Indo-Russian Talks May See Long Terms Boost To Energy Security

The expectations for a long-term agreement over energy security with Russia are running high from the ongoing bilateral talks between India and Russia in Moscow.

Prime Minister Narendra Modi is on a two-day visit to Russia from July 8 to July 9, which is his first after assuming office in his third term.

Given the current Russia-Ukraine war and the geopolitical crisis in the Middle East, the talks hold significance not just from a global defence perspective but even from an energy security point of view.

India has been securing consistent crude oil supplies from Russia at a discounted rate of $3–4 per barrel lower than the existing price since the war broke out with Ukraine in 2022. This has stabilised not just India's import bills but has also helped in stabilising the global oil markets, which could have borne the brunt of spiralling crude oil prices when the sanctions were imposed on Russian crude imports by the West, said Anish De, global head of energy and natural resources at KPMG.

For India, strengthening its existing agreement with Russia on crude oil with long-term agreements will be a priority, De said.

How any agreement is structured would also be significant for the balance of payments, which is heavily skewed in favour of Russia, De said.

There is a possibility that the two countries could work out a mechanism to trade in rupees freely. As of now, Russia has been facing the problem of surplus rupees with no options to invest.

"The government will likely explore options to increase exports to Russia so that the one-sided trade situation can be resolved," said Ashwin Jacob, partner, energy, Deloitte India. "However, the challenge will be due to the geographical proximity of China to Russia (including the large border it shares), which has meant that similar products are supplied from China at lower logistics costs."

Besides, the long-term agreements will also help in mitigating the increase in crude prices, as the Organisation of Petroleum Exporting Countries and their allies have been extending the production cuts for the last couple of years to benefit from higher crude prices.

Union Oil Minister Hardeep Singh Puri said after assuming office in Modi's third term that, "We are a longstanding partner of the Russian Federation." We have had discussions with the Russians on long-term deals."

India's Oil Imports From Russia Rose In June

India witnessed a significant rise in oil imports from Russia in June 2024, reaching 1.97 million barrels per day, the highest since July 2023. This increase, up by nearly 15% month-on-month and 2% annually, was driven by reduced Russian crude cargoes to China, research firm Vortexa said in a report.

Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp., and private refineries like Reliance Industries Ltd. saw substantial imports, with private refiners importing a record 871,200 barrels per day.