The proposed rupee-rouble trade for oil will be a key ingredient, along with Russian insistence on rouble payments from European gas customers, in Putin’s sanctions-busting program. The Biden administration has obviously seen the implications of an India-Russia oil deal and it is no surprise, therefore, that Washington is trying to put pressure on New Delhi and yet without pushing things too hard as it is well aware of the limited scope of US pressure in this regard. Russia has reportedly offered a USD 35 per barrel discount for its best crude, and that too on prices that prevailed before the Ukraine invasion took place. This means that at prevailing crude prices, Russia is offering oil at about half price, which is an irresistible offer even in normal situations, but given the precarious condition of India’s oil economy at present, it is nothing less than a providential helping hand. On top of that, on offer is for upwards of 15 million barrels. India’s oil major Indian Oil has had a contract for such quantity for a long time but has barely drawn down on it as the deal provides for purchases only when it is economical for the company.
For Putin, a rupee-rouble trade in oil will take some sting out of the US-sponsored sanctions as the Biden administration’s gambit of starving Russian oil of demand through the embargo will fail to deliver the desired results. Russia is a leading player in the international oil market and any plan to banish it from the market would have brought disastrous consequences, which Moscow could not have withstood easily. This is what Putin has checkmated through his currency standoff with the West as well as the rupee-rouble trade with India. The two together will limit the shock of Russia’s exclusion from SWIFT, the most critical messaging interface that facilitates global banking transactions. By insisting on rouble payments to Europe for the Russian gas supplies, Putin has thrown the ball in the European court, leaving it to Europe to figure out how to deal with the problem. Moscow plans to circumvent the SWFT embargo through its indigenous ‘System for Transfer of Financial Messages’ (SPFS), which is used by Russian banks to complete financial transactions. Spearheaded by the Russian central bank, SPFS has been under development since 2014, when the US had threatened to cut Russian access to SWIFT.
The Modi government has so far maintained that there has been no deal with Russia for rupee-rouble trade in oil amidst media reports that the two countries are moving towards such an arrangement as it serves the purpose of both sides. The denial, however, needs to be looked at only as technical as at the time of making the statement there did not exist any such deal. Russian gas major Gazprom was reportedly insisting on rouble payments for gas to be bought by GAIL. But as Indian and Russian delegations thrash out various issues related to an oil deal using the rupee-rouble platform, everything appears to be falling in place for a win-win deal between two long-time partners, whose defense partnership lends credence to closer economic and commercial relations between the two major players.
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