As the economic battle wages, India is caught in the crossfire. Russia is its long-standing strategic partner and for the foreseeable future its irreplaceable supplier of defence equipment and weaponry. The sanctions pose significant risks to this vital relationship. Under the sanctions, Indian companies doing business with critical Russian defense suppliers like Rosoboronexport, United Shipbuilding, and Almaz-Antey could find themselves locked out of the dollar-based global financial system controlled by the U.S. Even the activities of Indian companies in areas not directly covered by sanctions could be affected. Given the risks, India must make some hard calls in deciding a present and future strategy. First, because the sanctions can block violators from doing business with U.S. banks, India must find ways to circumvent the dominant dollar-based financial system – like specialist European banks with no exposure to the U.S. market, which are willing to facilitate payments to Russia. Second, India can deepen its investments in Russian energy and resource assets, to generate dividend income in roubles. This will be used to pay Russia for defence hardware. Third, there are ample precedents for introducing a dose of economic self-interest into American decisionmaking on the sanctions issue, taking advantage of the deal-making and transactional nature of the current administration in Washington. India must build its profile in the U.S. market, and Indian companies in the U.S. must actively create local jobs, building a goodwill that can influence policy-makers to consider Indian concerns before imposing sanctions.
RIAC and Gateway House Policy Brief
The U.S. and its European allies have steadily increased economic sanctions on Russia since first imposing them in March 2014. The stated purpose of sanctions is to punish Russia for its involvement in Ukraine, as well as its alleged cyber-meddling in the 2016 U.S. elections and its transfer of arms to Syria and alleged humanrights abuses, also in Syria.
While the measures initially prohibited Westerners from doing business with Russians who were deemed to have undermined democratic processes in Ukraine, the reasons given for the sanctions have grown and the list of potentially prohibited Russian partners has increased to include officials and businesses in Russia’s defence, energy and finance sectors generally. Washington has applied the sanctions flexibly, imposing them strictly in sectors where U.S. firms are major competitors of Russia and ignoring them in others where the U.S. relies on Russia. For instance, the U.S. has exempted Russian agencies that supply titanium for Boeing’s commercial aircraft and rocket engines for the National Aeronautics and Space Administration (NASA), where the U.S. has no indigenous capacity.
This means individuals and businesses outside of the western alliance – including ones from India – now may face sanctions themselves if they don’t comply with the new rules.
As the economic battle wages, India is caught in the crossfire. Russia is its long-standing strategic partner and for the foreseeable future its irreplaceable supplier of defence equipment and weaponry. The sanctions pose significant risks to this vital relationship. Under the sanctions, Indian companies doing business with critical Russian defense suppliers like Rosoboronexport, United Shipbuilding, and Almaz-Antey could find themselves locked out of the dollar-based global financial system controlled by the U.S. Even the activities of Indian companies in areas not directly covered by sanctions could be affected. Given the risks, India must make some hard calls in deciding a present and future strategy. First, because the sanctions can block violators from doing business with U.S. banks, India must find ways to circumvent the dominant dollar-based financial system – like specialist European banks with no exposure to the U.S. market, which are willing to facilitate payments to Russia. Second, India can deepen its investments in Russian energy and resource assets, to generate dividend income in roubles. This will be used to pay Russia for defence hardware. Third, there are ample precedents for introducing a dose of economic self-interest into American decisionmaking on the sanctions issue, taking advantage of the deal-making and transactional nature of the current administration in Washington. India must build its profile in the U.S. market, and Indian companies in the U.S. must actively create local jobs, building a goodwill that can influence policy-makers to consider Indian concerns before imposing sanctions.
Russia – India Cooperation against the Background of Sanctions: Adverse Effects and New Opportunities, 1.2 Mb
