EkaLore has previously released analysis and notes for India’s global-scale enterprises benefiting from the Ukrainian conflict. (http://bit.ly/3OSXWYNIn this release EkaLore looks at the opportunities and traps in participating in global markets during this conflict.
International sanctions and trading restrictions have a mixed history throughout their applications over more than a 100-year period. The current conflict sees a large number of sanctions and trading restrictions placed (voluntarily) on many global enterprises. Industry sectors affected include energy, shipping, financial, insurance, electronics, … and the list goes on. This global trading landscape creates opportunities and traps for Indian global enterprises looking to the global expansion of markets and revenues.
The current stance by many EU and the USA on Russian energy trades is to actively acknowledge the trade and encourage India and China to continue. India has benefited from a large increase in the import of Russian crude and the resale of refined products (such as vehicle fuels) in global markets. The EU and USA sanctions officially ban Russian crude or refined products. Countries in Asia and Africa are pressed by higher global market energy prices and are pleased to accept even modestly discounted fuels refined in India. India can clearly make substantial profits from energy trading for Russian sources, using Russian shipping, Russian/Chinese financing, and non-dollar payments (rupee or yuan-denominated trade). Government-sponsored arrangements facilitating such imports are underway between India and Russia.
The opportunity for India is to expand bilateral trade with Russia (and expand on land-shipping arrangements established in central Russia). The purchase of deeply discounted Russian crude oil has increased from de-minimis levels in January 2022 to peak at more than 9M barrels in recent months. The volume of Indian imports is more than 90% of fuel and fertilizer from Russia. As the second largest source of energy imports into India Russia has displaced middle eastern suppliers. In turn, these middle eastern suppliers have switched to the EU and other markets at the increased prices seen since March. A global scheme to limit prices on exported Russian crude has been under discussion since June without an agreement on details accomplished.
The trap for Indian financial institutions and global enterprises could occur if a longer-term conflict continues with Russia. Conflict events or political changes could increase the scope and nature of sanctions. As can be seen from governing changes in the USA, UK, France, Italy, and other countries the current state of sanctions can be affected by such changes. The risk for Indian financial institutions includes the costs of establishing the needed connections (such as accepting the Russian payments system for export financing), stranded value (holding Russian rubles or remittance paper when the sanctions rule change) or being subject to sanctions for continuing banking exchange (such as counterparty risks). The longer-term damage of risks to India’s financial structures and possible international participation risks from a global recession must be considered against short and middle-term profits.
Global Indian enterprises (such as outsourcing providers, pharmaceutical, and consumer goods) are clearly vulnerable to rapid “guilt by association” from other governments and the populace.
More analysis to come from EkaLore. Watch www.ekalore.com/india-business for more articles.
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