Russia’s offer of cheaper oil is tempting, but India must be cautious:
With oil above $100, the government now has to spend twice as much to import oil as it did earlier. Russia has offered to sell oil at lower prices to India.
Issues in buying oil from Russia:
- Impact on India’s export due to threat of the secondary sanction by the US:
- Whenever global crude oil prices have risen above $100 in the past, India was able to cushion that shock primarily through growth in exports.
- However, exports now have fallen dramatically to 18 per cent of GDP, which must be revived.
- The US is India’s biggest export market.
- The US has already cautioned India about abetting Russia by buying Russian oil.
- With US sanctions against Russia, Russia will insist on payment in rubles.
- If India is forced to accept trading in rubles with Russia, then it is very likely that China, which is India’s second-largest trading partner, may also insist on payments in Chinese yuan.
- This cascading “de-dollarisation” phenomenon will further irk and antagonise the US, since it weakens the dollar’s status as the world’s reserve currency.
- This can catapult India into the centre of a geo-economic war that it can ill afford.
Opportunity for India
- The Russia-Ukraine conflict can be an opportunity for India to step up and capture global market share in goods and services.
- There is already talk of India capitalising on wheat exports, albeit a tiny share of India’s overall exports, as a fallout of global sanctions against Russian wheat.
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