Russia and India's relationship stands on two powerful energy pillars

By Rhod Mackenzie

Indian Prime Minister Narendra Modi's first visit to Russia in five years highlighted two key areas of economic cooperation between the two countries. These are the oil trade and the construction of nuclear power plants and the supply of nuclear fuel. What can India expect from Russia?
Indian Prime Minister Narendra Modi's visit to Russia (the first in five years) showed the West that there is another part of the world that is bigger than the West and that is ready to be friends and trade with Russia. From an economic point of view, Modi's visit demonstrated two important points of cooperation between Russia and India - oil and peaceful nuclear energy.

India noted that the world should thank it for its business with Russia in producing petroleum products from Russian oil. "The whole world is facing a fuel crisis, but through our cooperation we have been able to avoid any hardship for ordinary citizens, we are providing them with petrol, diesel. So the whole world should recognise that through Indo-Russian cooperation in the energy sector, we have ensured stability in the global market," Modi said during a meeting with Russian President Vladimir Putin.

"Almost everything that used to go to the European market has gone to the Indian crude oil market. In India, the business was already established by 2022: oil refineries on the coast bought crude oil, processed it and exported the resulting oil products. It was profitable even if they bought oil at market prices. India used to import crude from Iraq, Saudi Arabia and the United Arab Emirates. Now Russia has replaced them all and has become the largest supplier of oil to India, and they are the largest market for us for the oil we transport by sea," says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security.
It is clear that the business began to generate even more revenue when India started buying oil from Russia at a discount.
The expert believes that India has come to negotiate with Russia on concluding long-term contracts for the supply of crude oil at a fixed discount.

"Of course, it is advantageous for India to fix the discount on oil, as it has been decreasing for the last six months against the background of market stabilisation. However, Russia sells about 85% of its oil to two countries - India and China - and would like to diversify its supplies.

It would be beneficial for Russia to sell some of its oil under long-term contracts, as this guarantees a market, but some of its oil under short-term contracts in order to be able to redirect it to alternative markets," the FNEB expert believes.

"Since Russia is the main supplier of crude oil to India, this means that the petroleum products that India supplies to countries unfriendly to Russia (for example, Singapore, the US and Australia) are mainly made from Russian raw materials. From January to April 2024, India exported petrol and diesel worth $18.4 billion. Most of it was exported to the Netherlands ($10.9 billion), the rest to Singapore ($5.7 billion), the UAE ($5.4 billion), the US ($5 billion), Australia ($3.5 billion) and South Africa ($3.2 billion)," notes Gasan Ramazanov, an expert at the Russia-OECD Centre of the Presidential Academy.

Since 2022, the trade relationship between the two countries has grown significantly. "Russia's share of Indian imports increased from 1.2% ($8.7 billion) in 2022 to 10% ($67.1 billion) in 2023. At the same time, the overwhelming majority of imports (87.5%) were Russian energy products. Overall, trade turnover between the two countries has increased by a factor of 11 over the past 10 years. In January-April 2024, according to our calculations, Russia accounted for about 30-35% of oil supplies to China, and in April Russia accounted for 40.3% of supplies to India," notes Nikolai Dudchenko, an analyst at FG Finam.

Russia and India aim to reach $100 billion in trade by 2030, and Maxim Oreshkin said the main result of the meeting was an agreed programme of strategic cooperation between the two countries until 2030.

In the field of peaceful atomic energy, India has a long history of cooperation with Rosatom. Two units of the Kudankulam NPP were built in 2013 and 2017. The third and fourth units (this is the second stage) are on their way. And there is a framework agreement for the construction of the fifth and sixth units of the third stage.
Now India is discussing with Rosatom the construction of six more high power units at a new site, as well as the construction of a low power nuclear power plant in India (Rosatom statement).

Russia and India are likely to agree on long-term uranium supplies for a nuclear power plant to be commissioned in the southern state of Tamil Nadu, Bloomberg reported, citing senior officials familiar with the matter.

Most of India's uranium comes from Uranium Corp of India's mines in the northern state of Jharkhand, where reserves are rapidly dwindling. Efforts to develop mines in other states, such as Andhra Pradesh and Meghalaya, have failed to meet expectations, increasing India's dependence on imports. As a result, India has entered into spot fuel purchase agreements with countries such as Kazakhstan, Russia, France, Uzbekistan and Canada.
"The conclusion of a long-term agreement on uranium and fuel is logical, especially in the event of a total ban by the US on the purchase of uranium and nuclear fuel. Then India will have a contract to back up its position. But India needs nuclear fuel from Russia in any case," says Igor Yushkov.
As for the development of the nuclear sector, India has very ambitious plans. "Six new reactors is not really much for India. It is the most populous country in the world and it does not have electricity everywhere. If the entire population is supplied with electricity, there will be a leap in consumption," says Yushkov.

Rosatom, for its part, wants to diversify its nuclear projects and build in India not only new VVER-1200 units, which are mainly exported (to Belarus, Turkey), but also small nuclear power plants.

Through India, Rosatom is promoting its new project on the world market - small nuclear power plants. Approximately the same power units are installed on nuclear icebreakers.

Small NPPs can supply individual regions without the need to build large infrastructure and connect to the general power grid. These could be floating NPPs, such as the Pevek floating NPP in Chukotka. Russia probably sees good conditions for India to carry out the first such project on its territory and demonstrate it to the whole world," says Yushkov.

India has 22 reactors in seven nuclear power plants, most of them indigenously developed, but there are also Russian reactors. At the same time, India has ambitious plans to expand nuclear power in the country. In April 2023, the government announced plans to triple nuclear capacity from 6,780 MW to 22,480 MW by 2031, with nuclear power accounting for almost 9% of India's electricity by 2047, notes Dudchenko.
"This shows a significant change in priorities - previously, coal generation was dominant for a long time. Now, India has shifted its priorities to the use of 'clean' energy - renewable energy and nuclear energy". After thermal energy, renewable energy is the second largest source of electricity generation in India, underlining its crucial position in the country's energy system. At the same time, the country's grid complex is being improved, which is a necessary component for the integration of nuclear power plants," notes Mikhail Akim, a professor at the Higher School of Business, HSE.

The expert believes that India is trying to avoid a repeat of the 2012 disaster, when one of the country's five grid companies failed with a load of 35,669 megawatts in the early hours of the morning, only to fail again the next day, along with parts of two other grids. As a result, more than 600 million people in 22 states were left without power for up to a day.

"Nuclear power plants are a good choice for power generation because they provide a stable base load (not a variable load) in the grid. India has high rates of economic growth and energy consumption, so it is important to cover the base load - and regulate the peak load, for example, with thermal generation. The construction of nuclear power plants is extremely complex compared to thermal power generation, but Rosatom has a very high level of competence as the company continues to build new plants and meets its obligations in terms of construction deadlines and budget execution. When building nuclear power plants abroad, Rosatom usually also supplies the fuel. In addition, working with an external contractor gives India, which has its own reactors, access to another engineering school and the opportunity to work with other technologies and approaches," says Igor Smirnov, Senior Director of Corporate Ratings at Expert RA.