Is EU ‘living in the past’ as it mulls sanctions on Indian, Chinese firms exporting to Russia?

EU’s potential sanctions on individual Chinese and Indian firms’ export of electronics to Russia will only reinforce perceptions of inequality
If pressuring Russia is the aim, past sanctions have achieved little and targeting third parties in Asia is likely to serve the EU’s purpose even less

Biman Mukherji

Published: 10:00am, 23 Feb 2024

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In recent weeks and months, a commentary that has gained prominence has been about whether India is the next growth story after China.

Estimates differ as to what extent, but most agree that the South Asian nation’s market promises to be the next best thing. Therefore, I was surprised to read that the European Union may slap sanctions on Chinese and Indian firms’ export of electronics to Russia.

That the move is being mulled two years after Russia’s invasion of Ukraine seems intriguing. All the more so, because the EU has been pursuing a free-trade agreement with India and has this week begun a seventh round of talks.

Therefore, the disconnect between the two things appears bizarre.

India, China ‘enjoy the discount’ on Russian oil as EU tightens price cap

It is no secret that both India and China have been purchasing discounted Russian crude oil that was offered to them since the start of the Ukraine war. Western powers have in particular been displeased about New Delhi’s purchases because they see India as an ally, and its neutral stance on the conflict has often been questioned.

India’s purchases of crude from Russia – which account for around a third of its total imports – have been redirected towards processing of refined oil products by Indian refiners, who then export substantial quantities to Europe.

Some of the exports have suffered this year due to attacks on ships in the Red Sea that is a vital route between Asia and Europe. However, exports have continued.

The SKS Doyles crude oil tanker moves along the Suez Canal towards Ismailia in Suez, Egypt. There have been a spate of recent attacks on ships in the Red Sea that is a vital route between Asia and Europe. Photo: Bloomberg

“India’s ascent as an oil product exporter beyond its usual core Asian markets is intrinsically linked to it starting to buy discounted Russian crude. The main reason for this is simple – discounted feedstock for refineries creates a competitive advantage that other refiners (buying crude at market levels) don’t have,” says Viktor Katona, crude oil analyst at data and analytics company Kpler.

Surely, European buyers would be aware that a chunk of India’s oil products are of Russian origin. Therefore, sanctioning only Indian and Chinese firms is illogical without examining its own backyard.

An Indian trade executive says European representatives typically try to take a dominant position during trade negotiations, and therefore the sanctions move coinciding with talks for a free-trade agreement is not surprising.

Consider for a moment what is on the table.

01:09

New Delhi to keep buying ‘advantageous’ Russian oil, Indian foreign minister says on Moscow trip

The EU’s demands include removing trade barriers for smaller European firms, opening up services and the Indian public procurement market, investment guarantees and environmental compliance as it is set to roll out carbon emission tariffs.

Importers into the EU will eventually have to purchase certificates to cover emissions to put foreign producers on a par with European firms – a move that could advance carbon neutrality, but has provoked disquiet among Asian producers of steel, cement and other commodities because it could impose a crushing cost burden if imposed hastily.

One of New Delhi’s key demands is the migration of professionals – which is not the same as emigration, but the ability to provide professional services that are vital to sectors like information technology.

India has recently reached trade agreements with Australia, Mauritius and is on the verge of signing a deal with the UK. New Delhi wants to dispel the notion that it is a closed economy, which has hampered foreign investments, and is likely to be keen on a deal with the EU.

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But it is clear that a lot of give and take will be required to achieve fruition and that the sanctions, albeit on individual firms, will only raise a jarring note and reinforce perceptions of inequality.

“It has to be an equal partnership and win-win for both. The EU seems to be living in the past and thinks that such threats can help. You must find a landing zone,” says TS Vishwanath, principal adviser at ASL-Legal and a trade analyst.

If pressuring Russia is the aim, past sanctions have achieved little, and targeting third parties in Asia is likely to serve the EU’s purpose even less. Therefore, it would be best to find a way to work around the sanctions without punishing third parties.

Wisdom dictates that a path to peace should be found with India and China’s leverage over Russia. For the EU to put the bite on market participants in Asia’s growth engines may only muddy the waters further, with two years into the Ukraine war.

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