Trade relation between India and Russia

India-Russia Energy Cooperation Agreement

Background and Date of Signing

• Signed: December 12, 2024
• Context: Part of a broader effort to enhance energy security and economic cooperation.
• Focus: Securing long-term crude oil supply, facilitating investment in energy infrastructure, and strengthening bilateral trade in hydrocarbons.
• Key Supplier: Russia is a key crude oil supplier to India, especially following global geopolitical shifts and Western sanctions on Russian energy exports.
• Increased Imports: This agreement has led to a significant increase in crude oil imports from Russia to India, helping India diversify its energy sources and secure competitive pricing.

Purpose and Objectives of the Agreement

• Stable Supply: To secure a stable and long-term crude oil supply to India at preferential rates.
• Investment: To increase Indian investment in Russia’s energy sector, particularly in refining and infrastructure projects.
• Reduced Dependency: To reduce dependency on traditional oil suppliers such as those in the Middle East.
• Tech Collaboration: To enhance technological collaboration in oil refining, LNG processing, and pipeline infrastructure.
• Alignment: Aligns with India's broader energy security strategy, ensuring price stability and reducing reliance on dollar-dominated oil trade markets.

Key Sectors Covered

1. Energy Trade

• Supply Agreement: Russia's Rosneft will supply 500,000 barrels per day of crude oil to India.
  • This accounts for nearly 25% of India's total crude imports.
• Discounted Rates: India benefits from discounted crude oil rates, leading to significant energy cost savings.
• Long-Term Contracts: Signed between Indian refiners such as Indian Oil Corporation (IOC), Bharat Petroleum (BPCL), and Reliance Industries and Russian suppliers.

2. Investment in Energy Infrastructure

• Indian Investment: Indian energy firms have invested $4.5 billion in Russian oil fields and pipeline projects.
• Refining Facilities: Collaboration in setting up new refining and storage facilities in India to accommodate increased imports.
• LNG Development: Joint ventures for LNG development and export between Indian and Russian firms.

3. Dispute Resolution Mechanisms

• Framework: Includes a bilateral trade dispute settlement framework to handle commercial disagreements.
• Resolution Methods: Disputes related to pricing, delivery, or contractual obligations will be resolved through state-to-state consultations or arbitration mechanisms.
• Monitoring: A dedicated India-Russia Energy Council has been set up to monitor the agreement’s implementation.

Significance and Expected Outcomes

Economic Benefits for India

• Lower Energy Costs: Reduces inflationary pressures due to cheaper oil.
• Improved Refining Capacity: Supports India's growing energy demand.
• Investment Opportunities: Enhances investment opportunities in Russia’s oil and gas sector.

Geopolitical Significance

• Stronger Bilateral Ties: Strengthens India-Russia relations beyond defense cooperation.
• Reduced Dependency: Reduces India's reliance on Middle Eastern oil supplies.
• Negotiating Power: Enhances India's ability to negotiate better deals with other energy suppliers.

Future Growth Prospects

• Increased Imports: India may expand imports to 1 million barrels per day if demand rises.
• Renewable Energy: Possible collaborations in renewable energy projects (hydrogen production and LNG transportation).
• Shipping Routes: Strengthening energy trade corridors via new shipping routes.

Crude Oil Imports from Russia (2021-2024)

• Key Insights:
  • 2021: 20 million barrels (small fraction of total imports).
  • 2022: 35 million barrels (India shifts towards discounted Russian oil due to sanctions).
  • 2023: 55 million barrels (India capitalizes on Russia's need for alternative markets).
  • 2024: 70 million barrels (Russia becomes one of India's top three oil suppliers).
• Growth Factors:
  • Discounted Russian oil prices.
  • Increased refining capacity in India.
  • Strategic energy security planning.

Investment in Energy Infrastructure (2021-2024)

• Key Insights:
  • 2021: $1.5 billion (exploratory oil field projects and small refining partnerships).
  • 2022: $2.0 billion (Indian companies partner with Rosneft and Gazprom for increased participation in Russian oil extraction projects).
  • 2023: $3.2 billion (commitments to building oil storage and expanding refining capacity).
  • 2024: $4.5 billion (reinforcing India's long-term commitment to Russian energy infrastructure).
• Factors for Increased Investment:
  • Joint ventures between Indian and Russian oil companies (e.g., ONGC, Indian Oil Corporation).
  • Development of alternative energy transportation routes, including the Northern Sea Route.
  • The India-Russia Energy Cooperation Agreement (2024) provides bilateral investment protections and tax incentives.

Key Takeaways:

• Strategic Agreement: A landmark deal for both countries to enhance energy cooperation.
• Long-Term Supply: India secures long-term crude oil supply from Russia at discounted rates.
• Energy Security: Reduces India's dependence on traditional oil suppliers.
• Investment and Trade: Increases investment in Russian energy infrastructure.
• Bilateral Ties: Strengthens India-Russia bilateral ties.
• Future Growth: Includes possibilities of expanding imports, exploring renewable energy collaborations and strengthening new transport routes.

This agreement is pivotal for India's energy security, contributing to economic stability and strengthening strategic ties with Russia. It also highlights how global events can reshape trade relationships.

Summary

Deal for Oil: India and Russia have made a big deal for India to buy lots of oil from Russia.

Why: India wants to make sure it has enough oil and to get it at good prices. Russia has a lot of oil and is looking for buyers after other countries stopped buying from them.

What's Happening:

India is buying a big part of its oil from Russia now.

India is investing money into Russia's oil fields and pipelines.

The oil from Russia is cheaper than from some other places.

Benefits for India:

Cheaper oil means less money spent on energy.

They have more options for getting oil.

What's Next: India might buy even more oil from Russia and work with Russia on new kinds of energy like hydrogen.

Important: This deal shows how India and Russia are becoming bigger partners because of changes in the world.