India occupies a unique and paradoxical position in the Russia-Ukraine war. As one of the world’s largest economies, the world’s largest democracy and a country with deep historical ties to Russia alongside increasingly important relationships with the United States and Western democracies, India has been forced to navigate the most challenging geopolitical environment it has faced since the end of the Cold War. The war’s economic consequences for India are simultaneously significant, complex and in some ways surprisingly beneficial — at least in the short term.
The Russian Oil Windfall
The single most tangible economic consequence of the Russia-Ukraine war for India has been access to deeply discounted Russian crude oil. Before the war, Russia supplied less than 1% of India’s oil imports. By mid-2023, Russia had become India’s single largest oil supplier, accounting for over 35% of India’s total imports. Indian refineries — particularly Reliance Industries, Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum — have purchased Russian Urals crude at discounts of up to $25-30 per barrel relative to benchmark Brent crude, generating extraordinary refining margins and contributing to India’s refined product export boom.
The scale of India’s savings from discounted Russian oil is genuinely significant for the national economy. Estimates suggest India saved tens of billions of dollars in its energy import bill during 2022-2024 as a result of these purchases. This has been one of the factors that helped India maintain relatively moderate inflation and a more stable currency than many economists predicted given the severity of global energy price rises.
Navigating Sanctions Risk
The primary economic risk for India from its close engagement with Russia is the threat of secondary sanctions from the United States and European Union. American officials have repeatedly and publicly warned India that Indian banks and companies doing business with sanctioned Russian entities — particularly in the defence and energy sectors — could face restrictions on their access to the US financial system. Given that most international trade, including India’s most important technology and services exports, is denominated in dollars and cleared through the American banking system, this threat carries genuine weight.
Several Indian banks have already quietly scaled back their Russia-related business in response to these concerns, and the United States has sanctioned specific vessels involved in transporting Russian oil. The payment mechanism for India-Russia trade remains an ongoing challenge, with rupee-rouble exchanges and alternative settlement systems being developed but not yet operating at the scale required for the two countries’ growing bilateral trade.
India’s Arms Supply Dilemma
Approximately 60-65% of India’s defence equipment is of Russian or Soviet origin, a legacy of the Cold War relationship between New Delhi and Moscow. The Ukraine war has disrupted Russia’s ability to supply spare parts, ammunition and upgrades for this equipment, as Russia diverts its defence industrial capacity to its own wartime requirements. This has exposed the vulnerability of India’s single-source dependency for so much of its military hardware and has accelerated India’s push to diversify defence procurement toward domestic manufacturers and Western suppliers.
India’s ongoing negotiations with the United States for defence technology transfers, its procurement of American fighter aircraft, helicopters and maritime patrol aircraft, and its rapidly expanding domestic defence industry — including the Tata Group and Mahindra’s growing defence businesses — are all partly responses to the lesson the Ukraine war has underscored: that depending on a single country for the bulk of your military hardware is strategically dangerous.
Wheat and Food Prices
India is one of the world’s largest wheat producers and a major food exporter, and the Ukraine war’s impact on global wheat markets has had mixed consequences for India. The initial disruption to Ukrainian and Russian wheat exports — which together account for about 25-30% of global trade — triggered a price spike that briefly made Indian wheat exports extremely lucrative. India exported record quantities of wheat in the months following the invasion. However, a domestic heat wave that damaged India’s 2022 wheat harvest, combined with India’s own concerns about food security and inflation, led the government to impose export restrictions that curtailed these gains.
The Indian Rupee and Global Financial Impact
The global inflation triggered by the Ukraine war — through energy and food price increases — put significant pressure on the Indian rupee, which declined against the US dollar through much of 2022-2023. The Reserve Bank of India was forced to raise interest rates aggressively to control inflation, impacting domestic borrowing costs for Indian businesses and households. However, India’s inflation performance has been considerably better than that of many developed economies, partly because the discounted Russian oil import reduced the pass-through from global energy prices to Indian consumers.
IMEC and India’s Connectivity Ambitions
The India-Middle East-Europe Economic Corridor — announced with great fanfare at the G20 summit in New Delhi in September 2023 and positioned as India’s answer to China’s Belt and Road Initiative — has been significantly affected by the overlapping conflicts in the Middle East. The corridor envisages a railway and shipping link connecting India to Europe through the Gulf states and Israel. Israel’s war in Gaza has effectively placed the Israeli portion of this corridor on indefinite hold, representing a real setback for India’s strategic connectivity and trade facilitation ambitions.