In the war between Russia and Ukraine, China and India act as financiers

As Russia tries to break free from the choke hold of sanctions, China and India are becoming Moscow’s top financiers, buying large amounts of Russian oil, finding themselves at the center of a dirty war with Ukraine and a geopolitical standoff with the West.

This is a complex calculation for China, India and the global economy.

Buying cheap oil from Russia provides economic and political benefits. China could diversify its oil supplies for national security reasons, while India could make billions in exports of refined products such as gasoline and diesel.

But undermining European and American efforts to isolate the Kremlin is fraught with serious diplomatic consequences that no country wants. China avoided openly supporting Russia’s war in public statements, while India positioned itself as neutral.

The two countries, with demand from their vast domestic markets and supplies from their vast refineries, also play a central role in determining the direction of oil prices. Their purchases of Russian oil in recent months have helped ease the pressure.

Their eventual appetite for Russian oil will either shake or prop up the global economy, another factor complicating the West’s ability to stay united in a war of attrition in Ukraine. So far, the West has remained steadfast in its commitment to Ukraine, but a prolonged period of high fuel prices and potential shortages in Europe could become politically unsavory.

“One of the consequences of this conflict is a fundamental restructuring of the global energy system, trade relations and geopolitical alignments, with China and India more closely aligned with Russia,” said Jason Bordoff, director of the Center for Global Energy Policy at Columbia University. and was an adviser to President Barack Obama.

Oil, Russia’s biggest export, is the currency of the war, funding the bullets and missiles deployed on the battlefield in Ukraine. The West is trying to turn off the financial tap, in part by using sanctions to wean Europe, Russia’s largest market, from its energy dependence.

Four months into the war, Russia’s crude oil exports declined only marginally, as sales to China and India largely filled the gap left by Europe. In May, India and China bought about 2.4 million barrels of Russian oil per day, which is half of Russian exports. At least some of it is processed into diesel and other fuels and exported around the world, including to countries opposed to the invasion.

China and India are buying at 30 percent off the global base price, which is a boon for both economies in a world plagued by rising inflation. Despite the discounts, Russia’s oil revenues are rising as prices rise above $100 a barrel.

The shift is just beginning and the amount of oil involved is still relatively small. The real test of China’s and India’s willingness to buy Russian oil will come when sanctions go into full force.

A European ban on tanker shipments of Russian oil and refined fuels such as diesel will be phased in over the next six months, a trade that accounts for two-thirds of the continent’s purchases from Russia.

“Domino games will accelerate in 2023 when the European ban comes into effect,” said Sarah Emerson, president of research firm ESAI Energy.

The world’s largest oil importer, China has played an important role in global energy markets for decades, relying heavily on the Middle East and Russia for supplies.

As the United States became increasingly self-sufficient for its energy needs, this arrangement meant that the American fleet patrolling the Persian Gulf effectively protected Chinese supply lines. China got its oil without getting bogged down in tangled Middle East politics as its trade with the United States increased.

It is trying to do the same now, balancing its economic and geopolitical interests. Importing more Russian oil is not only cheaper, but also helps to diversify supplies.

“China’s behavior is in line with its longstanding national security goals,” said David Goldwyn, senior State Department energy diplomat in the first term of the Obama administration. That is, according to him, “to diversify supplies from the Middle East, prioritizing transport routes that cannot be blocked by the US Navy, and to contain Russia by increasing its dependence on China as the main buyer of oil and gas, all at the lowest possible price. “. “.

This pattern was repeated during the Russian takeover of Crimea in 2014. When the West imposed sanctions on Moscow, Russian President Vladimir Putin flew to China to broker a deal for natural gas that had been in development for a decade. China struck a tough deal on cheap gas, thwarting Western attempts to isolate Moscow but failing to support the takeover of Crimea.

Since Russia’s invasion of Ukraine, China has been walking a fine line, at least publicly. Chinese state media and government officials have kept quiet about Russian oil, and Chinese oil companies have followed the same cautious script.

“Companies don’t want to be accused of aiding and abetting Putin’s war machine,” said Erica Downes, a senior fellow at Columbia University.

There may also be limits to China’s appetites. China has traditionally sought to provide multiple sources of energy. And his relationship with Russia has long been rocky, despite the Chinese leaders’ pledge of friendship “without limits.”

“There are no limits in Sino-Russian cooperation, but there is a certain outcome,” Qin Gang, China’s ambassador to the United States, said in a television interview in March. “The essence is in generally recognized international law and the norms governing international relations.”

India’s transition to Russian oil was swift and significant.

Before the war in Ukraine, Russia accounted for about 1 percent of India’s oil needs. Russia is poised to overtake Iraq as India’s top oil source this month, according to commodity data firm Kpler. Russian exports to India will reach 1.15 million bpd in June – up from 33,000 bpd last year and about 600,000 in March – while shipments to Iraq will drop to just over a million bpd, show Kpler data.

For Prime Minister Narendra Modi’s government, enough cheap fuel will help manage inflation and prevent widespread fuel shortages that have sparked violence and political change in neighboring Sri Lanka.

Indian Foreign Minister S. Jaishankar has repeatedly defended the country’s strategy against growing criticism from Western countries. He said Western sanctions on Iran and lockdown policies on Venezuela have left India with fewer options as energy prices continue to rise.

“They have squeezed out every other source of oil we have and then they say, ‘OK, you guys shouldn’t go into the market and get the best deal for your people,’” Mr. Jaishankar said. “I don’t think that’s a very fair approach.”

With a reliable refining capacity of five million barrels of fuel a day, India could consume an additional 350,000 barrels of Russian oil, or about a third more than it currently imports, according to energy experts. India has already stopped buying oil from Mexico, reduced purchases from Nigeria and refused supplies from Saudi Arabia and the United States.

“A new world politics is unfolding around the world, driven by oil and gas,” said Daniel Yergin, author of The New Map: Energy, Climate, and the Clash of Nations. “Both China and India are at the center of it all.”

Gradually flowing to Asia, Russian oil is replacing Saudi and other Middle Eastern oil, which is now finding its way to Europe. This shift creates increased competition among members of the Organization of the Petroleum Exporting Countries as Iraq lowers prices for Europe.

Saudi Arabia and its Gulf allies see Asia as their growth market and suddenly they are sidelined. Russia and Saudi Arabia, the main players in OPEC+, the expanded version of the cartel, have worked together in recent years to control supplies and support prices. Russia may have to be careful not to become too dependent on Asia, although its options are limited.

“Russia’s substitution of Saudi oil by the Chinese economy could create tension in OPEC Plus,” said Megan L. O’Sullivan, director of the Energy Geopolitics Project at the Harvard Kennedy School and a former aide to President George W. which will harm Russia’s interests and drive down the world price even further.”

Zixu Wang as well as Hari Kumar made a report.

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