India-Russia Energy Relations: Geopolitical Analysis of the Modi-Putin Meeting
The Modi-Putin meeting in Moscow marks a critical juncture in the Russia-India relationship, with significant implications for global energy markets and geopolitical alignments
Pool photograph distributed by Russian state media of Narendra Modi embracing Vladimir Putin.Photographer: Gavriil Grigorov/POOL/AFP/Getty Images Via Bloomberg, July 10, 2024.
Guest Post by Velina Tchakarova, Geopolitical Strategist
Originally written for Attaqa.net. Posted with permission
Context and Significance
The recent meeting between Russian President Vladimir Putin and Indian Prime Minister Narendra Modi in Moscow marks a pivotal moment in the geopolitical landscape. This meeting, Modi's first official visit following his inauguration and the formation of the Modi 3.0 cabinet, underscores the continuity of India's strategic policies. The retention of key ministers in foreign affairs, defence, and finance portfolios reflects India's intent to maintain a steady course in its international relations and domestic policies. The discussions held during this meeting, particularly regarding the potential use of the Northern Sea Route (NSR) for energy deliveries, highlight the evolving dynamics in global energy markets and the strategic recalibration of alliances.
Energy Cooperation and Strategic Implications
During the 22nd Annual Bilateral Summit held in Moscow, Russia and India underscored the importance of deepening their cooperation in key energy sectors. This includes significant efforts to enhance collaboration in nuclear energy, oil refining, and petrochemicals, as well as expanding partnerships in energy infrastructure, technologies, and equipment. Both nations are committed to facilitating mutual and international energy security, with a particular focus on addressing the prospects of the global energy transition. This cooperative approach aims to ensure a stable and secure energy future for both countries.
Furthermore, the summit highlighted the intention to increase the volume of bilateral trade in energy-related goods and services, making energy cooperation a pivotal aspect of their broader economic relationship. This strategic focus on energy underscores the vital role it plays in the ongoing and future development of Russia-India relations. In addition, the proposal to transport Russian energy resources—oil, coal, and liquefied natural gas (LNG)—via the NSR to Indian ports represents a significant development. This route, which involves transshipment in Russian northwestern ports, offers a shorter and potentially more cost-effective pathway for energy supplies to India. For Russia, this initiative is a strategic move to diversify its energy export markets, reducing its dependence on Europe. The European market has been increasingly fraught with geopolitical tensions and economic sanctions, prompting Russia to explore alternative markets in Asia.
For India, securing a long-term oil supply at discounted rates is crucial for sustaining its economic growth trajectory. As the Indian economy is poised to become the world's third-largest, its energy demands are set to skyrocket. A stable and cost-effective energy supply from Russia would not only support India's industrial and economic expansion but also enhance its energy security. This partnership aligns with India's broader strategy to diversify its energy sources and reduce its dependency on the Middle East.
Economic and Geopolitical Ramifications
The potential agreement on energy supplies (oil, coal and liquified natural gas) through the NSR could have far-reaching economic and geopolitical ramifications. Economically, it could provide a significant boost to both countries. Russia, grappling with Western sanctions and looking to bolster its revenues, could find a reliable and growing market in India. This would help stabilize its economy and reinforce its position as a major global energy supplier. For India, the discounted energy supplies would lower costs for industries and consumers, fostering economic stability and growth.
Geopolitically, this partnership could alter the balance of power in global energy markets. The West, particularly the European Union and the United States, has been keen on curbing Russia's energy revenues through measures like the oil price cap. However, Russia's pivot to Asia, with India as a key partner, could undermine these efforts. The strategic cooperation between Russia and India also signals a shift towards a multipolar world order, where emerging powers like India play a more significant role in global affairs.
Historical and Diplomatic Context
The meeting also highlighted the long-standing and multifaceted relationship between Russia and India. The two nations have a history of strong diplomatic ties, dating back 77 years. This historical context provides a foundation of trust and mutual respect, which is crucial for the success of any long-term strategic partnership. Putin's invitation to Modi for the BRICS summit in Kazan and the mutual expressions of respect and cooperation underscore the deep diplomatic bonds between the two leaders and their countries. Indian PM called Russia "a friend who comes to the rescue under any circumstances."
Russia’s Energy Outlook
Russia's oil and gas revenues amounted to 5.698 trillion rubles in the first half of 2024, an increase of 68.5% compared to the first half of 2023, the Finance Ministry's website states. The federal agency attributes this growth to an increase in oil prices on the world market. It specifically clarifies that actual revenues exceeded and are expected to exceed their base estimate. However, the estimate of additional oil and gas revenues - those that go to the National Welfare Fund - has been reduced until the end of the year due to a change in the forecast for Russia's economic development, reflected in the federal budget law.
