Indian Military Supplies from Russia Hit Roadblock over US Sanctions

According to a report by the Times of India, which cites Indian officials familiar with the matter, deliveries of Russian military supplies to India have ground to a halt due to difficulties in finding a payment mechanism that complies with US sanctions. The officials state that payments for Indian weapons worth over $2 billion have been stuck for approximately one year. Moreover, Russia has ceased providing credit for a pipeline of about $10 billion worth of spare parts and two S-400 missile-defence system batteries that have yet to be delivered. As India’s biggest supplier of weapons necessary for deterring Pakistan and China, Russia’s actions pose a significant challenge for India.

The issue arises as India is unable to settle the bill in US dollars due to concerns about secondary sanctions. At the same time, Russia is unwilling to accept rupees due to exchange-rate volatility, while India does not want to complete the deal in Russian rubles due to concerns about being able to purchase enough on the open market at a fair rate. One solution suggested is the use of euros and dirhams, the currencies used to pay for Indian imports of discounted Russian crude, but this could invite more scrutiny from the US over sanctions than oil and push up costs due to unfavorable exchange rates for India.

The Indian government has proposed Moscow use the rupees from weapons sales to invest in Indian debt and capital markets to avoid stockpiling rupees, but this has not appealed to the Russian government. The issue of payments for weapons has taken on more urgency of late, and dominated discussions when National Security Adviser Ajit Doval visited Moscow in January. It also featured heavily in talks in Delhi this week between Russian Deputy Prime Minister Denis Manturov and India’s external affairs minister Subrahmanyam Jaishankar, who said that the rupee settlement needed more work.

Image source: BHP

India currently operates over 250 Su-30 MKi Russian-made fighter jets, seven Kilo-class submarines, and more than 1,200 Russian-made T-90 tanks, all of which are operational for another decade and need spare parts. The Indian Air Force, which depends on a Russian fleet of fighters and helicopters, is among the worst hit from the disruption in supplies from Moscow. It is uncertain whether Russia can perform regular maintenance, potentially leading to vulnerabilities along India’s borders with China and Pakistan.

While purchases have slowed by 19% in the last five years due to sanctions and increased competition from other manufacturing countries, Russia remains India’s largest supplier of military hardware. India has carefully calibrated its response to Russia’s war in Ukraine, calling for a cease-fire while abstaining from voting on United Nations resolutions condemning the invasion.

Prime Minister Narendra Modi will be hosting Group of 20 leaders in September, during which the war will be a key focus. The meeting might be holding India back from immediately ironing out the payment mechanism for weapons with Russia. The US and other industrialized nations see India as a bulwark to China’s growing military and economic assertiveness, and have offered to provide defence equipment. Nonetheless, it will take years to wean the nation off Russian weaponry while maintaining a credible defence posture. While President Joe Biden’s administration has largely refrained from penalizing India for its dealings with Russia, it has taken some action, such as adding a Mumbai-based petrochemical firm to the sanctions list last September for buying petroleum products from Iran.

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