Russia’s invasion of Ukraine in February 2022, a catastrophic culmination of longstanding and escalating tensions between the two countries, has had consequences that have been far from binational. The conflict has drastically disrupted supply chains as far as South America, South Asia, and sub-Saharan Africa.
Given modern globalization, this is not exactly an unexpected outcome. The conflict has threatened much of Europe with a calamitous energy crisis, drastically supercharged global inflation, and created food shortages in major nations in Asia, Africa, and South America, alongside precipitating other dire ramifications.
Ukraine was a major food and mineral exporter, with foodgrains and seed oils being its leading exports, while Russia was a leading exporter of fossil fuels and a variety of minerals and raw materials. Trade activities of both nations have been impaired because of the war and the resultant sanctions and withdrawals.
India’s neighbors Pakistan and Bangladesh sourced 90% and 55% of their wheat imports from the two conflict-embroiled neighbors.
The Russia-Ukraine war had been smoldering for eight years, ever since Russia’s annexation of Crimea in early 2014. Despite mounting alarm from various governmental agencies, think tanks, and independent experts and obvious signs of escalation of the ongoing conflict appearing through intelligence reports as early as December 2021, most nations made little effort to seek out alternative suppliers for their imports and reduce their dependence on the war-vulnerable nations, even for critical supplies as food and fuel.
In spite of a profusion of debates and discussions taking place among politicians, bureaucrats, and academics, concrete policy action remained hesitant and laggard. Negligence of the criticality of the situation led to a crisis situation in many dependent countries, forcing them to make economic, ethical, and diplomatic compromises.
While natural and largely foreseeable supply chain disruptions occurred in Ukraine and to a lesser extent in Russia, the Russians deliberately leveraged the reliance on them of their trading partners to tactfully arm-twist them on economic and international diplomatic fronts.
Western and Central European nations, most of them key NATO members, in particular, found it difficult to disengage from Russia as motivated by their popular voice of conscience, given their dependence on the nation for gas, forcing them to strive to maintain an ethically and strategically uneasy practical status quo with the country for long.
In light of the unfolding of the Russo-Ukrainian crisis, it is thus a vital takeaway for nations to review their own trade portfolios, identify critical dependencies (especially on potentially unstable, conflict-prone, and disruption-vulnerable partners), and work to diversify the sourcing of their critical supplies.
Countries must chalk out trade-crisis contingency plans and come up with readily-accessible alternative supply routes for critical products for which they are currently reliant on singular trading partners, particularly if they exhibit high geopolitical risk.
According to data available at the Observatory of Economic Complexity, the largest source nation for India’s imports in 2020 was its neighbor and geopolitical rival China. India’s relationship with China has been complex and paradoxical.
Despite clarion calls for boycotts and phony proclamations of reducing dependency on China by India’s right-wing leaders, little in the way of trade retaliation has materialized on the ground. In fact, trade with China, particularly in consumer electronics, has sharply risen under Indian Prime Minister Narendra Modi, who vocally stresses bold nationalism, cultural pride, and the economic autonomy of India, and is frequently described as an aggressive right-wing populist.
Measures to limit dependency on China on the ground have been, at best, vague. In fact, the tenders for a number of important infrastructure projects of the union government as well as multiple state governments (including that of the prime minister’s home state and stronghold Gujarat) have been awarded to Chinese firms.
Following a distant but important second is the United States, claiming credit for about 7% of India’s total imports. The US is closely followed by the UAE and Saudi Arabia, whose shares are approximately 6% and 4.5% respectively. Iraq, Hong Kong, Germany, South Korea, Switzerland, Australia, Singapore, Indonesia, and Japan fall in the 2.5-4% range.
However, according to 2021 data from the UN Comtrade Database, while China again claimed the dragon’s share of 16%, the United Arab Emirates and the US stood close at 7.6% and 7.3% respectively, followed by Switzerland, Saudi Arabia, and Iraq each at roughly 5%. Hong Kong, Singapore, South Korea, Indonesia, Australia, and Japan then queued up from 3.2% to 2.5% in the year.
Among various product categories India’s largest class of imports is crude petroleum, making up about 16% of its total imports. Imports fulfill almost 85% of its oil needs. Iraq is the largest import origin for the same, affording 22.4% of the import supply. It also provides a sizable share of India’s imports of refined petroleum.
Over the years, Iraq has consistently ranked in the bottom 10 countries of the world in terms of political stability in various indices, including the World Bank’s Political Stability and Absence of Violence/Terrorism Index, where it ranked 5th-from-last in 2021. It has performed dismally on the World Bank’s other World Governance Indicators as well.
