India may buy fertilizers besides crude oil on discount from Russia

Amidst the Russia-Ukraine war, there is some hope for India in the case of fertilizers along with crude oil.  Russia has offered India to buy its crude oil at discounted prices, which India may accept. India is also considering buying fertilizers from Russia and Belarus at discounted prices.

India imports about 80 per cent of its oil needs from Russia. Of this, however, only 2-3 per cent of its supplies come from Russia. At a time when the US and other countries of the West have imposed sanctions on Russia and also crude oil prices are at a several-year high, buying oil at discounted prices may come as a relief for India. Another matter of relief is that the US has said that it is not opposed to India buying crude oil from Russia. In fact, the sanctions imposed by the West on Russia do not include oil.

The situation regarding sanctions on fertilizers is not clear as yet, but it is believed that India may benefit from discounts by Russia even on this commodity. India is considering importing cheap fertilizers from Russia and its ally Belarus. The West has imposed sanctions on Belarus, too, along with Russia, as it is supporting the Russian invasion of Ukraine.

Russia and Belarus are major fertilizer exporters. In 2019-20, Russia had a 14-16 per cent share in the global supply of chemical fertilizers. India is heavily dependent on Russia and Belarus, especially for Muriate of Potash (MOP). In 2021, 40 per cent of India’s total MOP imports had come from Belarus and 5.95 per cent from Russia.

The sanctions have led to a big increase in fertilizer prices in the international market. The price of urea has gone up to about $1,000 per tonne. Given this, if the country gets fertilizers at discounted prices from Russia and Belarus, the pressure on the government to increase fertilizer subsidy may somewhat decrease. India is also considering importing fertilizers from countries like Germany, Canada and Jordan, but is not quite easy to find a substitute for the huge quantities being imported from Belarus and Russia.

Currently, there seem to be two issues for India. One, shipping companies are not willing to offer their tankers and insurance companies their insurance cover. Russia has assured in the case of crude oil to take this responsibility, but the situation is not clear so far in the case of fertilizers. The other issue is regarding payments. Until now, the payments were made in US dollars but the US has prohibited dollar trade, too, with Russia. Therefore, the possibilities of trading in rupee and rouble are being considered as a substitute.