Narendra Modi, Vladimir Putin tête-à-tête in Sochi as US sanctions Russia; China keeps close eye

The “soch” in Sochi appears to have been considerable. The second iteration of the prime minister’s new style of ‘informal’ talks seems to have been attended by success if the photo coverage is anything to go by. Apart from the smiles and the handshakes, however, is the undeniable fact that such an informal framework works in this case. Both leaders are one-man shows, even if they do represent a larger fiefdom in the case of Russia, and a political party with a virtually nationwide footprint in the case of India. So while informal chats may not work in the case of the UK for instance, where Prime Minister Theresa May is hemmed about by various factors including her own party, such bilateral and relatively open dialogues are highly effective in the case of Russia, and of course, China.[caption id=“attachment_4480247” align=“alignleft” width=“380”]  Russian president Vladimir Putin, right, speaks to Prime Minister Narendra Modi during a boat ride after their talks in the Bocharov Ruchei residence in the Black Sea resort of Sochi, Russia, Monday, 21 May, 2018. AP[/caption] Regardless of what precisely was discussed during the visit—which has been the subject of speculation but not confirmation—there are some facts that will underlie discussions on any front. First, Russia has recovered considerably from crippling sanctions imposed after its invasion of Crimea in early 2014. By 2017 end, news on the economy was optimistic, especially as oil prices began to rise again and Russian banks began to replenish reserves. While there is clearly considerable alarm at the announcing of fresh sanctions on Russia through CAATSA (Countering America’s Adversaries Through Sanctions Act), the fact is that Russia has always been a risky area to operate for investors. The fact that foreign investment continued was a testimony to high returns and the underlying solidity of the Russian resource-rich economy. This time around, however, as analysts point out Russia’s disadvantage is that it is far more integrated into the global economy than before making it more difficult to shrug off sanctions. Moreover, despite the rise of the renminbi and its global acceptance, approximately 50 percent of global trade is still done in US dollars. The alternate view, however, is that the absence of capital flight—after a brief run—robust balance sheets and an enviable current account surplus, ensures a degree of protection for Russia. Russia’s predicament is one that India can emote with. India too had been a target for sanctions after the 1998 nuclear tests. The impact was relatively low due to the fact that the Indian economy was largely inwardly focussed. The situation today couldn’t be more different. Indian investors are now in the big league. In Russia, total Indian direct investment is about $13 billion and rising. Much of this is invested in Russian oilfields. Companies involved include ONGC’s Videsh Limited, with investments in over 17 countries. With that kind of a portfolio, New Delhi can hardly afford to let matters slide. Worse still, the fact is that Congress has seen fit to not just sanction persons close to President Vladimir Putin in a clear bid to undercut support for the Russian leader, but has also identified Rosoboronexport, a state-owned weapons trading company with an office in India, and who is slated to supply the redoubtable S-400 missile system. As of now, Prime Minister Narendra Modi has stated that this sale will go through, given that it was possibly finalised before sanctions hit. Whether more contracts in the pipeline will be honoured is a different issue. Meanwhile, the rationale for sanctioning the company is that it has been involved in supplying weapons to Syria, which is as surreal as it gets since the US is supplying weaponry to almost everyone else in the region. The underlying motif in most sanctions—such as the brief ganging up on Qatar by a group of US-backed states—seems to be to ensure that “Made in America” weapons get sold; and sold to all sides to the conflict. Remember that Qatar bought up US weaponry even as its neighbours ganged up with an air and land siege. As a reputed arms importer—apparently one of the largest such buyers this year—the Indian arms market will be an attractive prize for US defence industry. The defence ministry may have to walk a very fine line while signing up mega deals. From sordid lira or dollars and cents to the larger strategic picture. A leading newspaper reported that the two leaders agreed that current geopolitical trends justified “A new architecture of security and cooperation” based on “non-bloc” principles, openness and equitable and indivisible security. That mouthful simply means that India is not quite comfortable with the earlier “Indo-Pacific” construct, through which the Trump administration is trying to corral India. That this is also a case of “running with the fox and hunting with the hounds” was apparent in the statement by BJP general secretary Ram Madhav during his visit to Washington, where he emphasised “de-hyphenation” of policy, where India would deal with each country on its merits. That’s a smart move but would have to be balanced with a further opening of the Indian market on Trumpian terms. The point to remember is that the whole sanctions episode is a case of the dollar at war. While the sanctions may be the result of an irate Congress, there is no doubt that Trump’s business instincts are also at play. China is well aware of this, and some progress on the China-US tariffs war is already apparent. Nonetheless, Beijing would be watching the prime minister’s every word and move in Moscow with sharp interest. A coming together of the interests of China, Russia and India would hugely expand India’s space for manoeuvre in the neighbourhood, including Iran and Afghanistan. Suddenly, a lot of common interests have surfaced that makes such a ‘common front’ viable. However, much like the elections in Karnataka, every front is beset with dangers and unstable in the extreme. Particularly when there is a powerful force with deep pockets waiting at the other end of the room. The Indo-Pacific is not over; not by a long chalk. But a series of meetings with the Russian leaders among others are coming up– with the Shanghai Cooperation Organisation meeting in China next month being the one to watch. That’s probably where the action will be.