Why India buying Russian oil?

Subject: Economy

Context:

In FY22, India bought around 2.4% of its overall oil imports in volume terms from Russia which was just 1.7% in FY21.

Causes:

Rise in oil prices post Ukraine War
- With oil prices going up, more dollars are needed to buy oil. This increases the demand for the dollar and leads to rupee depreciation and widening current account deficit.
- Higher Inflation-A weaker rupee, along with higher prices for petroleum products (imported inflation)–feeds into retail inflation.

Concept:

The Ukraine conflict and the consequent economic sanctions on Russia by the West have improved trade prospects between India and Russia.
India’s imports from Russia in April-September period surged 410 per cent to $21.34 billion and its exports declined 18.8 per cent to $1.3 billion.
- This a big hurdle for trade in rupee between India and Russia-With such a large trade deficit, Russia may be left with a huge rupee surplus that it receives for its exports.
Russia, which is now India’s third largest import partner when it comes to crude oil, behind Saudi Arabia and Iraq, has displaced the UAE from the third position.

G7 price cap:

The G7 wealthy nations – the United States, Japan, Germany, Britain, France, Italy and Canada – and the EU are hammering out details of the plan.
Russian crude is priced at a discount to the international Brent benchmark and the G7 wants to keep that spread wide, to keep down Russian oil revenue.
G7 and EU countries will decide a ‘price’ for Russian Oil and petroleum buyers would make “attestations” to providers saying they bought Russian petroleum at or below the cap. If they don’t adhere to it, they will be denied services including insurance, finance, brokering and navigation to oil cargoes priced above the cap.
- London-based International Group of Protection & Indemnity Clubs provides marine liability cover for about 95% of the global oil shipping fleet
- The G7 is a group of wealthy nations – the United States, Japan, Germany, Britain, France, Italy and Canada.