"Russia is —unorthodox and risky— selling hundreds of millions of barrels of crude oil to India for —rupees—."
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Source: POLITICO.EUIs OPEC worried about Russia's unorthodox and risky attempts to sell oil for rupees that may cause market upheaval?
By Germán & Co.OPEC undoubtedly has reservations about Russia's atypical and precarious endeavours to trade oil in rupees, as this could lead to market disruption. As an organisation responsible for stabilising oil prices and ensuring oil supply security, OPEC has typically employed a dollar-based trading system. Russia's attempts to sell oil in rupees may lead to numerous negative consequences, such as market fluctuations and diminished investor confidence in established trading practices. Additionally, the country's determination to boost oil production may interfere with OPEC's aim to stabilise supply and demand, adversely affecting the economic prosperity of its members. OPEC is closely monitoring Russia's actions and recognises the possible implications in the global oil market.Russia's decision to trade hundreds of millions of barrels of crude oil to India for rupees is largely motivated by its weakened economy. However, the availability of those rupees to Moscow is yet to be determined. This situation highlights Russia's pressing need for revenue and its significant dependence on the oil sector to acquire foreign currency. The Russian economy is grappling with the impact of global sanctions brought about by the invasion of Ukraine and internal political instability, underlining the considerable absence of economic diversity.The Kremlin's sole option is to earn income by exporting its natural resources to other nations rather than investing in its country. This imprudent practice jeopardises the long-term stability of the Russian economy and raises concerns regarding revenue management and its impact on the population. The current economic conditions in the Kremlin indicate the severity of the situation, as hundreds of millions of barrels of crude oil are being exchanged with India for rupees. Nevertheless, it is yet to be determined whether Moscow can effectively tackle its persistent financial issues with these rupees. As a dominant entity in the worldwide oil industry, OPEC holds a prominent role in shaping market dynamics and stability. Moreover, it is crucial to determine OPEC's position on potential market disturbances since it can significantly impact Russia's oil exports and overall economic recovery. Thus, it is imperative to comprehend objectively OPEC's stance concerning potential disruptions. Collaboration and coordination between OPEC nations are essential to guarantee a well-balanced and sustainable oil market that caters to the interests of all stakeholders.While searching for substitute methods to generate revenue, Russia must also take into account the possible consequences of its overreliance on oil exports. Investing in other sectors and diversifying the economy can alleviate the risks associated with variations in oil pricing and worldwide market dynamics.POLITICO EU BY GABRIEL GAVIN, SEPTEMBER 14, 2023 Russia is selling hundreds of millions of barrels of crude oil to India — but instead of the dollars and euros the Kremlin needs to plug holes in its budget, it's earning mountains of rupees that are proving hard to spend.
So far this year, India has already bought more than half a billion barrels of crude, an almost tenfold increase since 2021, the year before the war, according to statistics collected by analytics firm Kpler. As a result, an estimated $1 billion worth of rupees is landing in Moscow's coffers each month.
Over the weekend, Russian Foreign Minister Sergey Lavrov acknowledged the dilemma. “We've accumulated many billions of rupees that we haven't yet found a use for," he said during a press conference following the G20 summit in New Delhi.
The Indian currency is only partly convertible; New Delhi needs to give approval for larger transactions, and so far it's not doing that for its oil spending. Instead, India has reportedly offered an unconventional solution — reinvesting rupees into its own economy.
"Our Indian partners have assured us that they will suggest promising areas where they could be invested,” Lavrov said.
It's a knock-on effect of the oil price limits and other sanctions aimed at punishing Russia for its invasion of Ukraine. The G7 and the EU have imposed a $60 per barrel price cap on Russian crude sales; Moscow is doing its best to dodge those restrictions, but with markets in the U.S. and most of the EU off limits, Russia is being forced to make unorthodox deals to keep oil revenues flowing.
And that's turning into a very lucrative win for India, as New Delhi's traders have been able to secure supplies at a substantial markdown.
“If there’s a 30 percent discount, the Russians are putting a ribbon around it and sending it to us free," India’s Minister of Petroleum and Natural Gas Hardeep Singh Puri said last month.
Putting cash into fast-growing India isn't in itself a bad deal, but those are long-term investments, while the Kremlin needs convertible hard currency now to help fund its war machine.
"There's a large volume of investment coming into the country because of the opportunities India can offer," said Arvind Pangariya, professor of Indian political economy at Columbia University. "From Russia's perspective the only issue is whether it is more constrained in its current account and needs to make payments elsewhere — in that case liquidity then becomes an issue."
With Western sanctions and energy export restrictions weighing heavy on the Russian budget, having funds tied up in foreign currency and stuck in India is hardly a good outcome. Russia "constantly needs cash" said Alexandra Prokopenko, a nonresident scholar at the Carnegie Endowment for International Peace.
India is also earning an extra bonus as the crude it's buying at knock-down prices from Russia is being refined in India and then diesel and other products are being sold to Europe and elsewhere.
"The Indian government is simply prioritizing India's national interests," said Anisree Suresh, a researcher at India's Centre for Public Policy Research. "We have been getting oil with discounts of almost $35 per barrel to almost $20 per barrel in the last few months and, as one MP in the Indian parliament said recently, India was able to save almost $3.6 billion by importing crude oil from Russia."
Although Ukraine is calling for Europe to stop buying refined oil products made with Russian crude, advocates of the policy say this is the way that the sanctions were designed — cutting Kremlin profits while not destabilizing global oil markets.
"By becoming a global provider of oil products, India has helped stabilize European markets as well," said Suresh.