India could buy Russian crude past cap if OPEC+ cuts boost costs

By Eric Martin and Kathleen Hays

India will explore buying Russian crude oil near or past the price cap imposed by the G-7 as it navigates external risks it sees as the biggest economic threat.

“Yes, because otherwise I’ll end up paying far more than what I can afford,” Finance Minister Nirmala Sitharaman said in an interview Saturday in Washington, when asked if India would continue importing Russian oil beyond the $60-a-barrel price cap. “We have a large population and we also therefore have to look at prices which are going to be affordable for us.”

The stance underscores the pressing need in the country of 1.4 billion people to curb inflation and spur growth amid a surprise output cut by OPEC+ and western sanctions to rein in Russia’s oil revenue following the invasion of Ukraine. India, along with China, has emerged as one of the key buyers of Russian crude. It is now India’s top supplier, above Iraq and Saudi Arabia.

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The South Asian nation needs to constantly look for the “best deal” since it imports almost 80 per cent of its crude oil requirements, Sitharaman said. “For us, it is a very critical input for the economy.”

Spillovers

The impact on fuel prices of OPEC+’s output cut and “the spillover of all the decisions” related to Russia’s war in Ukraine are “the two main things which I think I’d be more worried about than anything internal,” she said.

While Indian officials in the past said that the country was unlikely to breach sanctions on Russia, including the price cap, the stance seems to have changed after OPEC+’s recent decision.

“I think we should look at it more with humanity in mind,” Sitharaman said when asked about these sanctions. “I hope the intent is not to hurt economies which have nothing to do with the war.” She added that “unintended consequences” of these measures should not be borne by the global south.

Sitharaman was in the US to attend the International Monetary Fund’s Spring Meetings and to co-chair the Group of 20 finance chiefs’ gathering, along with Reserve Bank of India Governor Shaktikanta Das.

She also said possible recessions in the US or other developed countries could be a drag on India by hurting exports, particularly manufacturing.

Signs of fatigue

India’s $3.2 trillion economy is showing signs of fatigue as domestic and foreign demand gets clipped by high interest rates. Growth in the October-December period eased to 4.4 per cent, from 6.3 per cent in the previous quarter, due to waning consumption and investments.

The IMF last week trimmed its growth outlook for India to 5.9 per cent for the current fiscal year from April 1, from 6.1 per cent forecast in January.

“The buoyancy of the economy will continue,” she said, crediting part of that to policy reforms in recent years and digitization.

Concerns over weakening growth and the turmoil in the global banking sector prompted the RBI earlier this month to pause its most aggressive tightening cycle in a decade. The central bank said it will assess the cumulative impact of 250 basis points in rate increases so far and will act if needed.

Sitharaman said some countries can begin to “somewhat decouple” from the Federal Reserve, which has led the global drive to hike interest rates to curb inflation. A pause in tightening “can help growth momentum” in certain countries, which can respond to their economic challenges “with a bit more sense of what is most suitable for them.”

India’s inflation is easing, with consumer prices rising 5.66 per cent in March from a year earlier, the slowest pace in 15 months as growth in food costs moderated. The nation’s weather office has forecast a normal monsoon, which could lower grain and oilseed prices and slow inflation.