Social media was flooded yesterday, 31 March, with news reports that Russia had offered to sell India crude oil at attractive, heavily discounted prices. This followed on the heels of other news from the preceding fortnight, that India intended to buy crude oil from Russia, even as the West, led by America, sought to crush Russia with punitive sanctions over the latter’s invasion of Ukraine.
As per the latest report, Russia has offered India a discount of $35 per barrel of oil. At the current, volatile, wildly fluctuating, international price band of $105-115, the offer effectively means that India would buy crude oil at around $70-80 per barrel – which is pretty much what the international price was before the mainstream media narrative build-up, to the Ukraine crisis, began.
So, what are we to make of this Russian offer of discounted crude to India, what does it mean in geopolitical terms, and what might some of the implications and inferences of that be?
First, the offer means that the West’s efforts to sanction Russia will be severely limited in their impact.
Second, it will force a reduction of whatever three-digit price is being touted today, and bring oil down to more reasonable prices before very long. This is good for everyone.
The Americans will be able to start reining in the startling inflation levels they inflicted upon themselves since Joe Biden took over, while re-establishing the normalcy sorely needed by domestic American producers, to recommence the extraction of oil and gas from unconventional geological plays (colloquially called ‘shale oil’ or ‘shale gas’) at pre-pandemic levels.
Oil importers would breathe more easily, and leverage a reduction in prices, to lift their battered economies out of the slump caused by the Wuhan virus more rapidly.
The major producers, including Russia, who had merrily profited from the speculative oil price rise of the past few months, would capitalise on this discount to regain markets they might otherwise have lost to North America.
Third, this Russian offer to India provides those many European nations who are vitally dependent on Russian oil and gas, the transparent fig leaf of continuing to sanction or castigate Russia, while simultaneously persisting with the frankly ridiculous, and egregiously hypocritical anachronism of buying oil and gas from Russia as if nothing had happened.
Fourth, and perhaps most importantly, a reduced international oil price offers both the West and Russia an exit strategy from the senseless mess they are embroiled in at present over Ukraine.
This is a nuanced point which has to be made carefully, and will be elaborated upon in a subsequent piece: America had expected to use the ongoing crisis, to effect a radical break in patterns of oil and gas supply, and replace Russia as the primary supplier of hydrocarbons to Europe.
However, as Swarajya pointed out last month, that plan has next to nil chances of getting off the ground, because Russia retains the ability to slash prices and thus make American supplies uneconomical. And this Russian offer of discounted crude to India is the first step in that direction.
The implications are that while American exports of gas to Europe may continue to rise (they actually supply more gas to Europe now than Russia does), growth would be gingerly, on account of the ever-prevalent Russian threat of a price war.
On the other hand, this is equally an opportunity for Biden to pursue an initiative promoted by his predecessor, Donald Trump, of boosting the American economy by heavily increasing domestic oil and gas production, and selling it to major importers like China and India.
Sixth, and this is revealing, the very fact that such an open offer can be made by Russia to India, at such a time, is indicative of just how much the world is changing. Growing economic clout in Asia means that the West is gradually losing its centuries-old right to set the rules. No wonder there has been such a furious narrative these past weeks, against India’s steadfast refusal to junk its neutrality on the Ukraine crisis, and join the West in imposing sanctions on Russia.
However, seventh, and in conclusion, what this Russian move also does, is prevent America from regaining its once-traditional ability to unilaterally fix the international oil price. That powerful ability, known colloquially as the Carter doctrine, was lost during the Obama era, and will probably never be regained.
Maybe that’s not such a bad thing. And just maybe, this Russian offer of discounted crude oil to India could be the starting point of a solution, to the mess the West and Russia are mired in currently.
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