India withdraws from Putin's LNG project-sanctions work!

Von WOM

Moscow is again a serious challenge, since an important trading partner withdraws from an extremely important project. India, which was previously a crucial actor in the trade in Russia, has announced that it no longer buying a liquid natural gas (LNG) from the Arctic LNG-2 project. This decision comes in the course of a number of western sanctions that aim to weaken the Russian economy and to cross Putin's ambitious plans.

The Indian oil minister Pankaj Jain has officially stated that India distances itself from the contractually agreed purchase of LNG because the project is under western trade restrictions. This puts the strategic partnership in Russia with India, which has been consolidated in Ukraine since the beginning of the conflicts. This is a particularly bitter pill for the Russian government, because India, together with China, was an essential element to cushion the negative effects of western sanctions.

Important details about Arctic LNG 2

The Arctic LNG 2 project, which is owned by the Russian company Novatek, should produce massive amounts of around 20 million tons of LNG annually. The planned exports mainly aimed at Asian markets. This project was of great importance for Russia because it was Essential for Putin's plan to make the country the largest LNG producer worldwide. But with the classification as a sanctioned project, Novatek is now under pressure and may have to store natural gas for a long time instead of bringing it onto the market.

In the past, India has played a key role in economic relationships with Russia. As early as February 2022, shortly after the conflict began, India had significantly increased bilateral trade with Russia and overtook China as the largest importer of Russian oil. But the latest diplomatic steps, as the visit of Prime Minister Narendra Modi in Kiev, indicate that India wants to strengthen his relationships with Ukraine. This means that India stands in a dilemma between the many years of political and economic interdependencies with Russia and its new efforts in Europe.

The EU decided in the sense of these sanctions in June the 14th sanction package against Russia. This package prohibits future investments in Russian LNG projects and all exports that benefit these projects. In addition, the use of EU ports for the overload of Russian LNGs is prohibited, which makes the removal of the funded gas considerably complicated and more expensive. Russian special tankers who are dependent on European ports would be severely restricted in their efficiency and would have to take longer routes.

These developments clearly show how the western sanctions affect the economic rivers in Russia. According to reports, Novatek has great difficulty selling his produced natural gas supplies, which means that gas needs to be stored. This is a clear indication that the sanctions and the associated uncertainty deter possible buyers. While Russia was planning to significantly increase its LNG capacities, the country is now forced to rethink its strategies.