Hurting from sanctions on Russia, India is losing faith in the West

By Mihir Sharma |

NEW DELHI: On Wednesday, Indian government officials said that state-controlled Indian Oil Corp. had reached a deal to buy 3 million barrels of oil from Russia’s Rosneft Oil Co. at a 20% discount to global prices. This is a drop in the ocean of India’s oil needs, which stood at 4.5 million barrels a day in January. Still, if a payment system in rupees is worked out that insulates the transaction from sanctions placed on Russia, much more could follow.

The United States isn’t happy. White House spokesperson Jen Psaki said India should worry about how it will feature in the history books when the story of the Ukraine invasion is written. If this one deal leads to more, you should expect questions about whether the West has reposed too much faith in India.

Yet India has equal cause to wonder if it’s placed too much faith in the West. Even as Europe and the U.S. congratulate themselves on the speed and effectiveness of their sanctions against Russia, they seem blind to the impact of these sanctions on the rest of the world.

To India and many other developing countries, Western powers and the institutions they dominate appear to have different standards for conflicts close to home. While the World Bank has been slow to address the concerns of other war-torn nations, it has put together a $700 million package for Ukraine in record time. Some economists say the International Monetary Fund may be skirting its norms to send $1.4 billion in emergency funding to Ukraine.

Meanwhile, those same Western nations are proving themselves poor stewards of the global commons. Take the cutoff of several Russian banks from the SWIFT financial messaging system. We have grown accustomed to thinking of interbank communications as a global utility; they’ve now been turned into a tool of Western foreign policy.

This was a unilateral decision by the countries that control SWIFT which, besides the U.S. and Japan, are all European. Little thought was given to how countries such as India, which rely on SWIFT to pay for oil and fertilizers from Russia, would manage the fallout. It should come as no surprise that India’s reaction has been to look for a way around the sanctions by settling trade with Russia in rupees and rubles.

Criticizing India for continuing to buy oil from Russia is especially galling, given that European nations have yet to wean themselves off Russian energy supplies either. And, unlike them, India can hardly afford such bills. If oil remains above $70 a barrel for months, the rupee will collapse, the government will run out of spending money, inflation will skyrocket and the country will have to start worrying about a balance of payments crisis.

We have lived through this sort of disruption at least twice before, in 1991 and 2012. Yet our supposed partners in the West do not seem to recognize that avoiding another one is a major national priority.

Nor do they appreciate how hypocritical their talk of sanctions can appear. The U.S. spent most of the last decade trying to convince India not to buy Iranian oil, only to try to get Iranian shipments back on the market as soon as the focus shifted to Russia. While the U.S. and Europe expect other countries to bear the costs of sanctions, they’re too timid even to send Polish fighter jets to Ukraine.

Moreover, in the long-term, Indians fear that sanctions will push Russia ever closer to China and expand Beijing’s control over the global economy. If some in the West worry that India is not lining up on their side, just as many Indians worry that the West’s notion of “their side” does not include India.

Both are being short-sighted. Whether the guardians of muscular Indian nationalism like it or not, India benefits from Western patience right now as it struggles through social turmoil and economic underperformance. It needs European capital, Japanese investment and U.S. technology to modernize its economy–not to mention weapons and diplomatic support in order to stand up to rival China. Its media and ruling establishment should also remember that Russia caused this crisis with an unprovoked invasion of a smaller neighbor–and India can hardly be on the side of the aggressor.

For its part, the West needs to learn, yet again, that its actions have consequences. Countries such India, struggling to manage deficits, or Kenya, facing a mounting grain import bill, may not be suffering as much as Ukraine is, but they are victims nonetheless. The international system needs to make space for these unexpected challenges through bailouts, central bank liquidity swaps and other extraordinary measures.

This is a test case. The world can only build effective mechanisms to deter aggressors–whether Russia or China–if countries such as India have a voice in them. Otherwise, as with SWIFT, they will ignore and undermine those systems in their own national interests.

Source: Bloomberg

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