India’s Russian Dealings Have Left Biden’s Geopolitical Oil Strategy In Tatters

• India ramped up crude oil purchases from Russia despite warnings from Washington not to do so.
• India’s relations with the U.S. seemed to have improved during a brief struggle with this China last summer.
• Besides oil, India also signed defence and industrial deals with Russia at the end of 2021.

Up until recently, Washington thought India could finally and definitively be brought on to its side in the evolving power struggle between the U.S. and its allies on the one hand, and China and its allies (including Russia) on the other. However, a series of quick-fire developments have derailed this optimism, leaving a key part of the U.S. broader Middle Eastern and Asia Pacific military, economic, and hydrocarbons strategy in tatters. The latest example of India not playing the vital role that had been envisioned for it by the U.S. are the plethora of oil deals being done by India with Russia, despite the obvious opposition to such activities from Washington. When the U.S. unilaterally withdrew from the Joint Comprehensive Plan of Action (JCPOA, ‘nuclear deal’) with Iran in May 2018, a key concept in the White House was to use this hard-line stance on Iran to parlay into broader and deeper relationships with other Arab states that had become increasingly alarmed by Iran’s efforts to destabilise the region, as analysed in depth in my new book on the global oil markets. This was to be achieved in large part through a series of bilateral agreements – later formalised into the ‘relationship normalisation deals’ – to be done between Israel (a power more than equal to Iran in the region, tacitly backed up by the even bigger power of the U.S.) and those Arab states that Washington believed were open to becoming unequivocal allies of the U.S. These included the UAE, in which the U.S. has its Al-Dhafra Air Base, plus Patriot missiles, to help intercept any air assaults by the Iranian-backed Houthis or anyone else. They also included Bahrain (as a proxy for Saudi Arabia, and home to U.S. Naval Forces Central Command, and the Fifth Fleet), and Morocco (a crucially-positioned ally to the U.S. in its counterterrorism efforts, so much so that Washington designated it ‘a Major Non-NATO Ally’ in 2004) and Sudan (also regarded as a potentially important centre for counterterrorism activities by the U.S.).

For the Middle Eastern contingent in these deals there was the added incentive for the U.S. that oil flows from these countries could be used in the short-term to counterbalance the net loss of oil to the markets that resulted from new sanctions on Iranian oil flows. Medium-term as well, thought Washington, by investing more money into both the UAE and Bahrain – with more oil-rich countries then encouraged to also sign relationship normalisation deals – they would see significant boosts in their oil production to allow the U.S. to reduce its relationship with non-cooperative Middle Eastern countries. Longer-term, the U.S. planned to be so self-sufficient in oil and gas that it only has to deal with countries that also offer it political allegiance in its struggle to retain its number one global superpower spot in the face of China’s advances. In any event, all of this was to be done whilst ensuring that the price of oil did not stay for any extended periods above the US$75-80 per barrel level at which it starts to cause economic trouble for the U.S. and political trouble for the sitting president at the time, as also analysed in depth in my new book on the global oil markets.

The only potential problem with this plan was that as its aim was essentially to undermine the global power that China could wield through its position as the number one backstop bid in the world’s oil market, the Middle Eastern oil producing countries that the U.S. wanted to tie in to its new world order would need the assurance of a replacement huge backstop bid for their oil. For Washington, India looked like the obvious choice. First, politically, there appeared to be a new willingness on India’s part to stand up to its dominant and domineering neighbour, China, with a clash on 15 June 2020 between the two great Asian powers in the Galwan Valley being instructive in this respect. It marked a new push back strategy from India against China’s policy of seeking to increase its economic and military alliances from Asia through the Middle East and into Southern Europe, in line with its multi-layered multi-generational ‘One Belt, One Road’ power-grab project. China dramatically upped the tempo of this OBOR-related policy at around the same time as the U.S. signalled its lack of interest in continuing its own large-scale activities in the Middle East through its withdrawal from the JCPOA and its withdrawal from much of Syria, Afghanistan, and Iraq. At the same time, coinciding closely to the signing of the first Israel-Arab state relationship normalisation deal (that with the UAE), India began to shift from its previous policy of trying to contain China to advancing its own ‘Neighbourhood First’ policy alternative to China’s ‘OBOR’ initiative.

Related: EU-OPEC Meet As Europe Discusses Russian Oil Embargo

Economically as well – and with direct positive implications for Middle Eastern oil producers looking for a global backstop bid for their hydrocarbons products – India appeared well-positioned to take over that mantle from China. According to data released in the first quarter of 2021 by the International Energy Agency (IEA), India will make up the biggest share of energy demand growth at 25 percent over the next two decades, as it overtakes the European Union as the world’s third-biggest energy consumer by 2030. More specifically, India’s energy consumption is expected to nearly double as the nation’s GDP expands to an estimated US$8.6 trillion by 2040 under its current national policy scenario. This will be underpinned by a rate of GDP growth that adds the equivalent of another Japan to the world economy by 2040, according to the IEA. The agency added that the country’s growing energy needs will make it more reliant on fossil fuel imports.

Warning signs for the U.S. plan came as countries it had identified as being ripe for cultivation did not play their role as envisaged, but rather asserted their own intention to deal with both the U.S. and China as they saw fit. News emerged, for example, that the U.S. discovered that China was in the process of building a secret military facility in the UAE port of Khalifa. Then there was the high-profile snub by Saudi Arabia and the UAE to U.S. President Joe Biden in not taking a phone call to discuss rising oil prices. Perhaps the most far-reaching was the series of meetings in Beijing between senior officials from the Chinese government and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, and the secretary-general of the Gulf Cooperation Council (GCC). At these meetings, the principal topics of conversation, according to local news reports, were to finally seal a China-GCC Free Trade Agreement and “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat.” 

Unbeknownst to Washington, India was also about to even more dramatically buck its intended role in the U.S.’s new grand scheme of things, and at the worst possible time for Washington, with 28 investment deals signed during the very recent visit of Putin himself to Indian Prime Minister, Narendra Modi just before Christmas. These covered a broad range of subjects, including not just oil, gas, and petrochemicals, steel, and shipbuilding, but also military matters. These latter deals included India producing at least 600,000 Kalashnikov assault rifles and, even more disturbing for the U.S., India’s Foreign Secretary, Harsh Vardhan Shringla, stated that a 2018 contract for the S-400 air defence missile systems is now being implemented. Following on from this, India – and the UAE -  along with just China – failed to vote in favour of the UN Security Council’s resolution to condemn Russia’s aggression against Ukraine and to demand the immediate, complete, and unconditional withdrawal of Russian forces from the neighbouring country. 

It is little wonder, then, that India has not introduced sanctions against Russia and that its Finance Minister, Nirmala Sitharaman, said at the beginning of April that: “If there is, first of all, fuel available at a discount [Russian Urals grade has been trading at a discount of around US$30 per barrel to the Dated Brent benchmark], why shouldn't I buy it? I need it for my people so we have already started purchasing.” He added: “We have started buying, we have received quite a number of barrels - I would think three to four days’ supply - and this will continue.” These views were restated following the high-level meetings in New Delhi at the beginning of this month between Russian Foreign Minister Sergei Lavrov and senior Indian government officials. These meetings, in turn, occurred even after the U.S. warned at the end of March that any significant increase in Russian oil imports by India could expose New Delhi to a “great risk” as Washington prepares to step up enforcement of sanctions against Moscow for its invasion of Ukraine.

By Simon Watkins for Oilprice.com

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