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Sanctions, Transactions, And…

Russian Foreign Minister Sergey Viktorovich Lavrov‘s comments during the May 4-5, 2023 Shanghai Cooperation Organisation (SCO) Foreign Ministers Summit in India have raised fear regarding the relationship between the two friendly nations. Lavrov claimed that although his country had billions of US Dollars deposited in Indian banks, Moscow has failed to use that amount for global investment in the current war situation.

The US and its Western allies imposed economic sanctions on Russia after the Kremlin launched a war against neighbouring Ukraine on February 24, 2022. However, India continued to export oil at a cheap price from Russia, ignoring the sanctions. Russia and India also discussed the transaction in Indian Rupees. Unfortunately, the two countries are yet to reach an agreement in this regard. It may be noted that Indian Rupees are not fully convertible into gold or other foreign currency in the international market. Furthermore, the share of the South Asian country in the global export market is just 2%. Hence, Moscow is no more interested in keeping millions of Rupees in Indian banks. As a result, Russia recently suspended bilateral trade transactions in Indian currency.

India used to import oil from Iran in the past. Later, New Delhi stopped importing oil from Tehran. As India’s oil trade relations with Iran and Russia are quite similar, experts believe that the former’s ties with Moscow may deteriorate in the near future. Incidentally, both Iran and Russia used to export oil to India at a concessional price. India used to import oil worth USD 5 billion in 2021. The volume of import increased nearly sevenfold in 2022 when Russia agreed to offer concessions of USD 30-35 per barrel.

Global economic sanctions, too, played a crucial role in India’s oil trade with the Islamic Republic and Russia. Earlier, the Donald Trump Administration in Washington DC refused to ease sanctions on Iran, despite India’s request in this regard for the sake of oil imports. However, India has so far managed to maintain a diplomatic balance, in spite of the pressure from Western nations to halt oil imports from Russia over the Ukraine issue. Nevertheless, concerns still remain there mainly because of the West’s Countering America’s Adversaries Through Sanctions Act (CAATSA), which is aimed at curbing trade ties with Russia.

The lack of a proper transaction mechanism, too, has started affecting India-Russia trade ties. Transactions have become difficult due to restrictions on the use of the US Dollar and the Society for Worldwide Interbank Financial Telecommunications (SWIFT), one of the international transaction mechanisms. Relying on alternative transaction processes has also not been effective.

The friendship between Russia and India still remains intact after all these. However, New Delhi has admitted that the lack of a proper transaction mechanism may affect bilateral trade ties in the coming days. In that case, China can become a strong rival of India. Mainly, India enjoys the benefit of oil imports at a subsidised price. Hence, it is India’s primary responsibility to find suitable channels for trade transactions.

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