An Economic Mayhem Is Looming, And The West Must Seek A Fair End To Russia-Ukraine War To Avert It

As for Russia, the fact that refinery operations have been hit is evident from Deputy Prime Minister Alexander Novak declaring that a partial ban on diesel exports will be in place till the end of the year. He stated that the existing petrol export ban on gasoline exports would be extended further.

Clearly, the availability of refined products for export has been curtailed owing to precise and targeted drone attacks by Ukraine. These are reported to have hit oil refineries as well as fuel depots and related infrastructure.

Attacks are also rising on ports from which oil is exported, affecting the Russian economy more seriously than even the sanctions imposed by Western countries. International news agencies have reported that a state of emergency was declared in the Russian city of Novorossiysk, which is a major Black Sea port with sizable oil and grain export terminals. 

The consequence of the rising attacks on Russian energy facilities is rising volatility in world oil markets. This is a worrying development for India, which imports over 85 per cent of its fuel needs. Prices are firming up despite the fact that production from Iraq’s Kurdistan region has resumed, thereby increasing oil availability. Yet, this is offset by an unusual drawdown in U.S. crude inventories, to the extent of 607,000 tonnes. 

Global Energy Scenario

The global energy scenario is thus altering just as pressure is mounting on India to curtail buying of Russian oil to conclude a favourable trade deal with the US.

While the results of the ongoing trade talks are not yet known, Indian oil marketing companies have not yet cut back on Russian oil imports, which continue to be available at a discount. The reality is that if India reduces purchases from Russia, the contraction in availability of oil is likely to push up prices. Sanctions on Iran and Venezuela have already curtailed supplies to the international market. Withdrawal of supplies from yet another major producer like Russia would only intensify bullish trends.

Despite this possible outcome of reducing imports from Russia, the US has continued to ratchet up the pressure on this country. This insistence must be viewed in the backdrop of the fact that there are no explicit Western sanctions on buying oil from that country. Instead, a price cap has been specified, and this has been adhered to by New Delhi. This is vastly different from the case of Iran and Venezuela, where formal sanctions had been laid down earlier. India had agreed to abide by these, even though purchases from Iran used to be sizable at one time. 

Trade negotiations are thus clearly going to be a long haul despite encouraging statements being made by both sides. Commerce Minister Piyush Goyal has already given a hint that the ultimate trade deal with the US will entail greater cooperation in the energy and defence sectors.

American Oil, Defence Equipment

In other words, imports of American oil and defence equipment are likely to form part of concessions to be made for the agreement. At the same time, the government is clearly not prepared to concede to any demands for substantial cutbacks of Russian oil imports. There are several cogent reasons for this firm stance.

Firstly, as has been repeatedly pointed out by government spokespersons, this is a sovereign decision to be taken after evaluating the need to ensure the country’s energy security. What has not been mentioned, however, is the fact that no government can afford to take such a decision after being harangued by the US without facing ramifications at the hustings. With the Bihar elections on the anvil,  the political leadership would be accused of buckling under foreign pressure, and this could have a fallout in the poll results.

Secondly, there are double standards in regard to trade with Russia. The US is carrying out trade in critical minerals like uranium, while EU members continue to rely on Russia for roughly 20 per cent of energy supplies. Slovakia and Hungary, for instance, recently rejected the US demand to cut energy ties with Russia, pointing to the lack of alternatives for such supplies. 

Europe’s Energy Imports From Russia

Interestingly, US President Donald Trump commented at the UN General Assembly that he had only become aware of Europe’s energy imports from Russia as recently as two weeks earlier. In his address, he also urged European countries to join the US in imposing sanctions, rather than continuing to buy energy from there. 

The fact is that the US and the EU are in a bind right now on the energy front. It is difficult for Western countries to decouple from Russia in terms of energy supplies. This rightly invites the accusation of double standards as they seek to impose curbs on India and China. Not only that, global oil prices are likely to firm up further in case sanctions are imposed on oil purchases from Russia. Volatility has already begun in world markets owing to the heavy drone attacks by Ukraine.

In this backdrop, it would be wiser for leaders of the West to seek a fair and just end to the conflict rather than allow further economic mayhem to engulf the world.