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The US and Europe have tried to economically isolate Russia by placing sanctions on the country’s energy exports for its invasion of Ukraine. The Western sanctions are having a limited effect on Moscow as China and India are lapping up Russian oil at a discounted rate even as global crude oil prices hit a record.
Based on the data available from China Customs and India’s trade ministry, the two countries have collectively spent $24 bn on Russian energy exports in three months to the end of May. The two countries have nearly doubled imports of Russian oil, gas, and coal in 2022 compared to the previous year.
Why import Russian oil?
Russia’s war on Ukraine and the resulting sanctions on Moscow have put upward pressure on the prices of commodities, especially oil, gas, and coal. Soaring energy costs have increased the input costs for several other commodities and products, increasing inflationary pressures on global economies.
China and India are among the world’s top importers of crude oil and rising energy prices have put pressure on the two economies, with a potential power crisis on the horizon. Thus, buying Russian oil at steep discounts makes sense for both countries.
In the three months until May after Russia’s invasion of Ukraine, China spent $18.9 bn on Russian energy imports, whereas India spent $5.1 bn during the same period. China’s energy imports from Russia have doubled whereas India’s have risen five-fold, with the two countries collectively spending an additional $13 bn on energy imports compared to the same period last year.
India and China both have trade and strategic relations with Russia, and Moscow is offering steep price discounts while accepting their local currencies to keep trade flows active.
China was already importing a substantial amount of Russian oil and has dedicated pipelines for Siberian oil and gas. Russia now provides China with 55% of its oil needs, overtaking Saudi Arabia as the country’s top crude oil supplier.
Meanwhile, India must rely on cargo ships to get Russian oil and gas. New Delhi has spent $8.8 bn on petroleum and coal imports from Russia between February 24 to June 30, higher than the total spent on all Russian imports in 2021, a trade ministry official told Bloomberg.
“Historically, India has taken very little Russian oil, but the war in Ukraine and Russian-origin oil embargoes by the Europe Union has led to a rebalancing in oil trade flows,” said Wei Cheong Ho, an analyst at Norway-based energy research firm Rystad Energy.
The sanctions placed on Russia are proving to be counterintuitive even as several foreign businesses have shut shop and the economy is headed for a recession. The sky-high commodity prices are helping Moscow fill its coffers, and now even more so since the war is contributing to rising prices.
Russia’s current account surplus from January to April was $95.8 bn, up from $27.5 bn during the same period last year. Robin Brooks, Chief Economist at the International Institute of Finance (IIF) in a tweet said the rise in Russia’s current account surplus is largely due to energy exports. He instead suggested sanctions on tankers shipping oil out of Russia.
