Trade
Russia remains India’s most dependable energy partner
Author: Joshy M Paul, CAPS
In his November 2022 visit to Moscow, Indian External Affairs Minister Subrahmanyam Jaishankar stated that ‘India will continue buying Russian oil as it is advantageous for the country’. Buying Russian oil is both economically and strategically advantageous for India. Russian oil comes at a discounted price, which benefits India as it imports 85 per cent of the oil it consumes.
India’s oil purchases also help steady the Russian economy amid Western sanctions over the war in Ukraine. India sees Russia as a ‘steady and time-tested partner’ and welcomes a multipolar global order that includes Russia. This position is contrary to many Western countries that want to see Russia defeated.
When Western sanctions began crippling the Russian economy in April, Moscow offered discounted oil to India at as much as US$35 per barrel on pre-war prices. Russia also initially agreed to resuscitate the Cold War-era ‘rupee–rouble’ trade mechanism, which would help it bypass sanctions.
The Russian share of India’s oil imports increased from 2 per cent in February 2022 to 23 per cent in November, unseating Iraq and Saudi Arabia from the top of the list. India has few options, as West Asian oil has been diverted to the European market to ease the impact of European economies’ decoupling from Russia.
But in practice Russia is still reluctant to utilise the rupee–rouble mechanism for oil due to its burgeoning trade imbalance with India, instead asking for payment in euros or United Arab Emirates dirhams. This dispute is yet to be resolved, so the dollar is still being used for Russian oil transactions.
India is the third-largest importer of oil in the world. Any diversion of its traditional sources of oil to economically advanced European countries could lead to competition and higher prices, which has the potential to wreak havoc on the already distressed Indian economy. European countries can afford to pay a higher premium for West Asian oil that India cannot match. India’s crude oil import bill in the financial year 2021–22 was US$119 billion, the highest in its import basket.
India has been trying to reduce its oil dependency on the Gulf region to avoid geopolitical repercussions if the Gulf states were to use oil as a strategic weapon. The volatile Strait of Hormuz and Pakistan’s proximity to the Gulf states have also been concerns for New Delhi.
In an era of ‘onshoring and friendshoring’, states conduct trade in strategic commodities with their friends and allies to secure themselves from geopolitical vulnerabilities. India has been using this strategy for almost two decades since the Kargil conflict of 1999, when India and Pakistan engaged in a military skirmish for control of the Siachen Glacier. During the conflict, Saudi Arabia, a major oil supplier to India, sold subsidised oil to Pakistan.
In 1998, when former Pakistani prime minister Nawaz Sharif was considering conducting a nuclear test in response to India’s Pokhran II nuclear tests, Saudi Arabia reportedly promised 50,000 barrels of oil per day to help Islamabad weather any potential sanctions. This has generated a fear that Gulf states could block India’s oil supply in the event of an outright war with Pakistan.
New Delhi’s oil diversification strategy initially faced headwinds as China outbid India for lucrative oil fields. India’s Oil and Natural Gas Corporation (ONGC) lost out to a Chinese consortium for an Angolan oil field in 2006 and for the giant Kashagan oil field in Kazakhstan in 2013.
But India’s ‘friend-shoring’ strategy has worked well. ONGC Videsh Limited purchased a stake in Vietnam’s blocks 127 and 128 in the Phu Khanh basin in the contested South China Sea in 2006. Though oil exploration has been held up due to Chinese resistance, India has extended its stake in the blocks several times.
Russia has been a long-time energy partner for India. ONGC Videsh Limited made a US$1.7 billion investment in 2001 for a 20 per cent stake in the sprawling Sakhalin-1 oil field in the Russian far east, with production starting in 2006. Before the Ukraine crisis, Sakhalin-1 was producing 220,000 barrels of oil per day, with ONGC selling its share of oil mostly in the international market.
India has also invested billions of dollars in the Russian oil and gas sector. It bought a 100 per cent stake in Russia’s Imperial Energy Corporation, along with a 26 per cent stake in the Vankorneft oil field in Northern Russia and a 29.9 per cent stake in the Taas-Yuryakh oil field in Siberia.
In September…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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