India, the black knight subverting American sanctions on Russia

India has neither supported nor boycotted the Russian invasion of Ukraine. India has repeatedly abstained from voting in UN resolutions demanding an independent inquiry on Russian violations in Ukraine, while upholding the notion of territorial integrity and sovereignty of all states, and offering humanitarian assistance to Ukraine.

India’s approach to Western sanctions on Russia has been unequivocal, with India raising oil imports from Russia, acting almost as a black knight or sanction-buster. The economic literature on sanctions identifies sanction busters as third-party states that increase their trade (or foreign aid) with the sanctioned state, thereby subverting the sanctioning efforts. The strategic decision to do so is driven by a combination of economic and political ties the third-party shares with the sanctioning and the sanctioned states.

What is India’s motivation to act as a sanction busting state? Is it India’s dependence on oil imports? Or is it due to India’s long historic defense and security relationship with Russia? Or both? The fact that Russia has offered India a high discount on crude oil prices could be the short-run consideration. However, India's dependence on military supplies from Russia is an important long-run consideration.

In a 1994 paper, Edward D. Mansfield of University of Pennsylvania shows that a sanctioning state and its allies will coordinate in sanction-related decisions if they have a trade agreement between them. Similarly, trade agreement between the sanctioned state and its allies leads to cooperation between them in diffusion of sanction-related damage. This line of argument came to be known as the liberalist paradigm, according to which trade dependence between states lowers the likelihood of conflict between them.

Trade agreements, as highlighted by Mansfield, perhaps don’t explain India’s choice to maintain close trade ties with Russia, despite sanctions. India doesn’t have a free trade agreement with either the US or Russia. India’s decision to trade with Russia may not be driven by India's dependence on oil imports from Russia (which was around 2% of total oil demand in 2021) or trade ties between the nations (Russia is not among India’s top trading partners).

Mansfield further argues that if a trade agreement is encapsulated in a defense pact, it is highly unlikely for an ally to abandon the sanctioned state and risk worsening its military strength. The untoward consequence on India’s military strength, from weakening of its defense ally, seems to hold more weight in this case.

The realist approach to trade emphasizes the importance of military ties, and its influence on trade policy. According to the realist paradigm, countries having military alliance will trade more with each other as trade openness is associated with security externalities. Thus, the third-party state will more likely be sanction-buster if it has a defense pact with the sanctioned state.

The objective of economic sanctions is to weaken the economic and military strength of the sanctioned state. The weakening of the sanctioned state, in turn, has direct negative consequences on the national security of its allies. So, as political scientist Bryan Early suggests, it is in the interest of the political ally of the sanctioned state to alleviate the sanctions-related damage by keeping trade channels open. India has an institutionalized defense cooperation and has recently enlarged its defense ties with Russia. India and Russia have shared a time-tested defense partnership since the Soviet era.

India has a couple of defense agreements with the US as well. However, a defense pact between a sanctioning state and its ally is no assurance of cooperation between them on sanction-related decisions, the literature on political economy of sanctions suggests. This is especially true if the gains from trade with the sanctioned state is substantial for the sanctioning states’ allies. For instance, during the cold war, US allies such as Great Britain, Canada, and Japan became leading trade partners of Cuba after the US imposed sanctions against it. Hence, it is no surprise that India has acted upon the opportunity, arising from the demand gap for Russian oil due to sanctions, to import oil at a discounted rate.

Moreover, coercion by the sanctioning state, to make a third party ally to comply, comes at the risk of weakening its political alliance with its third-party ally. Therefore, even though the US may find India’s stance shaky in terms of showing support against Russia, it understands that India is its crucial ally in the Indo-Pacific to counter the growing influence of China. Also, given its relationship with Russia, India has the potential to mediate between Russia and western powers. Hence, the US would not want to renege its alliance with India by coercion tactics.

In addition to the defense alliance between India and Russia, India has some geo-strategic considerations as well. India faces twin border threats from China and Pakistan, which raises India’s demand for military equipment. In recent years, India has diversified military imports away from Russia by relying more on countries such as the US, France, Israel and Italy. Nevertheless, India’s dependence on Russian arms still remains significant. Besides, Russia’s strategic relationships with China and Pakistan are strengthening. Thus, India can ill-afford to restrict Russian imports and sever its defense ties at this juncture. Notwithstanding US’ willingness to support India’s military needs, India will not burn bridges with its long-term defense ally.