Russia Fails To Collect Billions in Oil Profits from Asian Ally

Russian President Vladimir Putin meets with India’s Prime Minister Narendra Modi on the sidelines of the Shanghai Cooperation Organization (SCO) leaders’ summit in Samarkand on September 16, 2022. Russia has offered India cheap oil but has faced problems repatriating its proceeds from exports which have increased since Putin’s invasion of Ukraine.

Russia has stopped pushing for the repatriation of stranded profits from its oil sales to India, and instead will use the money to invest in stocks and infrastructure in its trade ally.

India has taken advantage of its status as a “friendly” country for Russia which, as it looked to find new markets closed off by western sanctions due to the invasion of Ukraine, offered discounts for its oil.

New Dehli was also allowed to pay for oil in rupees but this method has faced problems due to Reserve Bank of India (RBI) restrictions preventing the transfer back to Russia of rupees from Indian bank accounts.

After China, Russia has become the second major import source for India, purchasing goods worth $55.6 billion in 2023-24—a 37 percent year-on-year increase, with $46 billion worth of petroleum imports making up the lion’s share.

Russian Foreign Minister Sergey Lavrov said last May billions of rupees were stuck in Indian banks and Moscow was reportedly looking to repatriate some of the money, possibly by converting it to UAE dirhams or Chinese yuan.

But media outlets in India have reported a breakthrough in the impasse, saying that Russia was now looking to invest the unused rupee balance within India via government securities, bonds, equities and loans.

“On the Russian side there has been hesitation to park their money for prolonged periods of time in India,” said Aditya Bhan, a Kolkata-based fellow at the Observer Research Foundation, a global think tank.

“The Russians seem to be looking more seriously incrementally at least, at investment opportunities in India, particularly those that are government backed,” he told Newsweek.

The Hindu reported that Russia was no longer looking to repatriate the rupee balance accumulating in Indian banks. A source told the publication that the RBI, through amendments in regulations of India’s Foreign Exchange Management Act (FEMA) “has made it possible for Russian entities to invest in a whole bouquet of avenues, which the country has started to make full use of.”

Russia has used the Indian currency to invest in stocks, government securities, infrastructure schemes, the Hindustan Times reported, citing a source who said “most of the rupees accumulated in India have been used and this is no longer a problem.”

Meanwhile, the Deccan Herald reported Russia’s rupee piles could facilitate defense contracts, notably enabling the delivery of the remaining two Russian S-400 air defense systems under a $5.4-billion deal by 2025.

However, these investments could be just a short-term measure. “At some point, both sides would be working towards mechanisms to enable repatriation. The Russians particularly would want it earlier than anybody else,” said Bhan.

“If it wasn’t for the distinct possibility or an expectation on the Russian side that such a mechanism would materialize, I’m sure they would not be willing to invest serious amounts,” he added. “That acceptance is there that at some point things would change and gradually improve in terms of the possibility of repatriating money, or proceeds from various investments.”

India’s oil exports with Russia have faced other problems after the West’s imposition of a $60 price cap for the sale of shipbound Russian oil, which Moscow has evaded through sanctions-busting “ghost” ships.

In January, it was reported that almost 5 million barrels of Russia’s Sokol grade crude had not reached India and one shipment had been stalled for more than a month.

However, The Hindustan Times reported that Moscow also aims to ensure crude is still supplied to India despite U.S. Treasury Department sanctions on Russia’s biggest shipping company Sovcomflot and 14 oil tankers. Moscow will take care of the insurance of its oil tankers and not be dependent on Western firms, sources told the paper.

“Russia continues to remain an important oil source and at least for the foreseeable future, that’s not set to change,” said Bhan. Newsweek has contacted the Russian and Indian foreign ministries for comment.

Start your unlimited Newsweek trial