Sanctions Is a Long-Term Challenge—but It Does Not Preclude India and Russia from Developing a New Bilateral Paradigm

Russia, the founding member of the Shanghai Cooperation Organisation (SCO), has been hit by Western sanctions on its energy exports and financial system. Still, Ivan Timofeev, Director of Programs at the Russian International Affairs Council, sees new opportunities to be seized. Deepening India-Russia business engagement is one, and the SCO as a constructive and accommodating force is another. K.A. Dhananjay from Gateway House spoke to Timofeev who visited Mumbai recently.

Russia, the founding member of the Shanghai Cooperation Organisation (SCO), has been hit by Western sanctions on its energy exports and financial system. Still, Ivan Timofeev, Director of Programs at the Russian International Affairs Council, sees new opportunities to be seized. Deepening India-Russia business engagement is one, and the SCO as a constructive and accommodating force is another. K.A. Dhananjay from Gateway House spoke to Timofeev who visited Mumbai recently.

Gateway House (GH): How does the intensity of Western sanctions on Russia impact the country’s future outlook?

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Ivan Timofeev (IT): The impact of Western sanctions against Russia is quite huge and we should not dismiss the long-term damage. A number of sectors in the Russian economy have suffered due to the unprecedented unilateral sanctions, like the financial sector, energy, infrastructure, and high tech. The sanctions will be with Russia for years, if not decades, because the conflict in Ukraine is very complicated, hard to settle diplomatically and come to a stable and sustainable resolution.

But this turbulent reality is manageable. The damage to the Russian economy is not as huge as we had expected. For instance, in February, and March, there were alarming expectations that the economy will shrink up to 25% this year; but this did not. Now, the forecast of the World Bank is about 8%. The Russian Government’s assessment is 4% which is better than expected.

Russia has managed to maintain financial stability because of the high proficiency of the central bank and the Ministry of Finance. Russia has managed to keep exchange rates stable by intervening in market and controlling the national currency.

Businesses feel much more confident now than before the Ukraine conflict. They are quite resolved to survive; to find new market niches for substituting imports and finding alternative supplies from friendly countries.

This creates new opportunities for India in Russia and for Russia-India trade.

First, Indian companies may take over market niches in Russia, which were abandoned by Western firms. The Russian environment has become less competitive, and it is a good chance for Indian producers to be present in certain industrial sectors.

Second, Russia and India now are forced to implement the idea of rupee-ruble trade. This way, the Russian MIR card can be freely used in India, and Indian payment systems can be fully implemented and usable in Russia. It will also be favour Indian business coming to Russia, as Russia will be less dependent on dollar transactions. It will allow India to balance bilateral trade since it currently has a trade deficit with Russia by making Indian farmers and industrial producers more visible in Russia, for instance.

GH: Russia is restricted from exporting gas to Europe. Is Russia looking at new markets for gas, and where?

IT: Russian gas supply is not completely prohibited in the European market but in the coming years, Russia will lose the European market due to Ukraine. So, where to direct supplies? Russia may redirect supplies for domestic projects like gasification of public transportation etc. Some gas may be directed to China, or other consumers in Asia. There is almost no chance to get the decision in Europe reversed. But this is not a tragedy, Russia is not doomed. There are ways to diminish the damage and to move to another modus operandi.

GH: Can we expect Western sanctions to be lifted or altered against Russia? If so, under what conditions or circumstances?

IT: Sanctions on Russia will be present for years, if not decades. There are few chances that they will be altered. Russia will face new sanctions, even if there is a peace in Ukraine. I hope that at some point, the conflict will find its resolution. The stakes for each side are high. The history of sanctions shows that the West is reluctant to revoke them

As politicians invest political capital by pushing for sanctions.

Revocation is not easy for Congressman and parliamentarians in the West. US sanctions for instance, they are based on legislations, and really hard to alter. The president of the US may waive them, but not revoke them completely. There is a kind of institutional inertia in the EU as well and there is a need for consensus. Some countries will never support that.

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The reality is that sanctions is a long-term challenge—but it does not preclude India and Russia from developing a new bilateral paradigm. Russian side will have to intimate their Indian friends about projects in Russia, provide better investment conditions, raise awareness about Russia, its culture, and markets, etc. Russia should also be more involved in the Indian market. It should understand India’s diversity and its unique business culture as well.

GH: Samarkand is set to host the Shanghai Cooperation Organisation (SCO) Summit on 15-16 September. Will be an opportunity for the organisation to progress amidst emerging geopolitical divides?

IT: It is high time the leaders of the SCO met face to face as they could not meet physically for two years due to the pandemic. We should understand the diversity of SCO, as it is composed of countries with very different interests. Weaponization of the SCO as an anti-West alliance cannot be possible. For instance, India has very constructive relations with the European Union and the U.S. What is important is not to position this organisation as an anti-Western Front, which will split the world into West and East. This will never be bought by India, China, or others.

There is a severe political crisis between Russia and the West. But each crisis sooner or later comes to an end; history is cyclical. The SCO Summit comes at a unique time. Members will think about accommodating new challenges related to the transformation of the global order. This is also about the tensions between China and the U.S., increasing tensions, not just over Taiwan, but over other issues like technology or like the American fear of a rising China. There is the issue of India and China as well, which should also be resolved.

The summit should discuss the ways of limiting the damage of this transition. One could be how to avoid the weaponization of international finance or how to promote bilateral trade amongst members. Another area of interest is security. The SCO has traditionally focused on counterterrorism, an important issue for countries like Russia and India. The SCO should at least capture the benefits of some low hanging fruit. The SCO is relevant, and its future depends on how opportunities are used by its leaders.

First published in the Gateway House.