Growing Trade Ties Between Russia and India Amid Western Sanctions
The recent partnership between Russia and India has attracted considerable international attention, especially from the United States, as well as from Indian banks wary of involvement. Over the past year, trade between the two countries has increased significantly, reaching an all-time high of over $65 billion in 2023, in contrast to previous averages of $10–13 billion annually. This surge began after Western countries, including the US, imposed heavy sanctions on Russia due to the Ukraine conflict. As a result, Russian businesses turned to Asian markets, particularly India, which has since emerged as one of Moscow’s primary trade partners. However, Indian banks have been cautious about facilitating transactions with Russian clients due to the risk of facing secondary US sanctions, making this growing trade relationship a sensitive issue within the Indian financial sector.
India, a country that has maintained a neutral stance regarding the Western sanctions, has focused on its own economic interests, particularly through an increase in purchases of Russian oil. In fact, India has now become Russia’s largest oil buyer, recently surpassing China in this regard. The two countries are even working to set up a system to settle trade transactions directly in their local currencies—India’s rupee and Russia’s ruble—reducing reliance on US dollars and the Western banking system. This effort reflects both nations’ interest in deepening economic ties without interference.
Concerns of Indian Banks Over US Sanctions
Despite the enthusiasm for a closer trading relationship, Indian banks have been hesitant to fully engage with Russian clients, primarily due to concerns about US-imposed secondary sanctions. Secondary sanctions target foreign institutions that continue to work with companies or individuals on the US sanctions list, potentially excluding them from the US financial system. Many Indian banks have financial connections with the US, so they risk facing severe restrictions if they directly conduct business with certain Russian companies.
In June, the United States expanded its secondary sanctions list to include additional Russian banks, heightening the risks for foreign financial institutions engaging with these entities. This development has created challenges for Indian banks and businesses that want to facilitate trade with Russia but are wary of the economic consequences of falling afoul of US restrictions.
According to Moscow’s envoy to New Delhi, Denis Alipov, the United States has been closely monitoring trade transactions between India and Russia, making Indian banks more cautious. He stated that banks exposed to the US financial system remain concerned about secondary sanctions, especially as the US Treasury has made it clear that non-compliance may result in foreign banks being cut off from US financial markets. Alipov expressed optimism that Indian banks would eventually see it as safe to trade with Russian entities without fear of US punitive measures.
A Push for Independence in Global Financial Matters
Moscow has been vocal about its belief that BRICS nations—Brazil, Russia, India, China, and South Africa—should have a stronger say in global financial affairs. Alipov highlighted BRICS’ role as a “voice of the Global South and developing world in international affairs.” This message resonates with India and other countries that seek more independence in their economic choices and an equal role in international finance, free from external pressures.
The November meeting between Russian and Indian ministers aims to explore more ways to strengthen bilateral trade ties, particularly through the proposed ruble-rupee settlement system. This mechanism, if implemented successfully, could provide a stable framework for both countries to conduct business without the risk of sanctions. Moreover, BRICS members are looking into the development of alternative payment systems to circumvent potential US sanctions and reduce reliance on the Western financial infrastructure, an initiative which also aligns with Russia’s efforts to expand trade with Asian and BRICS partners.
With the robust increase in trade, India and Russia are setting a goal to reach $100 billion in mutual trade by 2030. This goal is part of a broader strategy for both countries to build sustainable trade systems that could withstand external economic pressures.
