Russian crude oil transactions with India have been hindered by EU and USA sanctions against conducting banking, insurance, and payments transfers using western banking institutions. India is seeing benefits to the current international sanctions limiting the effective prices FOB India. The longer term exposure for Russia to Indian commerce is not viewed favorably by Russian enterprises or the Russian state. An expectation is for continued friction from the trade relationships. Russian options are limited in returning profits and capturing advantages. American foreign policy explicitly supports the current situation benefiting India.
In our last release EkaLore looked at the benefits for India from purchasing and refining Russian crude oil.
India’s profits from crude oil refining are good for exports priced in global trade currencies. Russia’s exports of crude to India are creating huge amounts of surplus rupees in banks. India has worked many methods of paying for Russian crude in a variety of currencies including UAE Dirhams and Chinese Yuan. India’s exports of refined oil products generate euros and dollars from sales in the EU and USA. Russia’s imports from India lag crude oil exports where Russia has rupees to buy in India. India’s demand for refined oil fuels and chemicals is rising with consequential beneficial prices from Russian crude oil. USA and EU sanctions on banking transactions with Russia has created problems for Rosneft, Gazprom, and Russian international arms sales. Russian politicians have made conflicting statements about Indian sales of crude and the state of rupee trade account balances.
Strong demand in the domestic Indian economy for refined fuels and chemicals has also benefited from the lower costs of Russian crude oil. The managed markets for Indian fuels is matching the lower cost productions with increased demands. Indian industrial production of plastics, and other goods, is benefiting from lower priced feedstocks. The domestic Indian market benefit from low cost Russian crude also contributes to lower cost pressures for energy for India.
Russian crude oil supplies are being purchased by India in multiple paths. One result of Russian sales of crude oil to India are payments in Indian Rupees. The Indian Rupee is not a globally convertible currency like the dollar, euro, or yen. Indian Government intervention occurs in large rupee transaction thru various financing mechanisms. Russian demands for some customers for payments in Rubles is also a not available for Indian transactions. Russian purchases of Indian goods has been more limited by low demands for Indian-sourced products.
Prior Indian purchases of Russian goods, such as traditional arms purchases, have used global trade currencies. There are press reports of some friction as exports of Russian arms (such as the S-400) have been constrained by ongoing conditions and an inability for India to pay for the weapons in hard foreign trade currency. India is not interested in Chinese arms and has only limited purchases of western military arms.
Limited amounts of trading has been executed using third-party countries who can offset Russian Rubles, or Indian Rupees, and so gain from hedges or exchange positions. An example is UAE traders who can handle transactions in Dirham while arbitraging between Russian Crude, refined Indian products, and other trade transactions. Attempts to convert Rubles and Rupees using the China Yuan as the intermediate exchange currency have met with only limited usage. Russian crude purchases by China have been paid for with Yuan, and Russia imports of Chinese goods substantially offset currency exchange exposures. The Chinese see advantages to keeping Russian petro-purchases continuing to circulate in the Chinese economy.
By most accounts the Rupees paid by Indian enterprises for Russian crude from Rosneft and Gazprom have ended up in so-called “vostro” accounts (Special Vostro Rupee Accounts per the RBI). Current Indian rules apparently limit positive-account balances, after transactions, to investments in India. Indian Rupee denominated bonds (“Marsala Bonds”) have seen a limited market on the international finance scene. The end-result is a limited desire by Russian enterprises to hold Rupees in international finance accounts. The Indian government sees advantages to keeping Russian petro-purchases transferred to investment in the Indian economy.
For more analysis and notes on a Dynamic India see http://www.ekalore.com/india-business
For a detailed look at how these situations can work for your enterprise contact EkaLore at http://www.ekalore.com
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