India’s Growth Machine Now Runs Through Two War Zones

Frame the Globe News

In July India imported a record 2.8 million barrels of Russian crude oil each day, this amount being more than half of its total petroleum imports. This massive increase in purchases shows how vulnerable New Delhi is to growing geopolitical disruptions in key maritime straits such as the Strait of Hormuz, where regional conflicts pose a threat to global energy routes.

Eighty-eight per cent of the country's need for crude oil has to be met through imports. As a result, Washington is now more and more basing its decision about allowing India access to Western markets on the countries in South Asia from which India obtains its energy supplies. Ensuring national energy security is still the top priority. The pressure being exerted means that New Delhi is having to engage in a sensitive diplomatic balancing act between preserving its strategic independence and obtaining essential energy supplies from states that are sanctioned. In the end, the combination of the conflict in Ukraine and instability in the Middle East could threaten India's domestic growth programme if secondary sanctions or maritime blockades stop these vital crude supplies from reaching the country.

Comment

The fact that New Delhi has acquired Russian Urals crude at a record level reveals a basic conflict between India's need for economic growth and its position regarding maritime security in the Indian Ocean Region. Although importing cheap energy helps to promote industrial development at home, the dependence on these particular shipping routes makes it more susceptible to disruptions in the Strait of Hormuz. This level of dependence hampers India's ability to align strategically with the United States, especially within the context of the Quadrilateral Security Dialogue. The transport of these volumes depends on a hidden fleet of tankers that operate outside the Western insurance systems, leading to a clear operational weakness.

In particular, the implementation of the G7 price cap mechanism causes Indian state-owned refiners such as the Indian Oil Corporation to have to continually adjust their payment arrangements in order to avoid coming under secondary US sanctions. This financial difficulty limits New Delhi's capacity to use its naval presence in the western Indian Ocean to secure these commercial energy supplies. As a result, the Indian Navy's mission scope is held back by the need to adhere diplomatically to Washington's unilateral sanctions regimes.

Strategic Question for Discussion

How then will the Indian Oil Corporation manage the fact that it depends commercially on Russian Urals crude while at the same time facing the operational risk of being cut off from the maritime insurance networks which are dominated by the West if the Washington-led tightening of the G7 price cap mechanism goes further?

The evidence indicates that the Indian Oil Corporation is likely to increase its use of non-Western shadow tankers and alternative clearing systems settled in rubles or dirhams in order to import crude oil from the Urals. Yet such a move would certainly lead to higher transaction costs and result in New Delhi becoming even more operationally dependent on financial options supported by Beijing. In my view, this economic friction will in the end restrict the Indian Navy's ability to provide unilateral security assurances in the western Indian Ocean.

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