The growth of Russia's oil and gas revenues remains of great concern to the West, which is trying to reduce these revenues by introducing a price ceiling on oil supplies from the Russian Federation in the amount of $60 per barrel. But Russian companies have learned to circumvent the restrictions by supplying oil at a price above the ceiling to those who are not afraid of secondary sanctions, and also by using a shadow fleet. It is prohibited by law to supply crude oil under contracts that contain such price restrictions.
Non-oil and gas revenues for the first half of the year amounted to 11.395 trillion rubles, increasing by 26.6% compared to the same period in 2023. Their estimate for the end of the year has been increased, since the Ministry of Finance expects business activity to grow. Thus, the total revenues of the Russian budget amounted to 17.093 trillion rubles, their growth in January-June was 38%. Budget expenditures for the first half of 2024 amounted to 18.022 trillion rubles, meaning that the federal budget turned out to be in deficit, although this deficit has decreased compared to the first half of last year.
Oil Outlook
India has emerged as the largest market for Russian oil and is one of Moscow's key partners in this sector. Last year, Russia exported 90 million tons of oil to India, fulfilling 40% of the country's total demand. the volume of oil supplied to India last year doubled compared to 2022, whereas in 2021, Russia only supplied 5 million tons. "If we compare it with 2021, the growth was almost twentyfold," Deputy Prime Minister Alexander Novak concluded. Moreover, both leaders indicated that Russia and India have agreed to increase their trade turnover to $100 billion.
Current Cooperation and Future Prospects:
Indian Prime Minister Narendra Modi's visit to Moscow was poised to focus on negotiating a long-term agreement for the supply of Russian oil to India, according to a report by the Economic Times. A pivotal aspect of this potential agreement is the sale of Russian oil at a discounted rate, which could significantly impact the energy dynamics between the two nations. During the talks in Moscow, Prime Minister Modi and Russian President Vladimir Putin concentrated on enhancing bilateral cooperation in the energy sector. India's First Deputy Minister of External Affairs, Vinay Kwatra, highlighted the strategic discussions at a post-talks briefing. He emphasized that the dialogue aimed to explore avenues for deeper collaboration, particularly involving Indian government channels and major Russian energy companies such as Rosneft.
Economic and Infrastructure Developments:
India has persistently sought increased discounts on Russian oil, leveraging the growing volumes of Russian crude being exported to India. This strategic demand aligns with India's broader energy security objectives and its efforts to manage the economic impact of global oil price fluctuations. There have been periods of tension, such as when Indian refineries ceased accepting Russian Sokol oil from the Sakhalin-1 project due to sanctions. Nonetheless, alternative markets for Russian oil emerged in Asia, and subsequently, Indian refineries resumed their intake of Russian crude.
Financial Dynamics:
In addition to energy cooperation, the topic of monetary settlements using national payment system cards was also a significant point of discussion. Deputy Chief of Staff of the Russian Presidential Executive Office, Maxim Oreshkin, briefed journalists on this matter, emphasizing its importance for facilitating trade and investment interactions. Oreshkin noted an agreement between the central banks of both countries to accept national payment cards, marking a strategic direction towards using national currencies in bilateral trade. He highlighted that 70% of trade turnover between Russia and India is now conducted in national currencies, showcasing substantial progress in financial cooperation.
Press Secretary of the Russian President, Dmitry Peskov, underscored the mutual political will between Moscow and New Delhi to enhance cooperation across various domains. The integration processes are progressing within the frameworks of BRICS and the SCO, with high-level meetings consistently addressing regional and global security issues. The highly trusting relationship between President Putin and Prime Minister Modi facilitates comprehensive exchanges on all pertinent topics during their discussions.
Gas Outlook
Russia and India are in discussions to expand their cooperation in the gas sector, focusing on increasing gas supplies. This development comes as both nations seek to strengthen their bilateral relations amidst evolving global energy dynamics and geopolitical shifts.
·        Current Cooperation and Future Prospects:
Russia currently supplies India with approximately 3 million tons of liquefied natural gas (LNG) annually. There are plans to increase this supply, indicating a deepening energy partnership. Russia is keen on collaborating with Indian companies on the Arctic shelf and in Sakhalin, with the Indian Oil and Natural Gas Corporation (ONGC) maintaining its involvement in Sakhalin 1. Novatek, a major Russian gas company, has shown interest in entering the Indian market, highlighting the strategic importance of India as a growing energy consumer.
·        Strategic Implications:
For India, increasing LNG imports from Russia can diversify its energy sources, enhancing energy security and reducing dependency on Middle Eastern suppliers. This diversification is crucial as India aims to boost the share of natural gas in its energy mix from 6.5% in 2020 to 15% by 2030. Russia's move to expand its gas exports to India can be seen as an effort to mitigate the impact of Western sanctions and economic isolation. Strengthening ties with a major emerging economy like India helps Russia maintain its geopolitical influence.
