Russian Consignment Headed to India via INSTC, Following Jump in Crude Oil Purchases
India is to receive a goods consignment from Russia via the much shorter INSTC route and Russian crude oil reached five percent of India’s seaborne imports, indicating an optimistic trade outlook between the two countries. The central banks in India and Russia are also finalizing the details of a bilateral payment system, discussing options such as a Loro third-party account or Nostro accounts, so it does not violate global sanctions.
As per reporting by The Economic Times, on June 11, Russia sent a goods consignment to India from St. Petersburg using the International North South Transport Corridor (INSTC). The consignment will head towards the Port at Astrakhan (southern Russia), then to the Caspian Port of Anzali (Gilan Province, Iran) and the Bandar Abbas Port (Persian Gulf; Hormozgān Province, Iran) and thereafter likely to the Mundra Port in West India.
The INSTC connects India with Central Asia with Russia, and has the potential to expand up to Baltic, Nordic, and Arctic region, increasing the scope of trade multifold. In June 2021, INSTC’s western corridor was operationalized to connect India with Europe for the first time. The INSTC has the potential to transform the economies of countries along its corridor into specialized manufacturing, logistics, and transit hubs. While there have been detractors in the past and a slowdown in progress along key hubs in the corridor, geopolitical events could necessitate its normal operations.
On June 12, the Iranian news agency IRNA reported this statement by Dariush Jamali, Director of the Iranian-Russian terminal at Astrakhan: “The consignments are two 40-feet containers of wood laminates weighing a total of 41 tonnes. The containers were loaded at St Petersburg and are heading toward Astrakhan where they will be loaded again at Solyanka Port. They will then traverse the Caspian Sea to reach Iran’s Anzali Port where they are scheduled to be transported to Bandar Abbas port city in southern Iran via trucks. The two containers will then be dispatched to India’s largest container port.”
This shipment from Russia to India via the INSTC will likely take less than 25 days – significantly reduced from the 40 days journey otherwise. The INSTC has been identified as a cost-effective alternative to the Suez Canal and Mediterranean routes and Bosporus. The use of this trade connectivity linking India, Iran, and Russia assumes importance amid the ongoing conflict in Ukraine and sanctions on Russia.
Russia pips Saudi Arabia to become second largest oil supplier for India
Russia has surpassed Saudi Arabia to become India’s second biggest oil supplier, behind Iraq. This may, however, be a temporary situation due to the price competitiveness of Russian oil exports following Western sanctions on the country.
Asian buyers are now the biggest customers of Russian crude shipments. Russian oil reached five percent of India’s seaborne imports in April; it was under one percent throughout 2021 and Q1 2022; barrels are unloaded at India’s western ports. China is the only market for Russian crude shipped from its Pacific coast (reported by ET). The European Union (EU), meanwhile, will ban Russian crude imports by sea by December.
India imports over 85 percent of its oil and is purchasing Russian oil at heavy discounts, for as much as US$30 a barrel. Previously, Russian Ural crude was uneconomical due to high freight costs.
Work underway to finalize payment system between India and Russia
Indian and Russian central bank officials are reportedly discussing the final aspects of their bilateral payment system so it does not violate global sanctions. Payment solutions being discussed include Loro or Nostro accounts. As per ET, Loro is where a bank holds an account in a country for another bank and Nostro involves a bank holding an account in another country in another bank.
Update on Chabahar Port
For India and Iran, the inclusion of Chabahar Port (southeastern Iran, Gulf of Oman) in the INSTC is important to secure connectivity with Afghanistan and Central Asia. The issue also has crucial implications for the Iranian government. The Iranian Deputy Foreign Minister for Economic Diplomacy Mehdi Safari visited India for two days (June 13-14) this week, just following the maiden visit of Iranian Foreign Minister Hossein Amir-Abdollahian the week before. On Safari’s agenda was providing momentum to the Chabahar port and trade connectivity. India is developing the first phase of the Shahid Beheshti Terminal at the Chabahar Port.
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