In 2022, the nation ranked 23rd most fragile in the Fragile States Index released by the US-based think-tank The Fund for Peace. In the Vision of Humanity Global Peace Index released by the think-tank Institute for Economics & Peace, Iraq was placed 157 out of 163 nations in 2021.
India’s fourth-largest source of crude petroleum, Nigeria, which accounts for nearly 9% of its imports, did scarcely better, standing at 182d out of 194 countries in the World Bank’s Political Stability index. It was deemed the 16th most fragile nation in the world in 2021 by the Fragile States Index and occupied the 20th rung from the bottom in the Vision for Humanity Global Peace Index.
Saudi Arabia, which supplied India with 19% of its oil and 11% of its petroleum gas in 2020, holds its ground in the Fragile States Index, perhaps owing to its iron-fisted monarchic rule that maintains firm albeit draconian control over law and order, staying just above the median of the list. However, India’s second-largest oil origin has an abysmal human rights track record, particularly in terms of gender equality. It hovers around the bottom 10 rungs in World Economic Forum’s Gender Gap Report.
The nation has been described as having one of the worst human rights scenarios in the world by various governmental agencies, non-governmental organizations, and international bodies, including the US government’s Bureau of Democracy, Human Rights, & Labor, Human Rights Watch, Amnesty International, Human Rights Measurement Initiative, and Freedom House in their various analyses, reports and indices.
Saudi Arabia has had a deplorable record of arbitrary arrest, suppression and torture of dissidents and state intimidation. Hence, despite the fact that the largest territory of the Middle East appears to be, geopolitically, moderately stable, its regime’s stabilizing iron grip is clenched on a profusion of flesh and blood. The kingdom performs poorly, though still considerably better than Iraq and Nigeria, on the Political Stability Index and the Global Peace Index, being placed 139th and 119th on the tables respectively.
Once India has secured itself a sound trade position, it could take steps to reduce trade with nations with poor humanitarian records on ethical grounds, enacting sovereign activism by conscious trade choices. However, apart from ethical considerations, India doesn’t have any major motivations to reduce dependency on a sound trading power such as Saudi Arabia.
Given that most of the world’s known petroleum reserves lie in the Middle East, Northern Africa, Russia, Venezuela, Nigeria, and Kazakhstan, which all happen to be regions highly prone to internal and external conflict, it would be somewhat unfair to expect India to completely rid itself of conflict-vulnerable crude oil import origins. However, India could take steps to gradually increase the share of relatively more stable, peaceful, geopolitically secure, and democratic nations in its total oil imports.
Iraq has long been struggling with sectarian tensions, political disharmony, foreign interventions, international diplomatic friction, foreign-aggravated domestic and international conflicts, corruption and radicalism. The country is currently under the threat of the Islamic State and al-Qaeda. Anarchy, rising fundamentalism, pervasive infighting, and growing narcotics abuse plague the nation and continue to debilitate its prospects of recovery and restoration of normalcy.
Like Iraq, Nigeria is a nation torn by civil strife, corruption, crime, and terrorism. The country’s infrastructure is crumbling and its education and healthcare systems are incapacitated. The nation faces persistent ethnic feuds, religious clashes, and civil land disputes.
Unbridled population growth is weighing down on the country, which is barely held together by an apathetic and distant regime. Violence of all varieties – communal, governmental, and interpersonal, is rampant in the land. While a major crisis is imminent, it remains to be seen whether the nation would first face an economic or political collapse.
In light of these facts, India must work to reduce its import dependency on these two risk-heavy import origins, sourcing more from relatively more secure and steadfast existent partners such as the UAE and Kuwait, which currently make up 11% and 5% of its crude oil imports respectively, while avoiding switching over to other near-future disruption-susceptible nations such as Iran and Venezuela.
Further, contingency agreements with developed nations such as the US, Canada, and Norway could serve as a valuable recourse in the considerably foreseeable event of a geopolitical breakdown of Iraq or Nigeria. Any cost excesses caused by such a recourse could be seen as a tenable risk premium in such trade deals.
India could perhaps take an inquisitive look at the oil and gas import profiles of its neighbors. About 90% of Pakistan’s import of petroleum in 2020 was sourced from stable nations, well more than half of it coming from the UAE. Beyond its four biggest import origins, the remaining two-fifths of India’s crude oil import portfolio is fairly diversified with various nations from all across the world contributing small portions of the share.
This is the first article in a two-part series.