·        Economic and Infrastructure Developments:
The anticipated increase in India's natural gas consumption, from 60 billion cubic meters in 2020 to 115 billion cubic meters by 2030, underscores the need for substantial investments in infrastructure. This includes LNG terminals, pipelines, and storage facilities. There are potential pipeline projects through Central Asia could redefine regional energy logistics, creating new economic corridors and enhancing connectivity between Russia, Central Asia, and South Asia.
·        Regional Dynamics:
The prospect of pipeline gas supplies through Central Asia highlights the region's growing strategic importance. Central Asian countries could benefit from transit fees and enhanced energy security. The China-Russia energy partnership remains a dominant factor in the region. India's increasing engagement with Russia could introduce a balancing dynamic, potentially affecting China's energy strategy.
Nuclear Outlook
The Russian state corporation Rosatom is discussing the possibility of building six more high-power nuclear units and low-power nuclear power plants in India. The parties also agreed to continue technical consultations on the implementation of the project to build a second Russian-design NPP with a VVER-1200 reactor, localization of equipment and joint production of NPP components, as well as on issues of coordinating activities in third countries. The ongoing collaboration between Russia and India in the nuclear energy sector represents a significant aspect of their bilateral relationship, characterized by strategic and economic dimensions. This cooperation, particularly through the construction of high-power nuclear units and low-power nuclear power plants, underscores several key geopolitical and economic considerations.
·        Strengthening Bilateral Ties:
The partnership between Russia and India in the nuclear energy sector is emblematic of their broader strategic alliance. The Kudankulam Nuclear Power Plant (NPP) serves as the flagship project of this collaboration, symbolizing trust and mutual reliance. The ongoing construction of additional units at Kudankulam highlights the deepening ties and shared interests between the two nations.
·        Energy Independence and Economic Growth:
For India, the development of nuclear power is crucial for achieving energy independence, diversifying its energy portfolio, and supporting its rapidly growing economy. Nuclear power provides a stable and sustainable energy source that can help meet India's increasing electricity demands, reduce dependence on fossil fuels, and contribute to environmental sustainability goals. The collaboration on nuclear technology not only involves construction but also the transfer of expertise and technology, enhancing India's capabilities in this high-tech sector. This cooperation aligns with India's broader goals of technological advancement and self-reliance in critical sectors. The development of nuclear power plants involves significant economic investments, generating employment, and fostering economic activities in related sectors such as construction, engineering, and manufacturing. This investment contributes to regional development and economic growth in India.
·        Geopolitical Significance:
Russia’s support for India during the nuclear embargo period, particularly the supply of fuel pellets for reactors, reflects Moscow’s long-term strategic interest in maintaining a strong partnership with New Delhi. This historical support has likely strengthened the bilateral relationship, positioning Russia as a reliable ally in India's energy development. The discussions around using the Northern Sea Route for delivering Russian energy resources to India indicate a strategic initiative to enhance trade routes and energy security. The NSR offers a shorter and potentially more economical path for transporting energy resources compared to traditional routes. The plans to update cooperation on shipbuilding for the NSR highlight a joint effort to develop the necessary infrastructure and capabilities to utilize this route effectively. This collaboration may also strengthen maritime ties and enhance strategic cooperation in the Indian Ocean and the Arctic regions.
The Russia-India partnership in nuclear energy and the NSR can be seen as a counterbalance to the influence of other major powers in the region, particularly the United States and China. This partnership allows both nations to assert their strategic autonomy and influence in regional and global affairs. The ability to secure reliable and diverse energy sources is a crucial aspect of national security for both Russia and India. By collaborating on nuclear energy and exploring new transportation routes, both countries are enhancing their energy security and reducing vulnerabilities associated with traditional energy supply chains.
Source: ALEXANDER NEMENOV / AFP, Via Foreign Policy. July 9, 2024
Challenges and Prospects
Despite the promising outlook, there are challenges to be addressed. The logistics of utilizing the NSR, which is fraught with harsh climatic conditions and requires significant infrastructure investments, need careful planning and execution. Additionally, the geopolitical climate, marked by Western sanctions and the ongoing conflict in Ukraine, could pose risks to the implementation of this energy corridor.
However, the mutual benefits and strategic imperatives for both countries make this partnership a compelling proposition. If successfully implemented, the energy cooperation via the NSR could set a precedent for future collaborations and further strengthen the Russia-India strategic partnership.
The Modi-Putin meeting in Moscow marks a critical juncture in the Russia-India relationship, with significant implications for global energy markets and geopolitical alignments. The discussions on utilizing the NSR for energy deliveries reflect both countries' strategic priorities and their commitment to deepening bilateral ties. As India continues its ascent on the global economic stage and Russia seeks to diversify its energy exports, this partnership has the potential to reshape regional and global dynamics, heralding a new era of strategic cooperation between two major powers.