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.
WTO ministerial trading in low expectations and high stakes
The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.
The World Trade Organisation’s 13th Ministerial Conference
The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.
Challenges in Dispute Settlement and Agricultural Trade Reform
However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.
Geopolitical Tensions and the Future of Trade Relations
The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.
Getting Vietnam’s economic growth back on track
Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.
Vietnam’s Economic Roller Coaster
After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.
Trade Performance and Monetary Policy
Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.
Challenges and Prospects
Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.
Thailand’s post-pandemic economic recovery still trailing behind
Thailand’s economy is struggling to recover from the impact of the COVID-19 pandemic, with slow growth in GDP and GDP per capita. The government has implemented short and long-term policies to address economic challenges.
## Thailand’s Economic Slowdown
Thailand’s real GDP and GDP per capita have yet to outpace pre-pandemic figures, unlike other ASEAN countries. The Thai economy was severely affected by the pandemic, causing a slow economic recovery. The country’s large informal economy and dependence on tourism made it particularly susceptible to the impacts of the pandemic. While economic growth in 2023 was driven by activities in the travel sector, the manufacturing sector continued to contract, and merchandise exports continued to decline.
## Government’s Economic Policies
The new government’s short-term economic policies include providing a one-time digital cash payment to approximately 50 million residents, debt relief measures, and efforts to cut energy and electric train costs. Long-term economic measures consist of new free trade agreements, green industry projects, and a land bridge project. However, these measures have faced criticism from Thai economists due to significant fiscal implications and rising public debt-to-GDP ratio.
## Challenges in International Trade and Industrial Policies
Thailand’s new government is looking to boost international trade through free trade agreements. However, concerns are raised regarding the effectiveness of FTAs in driving global value chains and boosting trade. Additionally, industrial policies that emphasize domestic value added are being reconsidered in light of evidence that it runs counter to development from engaging in global value chains. The success of Thailand’s economic growth goals will depend on how supply-side constraints are addressed and resolved.
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