We live in times when many, including politicians, see the world drawn by propagandists, and these images, often contradictory to each other, have little in common with reality. Others try to look objectively, but they evaluate reality in the paradigm of the old mummified ideas and concepts that also do not correspond with the reality.

This is not surprising, because at the turning points of history and technological development, even those who are the creators and direct participants of the events, see only a small part of what is happening. They act by trial and error, responding to the immediate needs of their parties, factions and clans, often from position of political realism.

This explains why some important events that took place in July 2024 during the visits of the Indian Prime Minister Narendra Modi to Russia, Turkish President Recep Erdogan to Azerbaijan and Kazakhstan, as well as during the trip of Hungarian Prime Minister Viktor Orban to Ukraine, Russia, Azerbaijan, China and the United States, went almost unnoticed and remain misunderstood.

Let me start with analysis of some of the results of Narendra Modi’s visit to Moscow and the processes that are taking place in Indian-Russian relations. However, I would like to emphasize that the ongoing changes are not limited to the relations between India and Russia only, but are present in interactions of all BRICS countries, the Shanghai Cooperation Organization (SCO), as well as the relations between BRICS and SCO with Turkey and part of the EU that is represented by Hungary, Austria, Slovakia and some business and political groups in other Western countries.

                 Russian resources for Indian rupees, or vice versa?

It should be noted that the main impetus for the current changes in relations between Russia and India was given by the war in Ukraine. Before the war and the introduction of sanctions by the West, Russia was one of the minor suppliers, for example, of oil to India that mostly relied on oil imports from the Middle East.

In 2021, Russia accounted for no more than 1% of oil and petroleum products imported by India. One year later, in 2023, the Russian oil corporations provided 40% of India’s imports.

In 2021, Russia supplied India with 5 million tons of oil. The next year, in 2022, supplies reached 45 million tons, and increased 9 times. In 2023, the volume of supplies by Russian corporations reached 90 million tons, doubling. This growth continues in 2024…

Thus, during the war and sanctions, the volume of oil supplies from Russia to India increased by no less than 25 times. At the same time, the entire trade turnover between Russia and India increased by 60% in 2023 alone and reached 56 billion in US dollars. In the first three months of 2024, the trade turnover increased by another 20%.

And this is the growth that neither Vladimir Putin nor Narendra Modi planned a couple of years ago, that they did not strive for and did not dream of.

In terms of impact of the war, the drastic changes in Indian-Russian trade relations are not inferior to the fundamental changes in the Russian Ministry of Defense and the military-industrial complex that resulted in what could not be imagined before 2022, including the arrests of those who initiated or strongly supported the “short and small” war.  

The increase in oil trade led to unexpected consequences for Moscow and Delhi, as well as for Beijing, Washington and Brussels, and gave impetus to processes that still remain underestimated.

The above figures, reflecting the dynamics of trade growth, are perceived ambiguously, both in Russia and India, and in the West. Many note the negative aspects, explaining what is happening within the framework of outdated ideological paradigms and political interests that have become counterproductive.

There are few important points.

First, those who noted that the Russian oil prices were lower compared to world prices, and that caused losses to the Russian economy did not take into account the following:

1. The current “low” prices of oil exports to India still provide significant income to the Russian state and huge profits to corporations, as well as to the clans that control the oil, gas, energy sectors in Russia, as well as the housing and communal services.
2. Prices for oil and petroleum products, as well as for natural gas, on the Russian domestic market are significantly higher than the real cost.
3. In the current situation, under the pressure of war, some Russian corporations may repeat the fate of the Ministry of Defense, and the entire industry may repeat the fate of the Russian military-industrial complex. It may be enough for the management of these corporations to try to raise prices within Russia in order to compensate for losses in profits at the expense of the population. This will launch the process of audit of the energy sector of the economy, of housing and communal services, similar to the one that is now being carried out in the Ministry of Defense, and with the same inevitable consequences, including criminal investigations and arrests.
4. In two years, India has turned from importer into one of the largest suppliers of oil, petroleum products and liquefied gas to Europe, and no one can guarantee that Russian corporations or individuals and organizations, including those who do not want to advertise their activities, have no hidden income or interests in those supplies. Suffice it to recall the Soviet experience, when communist organizations in India were financed through the network of so-called Indian “red capitalists”, who actively traded with the USSR. In the 1960-1970s, almost all Indian exports to the USSR and the countries of the socialist camp were in hands of the “red capitalists”, who financed communist organizations in India.
5. The emergence of new “intermediary operator” in the supply chain of petroleum products to Europe affects world oil prices, especially on the European market, to the benefit of oil producing companies, including Russian ones, and in the context of the war in Ukraine, it meets the strategic interests of Moscow, – “Europe pays.”
6. That also restrains and even reduce energy prices in India, and that opens up new prospects for the technological and industrial development of India and contributes to relocation of industries from Europe to India.

