If you have wondered why India has not followed the lead of the U. S. and Europe in imposing economic sanctions on Russia, Mihir Sharma may have an explanation for us at Bloomberg. Although it may come as a surprise, India has national interests:
To India and many other developing countries, Western powers and the institutions they dominate appear to have different standards for conflicts close to home. While the World Bank has been slow to address the concerns of other war-torn nations, it has put together a $700 million package for Ukraine in record time. Some economists say the International Monetary Fund may be skirting its norms to send $1.4 billion in emergency funding to Ukraine.
Meanwhile, those same Western nations are proving themselves poor stewards of the global commons. Take the cutoff of several Russian banks from the SWIFT financial messaging system. We have grown accustomed to thinking of interbank communications as a global utility; they’ve now been turned into a tool of Western foreign policy.
This was a unilateral decision by the countries that control SWIFT which, besides the U.S. and Japan, are all European. Little thought was given to how countries such as India, which rely on SWIFT to pay for oil and fertilizers from Russia, would manage the fallout. It should come as no surprise that India’s reaction has been to look for a way around the sanctions by settling trade with Russia in rupees and rubles.
Criticizing India for continuing to buy oil from Russia is especially galling, given that European nations have yet to wean themselves off Russian energy supplies either. And, unlike them, India can hardly afford such bills. If oil remains above $70 a barrel for months, the rupee will collapse, the government will run out of spending money, inflation will skyrocket and the country will have to start worrying about a balance of payments crisis.
I’m honestly not sure what the resolution of this is. For the economic sanctions to have real bite, we’re going to get more countries to go along with them. Additionally, China, India, Brazil, etc. cutting deals with Saudi Arabia or the UAE to accept, say, the yuan rather than dollars for oil could transform the sanctions into a Pyrrhic victory for the United States. While winning the Russia-Ukraine War and punishing Russia for its aggression, we could lose the ability for the federal government to spend more than it receives in taxes as easily as we’ve become used to.
I suspect we’re going to need both carrots and sticks which raises the question of whether we’re actually willing to sanction China, India, or other countries that don’t go along with the sanctions. And what do we have for carrots that we’re not already doing? That’s why I’m uncertain.