barrel would be no price cap at all and would enable Russia to meet its revenue targets for 2023. A price cap of $35 would severely squeeze Russian oil and gas revenues. As a compromise of sorts, so that global energy markets would not be roiled, the cap was set at $65.

Predictably, this has not stopped the war in Ukraine; nor has it ended the world’s appetite for Russian oil. As a first-order re­sponse, Russia offered ‘deep discounts’ of up to $35 per barrel to India. Moscow wanted India to substantially increase purchases of its crude oil. This suited India’s interests. In the wake of the war in Ukraine, global crude oil prices jumped to $120 in no time. For India, any price of oil above $75 per barrel leads to fiscal stress. Thus, India agreed to buy Russian oil. By June, Russia had become India’s second-largest seller of oil. But this was not a static situation: over time, the discounts offered by Russia fell dramatically from around $16 per barrel in May 2022 to just about $6 per barrel in August that year. By that time other countries, such as Iraq, had begun to offer discounts to India to recover their positions in the Indian oil market.

India’s independent choices in securing the right mix of ener­gy imports did not go down well in Europe where the ‘immorality of war’ was extensively used as a foil to secure its own energy needs while pointing fingers at countries like India. Indian ministers, especially Minister of External Affairs S Jaishankar and Minis­ter of Petroleum and Natural Gas Hardeep Singh Puri, have been repeatedly questioned about India’s imports of Russian oil. In December, Jaishankar was asked by a European journalist about India’s choice of buying oil from Russia. He said, “I also understand Europe has a point of view. And Europe will make the choices it will make. That is Europe’s right. But for Europe to make choices, which prioritise its energy needs, and then ask India to do something… [is unacceptable].”

Similarly, a month earlier—in November—during a visit to Abu Dhabi, Puri responded to ques­tions about Russian oil imports by noting that Russia is not the larg­est supplier of oil to India; Russia supplies only 0.2 per cent of India’s requirements. Now, it is one of our top four or five suppliers. Puri was reflecting the existing reality of energy imports in India.

Minister of External Affairs S Jaishankar has been repeatedly questioned about India’s imports of Russian oil. Meanwhile, Indian exports of oil products to the ‘price cap coalition’ have gone up by 2.4 per cent. Oil exports from the UAE, in contrast, were up 22.5 per cent

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Europe suffered from its choices. No one questioned its choice of joining a coalition that imposed sanctions on Russia, but for it to question others who did not is hypocrisy. The problem for Europe was the consequences of its choices. Energy inflation in the EU rose and the cost of living crisis in countries as diverse as the UK (not an EU member) and the Netherlands, to cite just two examples, was painful. In contrast, countries like India—not im­mune to global economic headwinds—did manage the situation with the limited options available to them.

One reason why all this pinches Europe is that India makes decisions in its interest and does not conduct foreign policy on the basis of ‘moral’ considerations as it used to in the past. Europe, and the broader West, is the home of realpolitik and exercises its options accordingly. But it is also a part of its toolkit to ask others for ‘moral considerations’ while it carries on as usual. The flow of oil, of Russian origin, tells its own story. India is just a punching bag for Europe in this respect.

But the hypocrisy does not end there. The report of the Finnish think-tank, titled ‘The Laundromat: How the price cap coalition whitewashes Russian oil in third countries’, clearly mentions how Russian oil has found its way to the EU. It makes it a point to highlight India when Indian exports of oil products to the price cap coalition have gone up by a small fraction. In contrast to India, oil exports from the UAE were up 22.5 per cent when compared to one year before the war in Ukraine and one year after the war began. The same figure for China was 94.3 per cent, for Singapore 32 per cent and Turkey 42.5 per cent. Indian exports rose just by 2.4 per cent in volume terms. They were higher, around 40 per cent, in value terms. This was due to a complex mix of price, exchange rate and logistical issues. But these factors did not come in the way of singling out India as a ‘culprit’ for what was a Western decision.

To an extent, the availability of cheaper oil from Russia did help India. But the country had to face other problems because of the war in Ukraine. In April 2022, the government ensured adequate stocks of fertiliser were available for the kharif season. But because of the war, the subsidy bill increased from an outlay of ₹1 trillion in the 2022- 23 Budget to ₹1.62 trillion, by 62 per cent. A number of other measures, including reduction in import du­ties on edible oil ingredients, export duties on raw materials like iron and steel, etc had to be undertaken to en­sure that inflation did not get out of hand. In tandem with the steps tak­en by the government, the Reserve Bank of India (RBI), too, increased its policy rates to ensure macroeco­nomic stability.

India has had its fair share of external shocks imparted to its economy. After the implementation of the Goods and Services Tax (GST) Act, there were teething problems. Economic growth had slowed due to a combination of factors by 2019. Just as the economy was poised for recovery, the Covid-19 pandemic struck. India witnessed the sharpest decline in growth in any quarter since 1947 during the first quarter of 2020-21. Annual growth, too, took a hit. But at no point did the government let citizens suffer for the want of food, fuel, and other necessities. It also conducted the single-biggest vaccination programme in the world in record time. It did all of this on its own. The same breakdowns in supply chains that affected all countries affected India as well. But India did not waste time blaming others; nor did it gather any of the materials that it required while preaching morality to others. Had India joined the band of countries imposing sanctions on Russia, it would have won encomiums but the cost to its security—eco­nomic and military—would have been severe. But all this is likely to fall on deaf ears, especially in Europe.

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Siddharth Singh

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