Second. Many analysts point out the fact that India pays Russian corporations in rupees that Russia can use with great restrictions. In particular, Russian corporations cannot use rupees accumulated in India to purchase goods and services on world markets.

From April 2023 to February 2024 alone, India’s trade deficit with Russia was $52 billion. Much of this money was kept on 30 special accounts in India, and the total amount accumulated by Russian corporations in Indian rupees is estimated to be between 30 and 60 billion in US dollars.

Russian financial authorities tried to solve the problem using traditional and outdated methods that have long shown their ineffectiveness, for example, through purchase of Indian securities or re-export of goods that are not particularly needed, but can be sold in Russia.

However, life began to push Russians and Indians into another dimension, forcing them to start creating new system of cooperation in production and financial sectors.

                         Being big is good, but difficult

To understand the emerging new reality, it is necessary to explain that in the process of forming its civilizational macro-region, Russia faced the problem of limited possibilities for its development.

Macro-regions that comprise the modern world, are formed around dynamically developing civilizations, and each macro-region must have certain technical, scientific, industrial, natural, and above all, human potential.

Moreover, human potential must be based on moral and ethical standards that correspond to the norms and values traditional for each civilization that makes up the cultural and political center of macro-region. Also, peoples that form macro-region, must possess certain intellectual and cultural potential capable of ensuring its development. However, there is another important indicator: the size of population of macro-region.

It is the size population that determines the volume of domestic market and guarantees demand for goods and services. Most experts estimate the minimum population size of each macro-region to be 400-450 million people.

By this indicator, the Russian Federation that has population less than 150 million people, does not meet the necessary requirements. Russia is faced with the task of integration and cooperation with other macro-regions in order to gain share of their domestic markets and human resources.

Moreover, with its huge natural resources and scientific, industrial and technological potential Russia and the countries that started to form one macro-region with it, need bigger population to provide necessary potential for development. With 500 million population, the Russian macro-region will be too dependent on external markets and political and economic interests of other macro-regions/civilizations. For full-scale development, the Russian macro-region needs over a billion people.

Russian corporations, especially state-owned ones, that control Russia’s huge base of natural resources and its scientific and technological development institutions that determine the cultural and intellectual potential of civilization, are facing the problem of limited human resources in the most severe form in the conditions of ongoing war in Ukraine, sanctions and confrontation with the West.

In fact, the task of forming integrated “domestic” market of 1-2 billion people has become the existential task for the Kremlin. Without such market, protected and guaranteed, Russia as the center of one of the world’s leading macro-regions will not be able to exist. And the West, perhaps not entirely wittingly, is blocking precisely this development, forcing Russia to look for new ways to solve the problem, including through the creation of the “Soviet Union-2” with new “socialist camp” attached.

In 2022, Russian corporations found themselves forced to supply oil and petroleum products to India at relatively low prices, close to domestic Russian prices. On the other side, having received oil at preferential prices and paying for supplies in rupees, India was forced to provide Russian corporations with opportunity to work in India under privileged conditions, close in status to Indian state corporations.

That was the point when integration of the economies of Russia and India began.

                Along the path of inter-civilizational integration

Attempts to find ways to use rupees accumulated by Russian corporations in the most efficient and beneficial way led to realizing the need to create qualitatively new system of economic interaction between India and Russia. In fact, Moscow and Delhi faced the task of integrating their economies and creating special conditions for operation of their corporations in both countries.

