Russia-Ukraine war: Indian exports worth $500 mn face uncertainty over credit guarantee withdrawal

New Delhi: Indian exports worth $500 million to Russia and the CIS (Commonwealth of Independent States) have been hit by the Export Credit Guarantee Corp’s decision to withdraw cover for goods bound for the war-hit region. Sanctions on Russian banks and feared disruptions at Baltic ports following the Ukraine invasion have forced ECGC to come to this decision. However, this has left Indian exporters unhappy. 

According to official data, India’s mercantile exports to Russia in 2021 were worth $3.3 billion, and its imports were valued at $8.5 billion, including petroleum and petroleum products worth $4.5 billion. India exports pharmaceuticals, telecom equipment, marine products, automobile components and tea to Russia.

India exports goods worth another $1.5 billion to CIS, according to industry figures. CIS comprises countries that broke away from the Soviet Union, and most of India’s exports to the region go through Russia. ECGC covers nearly 15 per cent of the shipments bound for the Baltic states.

Western sanctions have made transactions in dollars, pounds or euros uncertain for Indian traders. In such a scenario, trade in the Russian ruble or Indian rupee is the only way out. The US Office of Foreign Assets Control has imposed sanctions on a number of Russian banks, but exports in pharma, which constitutes the biggest chunk of India’s exports to Russia, agriculture and energy, have been exempted. 

Spiralling energy costs is another grave concern for Indian exporters. The Ukraine conflict and subsequent sanctions on Russia have pushed up crude prices, for Moscow is one of the largest suppliers of oil and natural gas for the world. Traders also fear another spike in freight rates that had surged due to the pandemic-induced port closures. Container rates are 81 per cent higher than they were a year ago. 

Around 12 pm on February 28, Brent crude was trading at $102.50 per barrel, higher by 4.57 per cent from its previous close. The price of West Texas Intermediate (WTI) increased 4.89 per cent to $96.48 per barrel. 

India is the third largest oil importer in the world and is dependent on imports to meet 85 per cent of its oil demand and 55 per cent of its natural gas requirements. India spent $62.71 billion on crude oil imports in FY21, $101.4 billion in FY20, and $111.9 billion in FY19. No wonder then, that it is monitoring the Ukraine conflict very closely. 

India is also studying the impact of western sanctions on its defense deals with Russia. It has recently signed a deal worth $5.4 billion for five regiments of S-400 air defense systems. Russia is one of the main suppliers of defense hardware and technology for India, while the latter’s energy firms have invested in Russian oil and gas blocks. ONGC, Indian Oil Corporation, Oil India and Bharat Petro Resources are estimated to have invested over $13.6 billion in Russian oil and gas projects.