India's strategic play: Freezing Russian funds for its economy

Negotiations with India over billions of dollars in arrears for Russian oil, which lasted more than a year, failed the Kremlin. No variants proposed by Moscow were realized, reports "The Hindu Businessline." This turn of events was unexpected and posed a significant problem for Putin.

"It has been decided that the money of Russian companies will remain in India," reads "The Hindu Businessline," which cites a highly placed source.

It's important to note that Russia has become the main supplier of what journalists call "bloody oil" to India. As a result of settlements in national currencies, Moscow has accumulated billions of Indian rupees that it cannot effectively use.

In November 2022, a delegation of Russian officials travelled to New Delhi and presented a list of about 500 products that India could sell in Russia. The list included pistons, oil pumps, ignition coils, bumpers, textile industry equipment, such as threads and dyes, and nearly 200 products for metallurgy. Another visit was made in January 2023, but the process reached a deadlock.

Although India has increased its import of Russian crude oil 33-fold since the beginning of the war and has become the second-largest customer of Russian oil producers, it still practically does not export goods to Russia. Their exports in 2023-2024 amounted to just $4.26 billion, while imports from Russia reached $61.44 billion.

This leads to a huge disparity in trade between the two countries. As a result, rupees accumulate in the accounts of Russian companies in India at a rate of $3 billion a month, as estimated by Bloomberg Economics. However, Russia can't utilize them. Sergey Lavrov, the head of Russian diplomacy, admitted that some time ago.

Now it appears that this problem will persist. According to "The Hindu Businessline," "arrears" in rupees, estimated at billions of dollars, will be invested in the Indian economy. Among the projects financed with Russian money is the construction of trains for the Indian railways Vande Bharat.

Bloomberg earlier reported that Indian refineries are attempting to settle payments for Russian oil in dirhams, rubles, and rupees through banks in the United Arab Emirates. Moreover, Indian companies have opened special accounts in the largest Russian banks, including Sberbank and VTB Bank, to facilitate rupee trade.

- The trade imbalance for Russia means that the size of the frozen funds can reach tens of billions of dollars, said Alexander Knobel, a member of Putin's government, quoted by the Bloomberg agency. In his opinion, "the situation is worsened by India's historically high aggregated trade deficit, which limits the possibilities of settlements with third countries."

At the beginning of the year, we reported that India does not want to buy Russian crude oil without the previously offered discount. They are reducing orders and looking for new suppliers, forcing Putin to make concessions. Experts explained to us at the time that India, being aware of how important a partner they are for Russia, is setting strict conditions. However, they did not anticipate any cut-offs.

Everything changed at the end of last year when India significantly reduced imports of what's known as Putin's "bloody oil". In December, supplies from Russia reached the lowest level in 11 months, dropping by 16-22%, reports the Reuters agency.

Russian media argued that this was the result of problems with payments in rupees. However, this information was denied by the Indian Minister of Oil, Hardeep Singh Puri. - There is no problem with payments. It's a matter of the price at which our refineries will be buying oil, Puri was quoted by the Indian "The Economic Times".

As emphasized, "if the Russians do not offer a good discount, why should we buy from them?" "The Economic Times" cites government data, indicating that in November 2023, the import of Russian oil was the most expensive in a year, with Indian refineries paying an average of $85.90 per barrel.

Now, even for limited supplies, part of the money will stay in India, and not be allocated to the Kremlin's war machine in Ukraine.