Why in News?

• Scott Bessent, United States President-elect Donald Trump’s nominee for Treasury Secretary, outlined plans to intensify sanctions on Russia’s oil sector during his Senate confirmation hearing.
• His remarks highlight the incoming administration’s strategy to address the Ukraine war and its broader implications, including significant effects on global oil prices and India’s energy trade.

What’s in Today’s Article?

• New Sanctions on Russian Oil
• Implications of Proposed US Sanctions on Russian Oil on India and India’s Response
• Analysing Rupee Internationalisation Bid Amid Proposed US Sanctions on Russian Oil
• Conclusion

New Sanctions on Russian Oil:

• Tightened restrictions:
  • On January 10, the Biden administration imposed new sanctions aimed at curbing the nation’s oil trade.
  • The upcoming Trump administration may enforce these sanctions more stringently, especially targeting Russian oil majors.
• Scope of sanctions:
  • Targeted entities: Russian oil producers Gazprom Neft and Surgutneftegas.
  • Affected vessels: 183 tankers associated with Russia’s “shadow fleet.”
  • Impacted services: Russia-based oilfield service providers.
  • Objective: Disrupt revenue streams fueling Russia’s war efforts.
  • Deadline for compliance: The US Office of Foreign Assets Control has set February 27 as the deadline for the delivery of crude loaded before January 10, under the new sanctions.

Implications of Proposed US Sanctions on Russian Oil on India and India’s Response:

• Impact on India:
  • Bilateral trade between India and Russia surged to $65.7 billion in 2023-24.
  • Russia has become India’s largest crude oil supplier, constituting nearly 38% of its imports in 2024, a significant increase from pre-Ukraine war levels.
  • The imposition of a $60-per-barrel price cap by G7 nations redirected Russian oil exports from Europe to Asia, with India and China being key consumers.
  • India, dependent on imports for over 85% of its crude oil needs, faces challenges due to the cost-efficiency and reliability of Russian oil.
• India’s response:
  • Commitment to energy security:
    • India’s oil imports, including those from Russia, are guided by energy security needs and global market conditions.
    • External Affairs Ministry spokesperson Randhir Jaiswal stated that India has no plans to reduce its oil purchases from Russia despite the sanctions.
  • Rush to pay for Russian oil:
    • Indian refiners are expediting payments for Russian crude to circumvent potential US penalties.
    • Transactions for Gazprom Neft crude, a Russian oil giant, are being processed in Rubles instead of dollars to bypass the $60-a-barrel price cap set in 2022.

Analysing Rupee Internationalisation Bid Amid Proposed US Sanctions on Russian Oil:

• Challenges ahead:
  • Efforts to settle India-Russia oil trade in rupees face hurdles as tighter sanctions could disrupt these negotiations.
  • In contrast, Russia-China trade in non-dollar currencies has bolstered the yuan's global footprint.
• Global reserve currency dynamics:
  • The US dollar remains dominant, but efforts by BRICS nations to develop alternatives, such as a potential BRICS currency, have intensified since 2022.
  • The attempts to move away from the dollar began after the US threw Russia out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the key to international financial transactions, in 2022.
• US stance:
  • During his hearing, Bessent reaffirmed the importance of maintaining the US dollar’s status as the world’s reserve currency.
  • Former President Trump previously threatened BRICS nations with tariffs if they pursued a rival reserve currency.

Conclusion:

• India’s proactive engagement with the US reflects its commitment to maintaining energy security while navigating the complexities of international sanctions.
• As one of Russia’s top oil buyers, India continues to prioritize its economic and strategic interests amidst evolving global dynamics.