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March 17, 2023
NEW DELHI – On February 5, the European Union banned Russian fuel. India has decided to import Russian crude oil at a 30 percent discount to bolster its energy security. He began refining Russian oil to increase its export to Europe. The export of oil products from India to the EU countries grew in April-January by 20.4% year on year to 11.6 million tons. In January 2023, India overtook China to become the largest importer of offshore Russian oil, with volumes up 260,000 bpd in December from the previous month to 1.2 million bpd in January. Earlier, India stopped importing oil from Iran due to US sanctions. In the context of Russia, the United States is lenient on imports. However, India strongly defended its decision to buy oil from Russia; Pakistan joined the game and decided to import oil from Russia in the currencies of “friendly” non-Western countries. Pakistan’s cash-strapped economy is likely to save about $2 billion when imports begin in April. For a long time, however, Pakistan’s desire to import oil from Russia ran into political problems as former Prime Minister Imran Khan was ousted from power. The new regime, led by Shabaz Sharif, which faced an imminent economic crisis, was interested in the West’s help negotiating an International Monetary Fund bailout package to save itself from bankruptcy. Although he has put off buying oil from Russia, he is now seriously rethinking his decision, given rising oil import bills.
Bangladesh is also exploring the possibility of importing energy resources from Russia. Last August, it was reported that Bangladesh was in talks with Russia’s Rosneft to import crude oil at $59 a barrel. However, this was delayed because Bangladesh’s trade with Russia was not enough to pay for Russian oil in rubles. However, many attribute this decision to the fact that Sheikha Hasina decided not to displease Washington. However, Dhaka chose to import oil from India, which some estimates would be cheaper and save $1.5 million per 100,000 tons of fuel oil due to lower transport costs considering distance. Given the reduction in foreign exchange reserves, Bangladesh is now trying to import oil from Saudi Arabia on a deferred payment basis. There have been instances of power outages in Pakistan, Bangladesh and Sri Lanka as private generators stopped producing electricity due to rising global oil prices, significantly increasing production costs.
Sri Lanka, which filed for bankruptcy after failing to pay its international creditors, is facing a severe energy crisis and a blackout, adding to popular frustration over the removal of a powerful president from office. Last June, she decided to turn to Russia for oil. In May and June last year, it imported oil from Russia to meet its energy needs. However, it was unable to succeed due to its bankruptcy status and sanctions against Russia, and banks were unwilling to open letters of credit allowing imports. Moreover, Sri Lanka demands a debt restructuring and cannot openly ignore Western sanctions. It imports oil through Dubai-based Coral Energy. Like Bangladesh, it is exploring various options for importing oil from third countries. In fact, and quite ironically, the third-party route is also used by the US, Australia, and Europe. For example, Russian Virgin gas oil from two Indian companies. After the imposition of sanctions, oil importers developed an innovative formula for relabeling Russian oil and selling it on the international market. India is increasingly using rupees to settle oil bills with Russia. Sri Lanka also chose to pay in Indian rupees as both of these countries are allowed to open Vostro accounts.
Western sanction and price 0il
It is important to note that most countries in the region are energy dependent, and energy is becoming a determining factor for economic recovery after the coronavirus. In December, the G7 decided to cap Russian oil, which costs more than $60 a barrel and is not covered by Western insurance, by acting as an intermediary in shipping oil by sea. It was a measure to stop the sale of crude oil to Russian military equipment. In December, Western countries imposed two restrictions on Russian oil products: one on products that are sold at a premium to crude oil, such as diesel or gas oil, and one on products that are sold at a discount to crude oil, such as fuel. oil.
While there is debate about whether sanctions against Russia work, it cannot be denied that the rise in world oil prices due to the war has had a cascading effect on the region’s economy. The sanctions imposed in February 2022 led to the collapse of the Russian ruble against the US dollar and immediately affected the price of oil. Countries in the South Asia region also experienced a depreciation of the rupee against the US dollar, making imports unsustainable. Many of these countries, with the exception of India, have banned the import of luxury goods and imposed restrictions on the opening of letters of credit. As countries looked for alternatives to avoid US sanctions, OPEC countries decided to cut oil production in November, blaming global economic uncertainty for exacerbating an already volatile oil market.
The most significant consequence of the Russo-Ukrainian war has been its impact on the energy market. When the West imposed sanctions against Russian companies, countries began to look for an alternative to Russian energy. South Asia, which is recovering from Covid, is no exception. Oil prices on the international market rose sharply, which influenced the economic recovery that the countries of the region were looking forward to. Not surprisingly, when the reserve is depleted, growth tends to decline. Although there are several factors, the most important of these was the rise in oil prices, which accelerated inflation. For example, in fiscal year 2022-23, India grew by 7 percent; Pakistan, facing a severe economic crisis, is forecast to grow by 4.8%; Bangladesh – 7.10%; and Sri Lanka will have a negative growth rate.
In most of these countries, elections will be held next year. Inflation and local currencies in these countries continue to struggle with the dollar, and unemployment will affect the elections. While India has managed to keep gasoline prices under control by importing crude oil from Russia, other countries have opted to import from third countries to avoid Western sanctions. While it is difficult to say whether Western sanctions on Russia were successful, it can be concluded that they affected the economies of developing countries caught between Russia and the Western world, and suffered huge costs due to rising crude oil prices hindering their economic development.
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