By Krishna N. Das, Nidhi Verma and Saurabh Sharma
NEW DELHI, March 27 (Reuters) - As India's diplomats negotiated an accord that would ease punitive U.S. tariffs on the South Asian country's exports in January, New Delhi slashed its purchases of Russian crude oil in a move that was widely seen as a painful concession to President Donald Trump.
Just two months later, however, Delhi and Moscow are deepening their energy cooperation, with both sides agreeing to prepare for Russia to resume direct sales
of liquefied natural gas for the first time since the start of the Ukraine war, according to two people familiar with the matter. If India decides to pursue the deal, which risks violating Western sanctions, negotiations could be concluded in weeks, one of the people said.
Details of the talks, which come amid skyrocketing energy prices triggered by the U.S.-Israeli attack on Iran, have not been previously reported. The "verbal agreement" to negotiate an LNG deal was reached during a March 19 meeting between Russian Deputy Energy Minister Pavel Sorokin and Indian Petroleum and Gas Minister Hardeep Singh Puri in Delhi, the people said.
The two officials also agreed to further increase crude oil sales to India, which could double from January's levels to at least 40% of India's total imports in about a month, three people familiar with their deliberations said.
India became a major buyer of Russian crude that was heavily discounted after the invasion of Ukraine, which became a point of contention with the Trump administration. The world's third-biggest oil importer and consumer purchased nearly $44 billion of crude from Moscow last year, playing a vital role in keeping the Kremlin's wartime economy alive.
India has separately told its energy importers to get ready to resume purchases of Russian LNG, one of the people said. Delhi has already approached Washington about a possible sanctions waiver, according to the source and a second person familiar with the request.
India’s external affairs and petroleum ministries did not respond to questions about the potential LNG deal. Foreign ministry spokesperson Randhir Jaiswal told reporters last week that Delhi was in talks with several countries to secure energy supplies, including LNG. Indian authorities have also said they are purchasing cargos of Russian liquefied petroleum gas, which is largely used for cooking and isn't under sanctions.
The Russian energy ministry declined to comment about any discussions with India, while the U.S. Treasury Department did not address questions about sanctions relief.
The White House and Ukraine's embassy in Delhi did not respond to requests for comment.
"India chose the course that best served its national interests, anchored in a long-standing and trusted partnership with Russia," said Ajai Malhotra, a former Indian ambassador to Moscow.
Delhi should now "demand exemptions or accommodations as a normal part of negotiation between strategic partners," he added, referring to Washington.
DOUBLE WHAMMY
While India has been courted by the United States for decades as a strategic counterweight to neighbouring China, the world's fifth-largest economy has now been left reeling twice in less than a year by decisions initiated largely in Washington.
After years of buying crude oil from Moscow at discounted rates, Delhi sharply curtailed purchases after Trump in August imposed tariffs of as high as 50% on Indian goods, or among the most punitive levied on any country. The U.S. Supreme Court has since ruled that Trump acted unlawfully in enacting such tariffs.
India's calculus quickly changed after the U.S. and Israel attacked Iran on February 28. Tehran's retaliation included targeting ships in the Strait of Hormuz, effectively shutting down the narrow strip through which about half of India's crude oil and LNG supplies pass.
Long lines have since been seen outside some Indian gas stations, while some restaurants have run out of cooking gas.
Demand for Russian energy exports, which when transported to Asian customers avoid the Gulf, has sharply increased across the region's economies.
India's state-owned refiners began ordering additional purchases of Russian crude in the hours before the U.S. on March 5 announced a temporary waiver that would allow Delhi to buy some sanctioned cargoes. As oil prices continued to climb, Washington further loosened restrictions.
Some Indian policymakers have lamented that Delhi cut Russian crude imports as a concession to the U.S., according to a government document seen by Reuters.
“India had reduced purchases of discounted Russian crude, which would have buffered the situation to an extent,” said the note, a briefing on the Middle East crisis that was prepared on March 20 for the cabinet secretariat.
It cautioned that a prolonged disruption of oil flows from the Middle East would prompt a cascade of economic challenges, "leading to higher inflation, a weaker currency and rising foreign debt.”
Export growth could take a hit of between 2% and 4%, it warned, adding that wholesale inflation could rise by between 0.3% and 0.7%.
WARMING TIES
Russia, which has maintained friendly ties with India since the Cold War, is pressing its advantage.
Any new LNG accord would likely contain less favourable terms for India as compared to the 20-year supply deal India's state-owned GAIL agreed with Russia's Gazprom in 2012, according to one of the sources. "It is now a seller's market," the person said.
Executives at Russian state power grid company Rosseti, who were in Delhi this month for an industry summit, also proposed working with their Indian counterparts on transmission facilities, largely in mountainous and remote areas of the country, one of the sources said.
If an agreement is reached, it would mark Moscow's first foray into India's power transmission sector.
Russia is also keen to expand air connectivity with India: Timofei Titarenko, an executive with St. Petersburg's Pulkovo Airport, told Reuters last week that he has been visiting Indian airports and exploring the possibility of more direct flights.
Chief Kremlin diplomat Sergei Lavrov told a conference on Indo-Russian relations this week that 96% of trade between the two countries is now conducted in rupees and roubles.
"The time-tested Russian-Indian friendship serves as an example of how interstate relations should and can be built – based on equality, mutual trust and respect, and consideration of each other's interests," he said.
Rupee-rouble transactions of up to $1 billion can now be processed in as little as a day, or more than twice as fast as just a few years ago, a top executive at the Indian branch of Russian lender Sberbank said at a Mumbai conference in March.
(Additional reporting by Jaspreet Kalra in Mumbai, Shivangi Acharya in New Delhi, Vladimir Soldatkin in Moscow and Jarrett Renshaw in Washington; Editing by Katerina Ang)