Life is pushing Moscow and Delhi to create new system of interaction, using the Russian doll, “matryoshka”, principle traditional for Russian civilization and mentality, through creation within one Big System of another one that operates inside the Big System, but with large degree of independence.

There were few factors that pushed Moscow and Delhi to this point.

First. Russian corporations need to invest rupees in production of goods that are in high demand not only in the Indian and Russian markets, but also in the world, both in the West, for example, in Europe, and in other regions of the world where Moscow and Delhi have strategic interests.

Second, the rupee reserves and funds cannot be limited to oil industry and energy production clusters only. Also, these funds need to be used not only by those Russian corporations that exported oil and accumulated the funds, but also by other companies and corporations for implementation of interstate programs approved by the governments of the two countries. To achieve this, the state and private Russian banks began to join working with reserves and launched creation of Russian-Indian financial and industrial groups.

At the same time, the task of developing export capabilities of Russian-Indian clusters became priority both for Russia, subject to Western sanctions, and for India that benefits from relocation of Russian corporations to India, as well as Indian companies to Russia.

International corporations and companies, primarily those controlled by the Indian diaspora in Europe and the USA, as well as in other regions, including Asia and Africa, started joining the Indian-Russian energy clusters.

India and Russia became interested in using billions of rupees accumulated in Indian bank accounts to create different production facilities, including mineral fertilizer and chemical productions, and also new nuclear power facilities. That entailed involvement of Rosatom, the world leader in nuclear industry, and consequently, integration of nuclear industries of Russia and India.

The accumulated rupee reserves pushed India and Russia to qualitatively new level of cooperation in defense sector, in particular, in production of modern weapons. If before the war in Ukraine, Russia sought to increase its export of weapons, including to India, but did not seek to create production abroad, in present situation it is ready for integration of defense industries of two countries. The production of modern weapons systems in India by the Russian military-industrial complex has become economic and strategic necessity.

The war in Ukraine showed that military-industrial complex of Russia’s ally can be no less important factor than the development of Russia’s own military industry. Once created with the help of the Soviet Union, the military-industrial complex of North Korea turned out to be strategically important rear for the Russian army fighting in Ukraine.

India was always friendly towards the USSR and Russia. In current situation, India can become economic, human resources, industrial and defense “rear” of Russia, producing modern types of weapons, including aircrafts, missiles, drones, communication systems, new generation of ships and submarines that can be supplied to the Indian army and exported to third countries. In the current conditions, this is the impossible task for the Russian military-industrial complex.

The integration of space industries of two countries is also becoming inevitable, and all that contributes to the transformation of India into one of the main world centers of technological and industrial development.

At the same time, Moscow, Beijing and Delhi accelerated development of transport and logistics infrastructure, including gas and oil pipelines, highways and railways from Russia through Central Asia and Afghanistan to India within the framework of the strategic North-South project that will significantly increase the supply of energy resources to the South Asia, and from India and Pakistan to Africa and South-East Asia.

                   From industrial clusters to “energy rupees”

Rupees collected in Indian banks on the accounts of Russian oil and gas corporations turned out to be able to be tied to the cost of a certain volume of energy resources. The value in rupees reflects and expresses the value and volume of not just oil, but energy that can be fixed and then transformed into investment and production.

The integration of the Russian and Indian economies makes reserves of “Russian” rupees into the basis for development of new financial system capable of meeting not only the needs of Russian and Indian corporations, but also companies of other countries, as well as countries and regions that may join the new system.

Therefore, reserves and funds in rupees are beginning to act as catalyst for creation of new cryptocurrency, “energy rupee”, that can fix the cost of energy and be used in all areas of Russian-Indian cooperation.

These “energy rupees” in India and their equivalent in Russia, “energy rubles,” if created, will be able to operate both within two countries and interact with currencies of other countries. This may open up completely new perspectives and result in unexpected effect.

In Russia, this will force the Kremlin to conduct long time needed audit and restructuring of Russian financial system, and that will inevitably entail restructuring of the financial and banking sectors with the same consequences as the audit of the Ministry of Defense and the military-industrial complex that still is gaining momentum.

This may even outpace optimization and reforms in oil, gas, energy and housing and communal services sectors. And all that will happen in the context of confrontation with the West and the transfer of power from Vladimir Putin to new generation of elites.