India’s major shift in its oil purchasing pattern last month from Russia to Saudi Arabia has been interpreted by many global oil market participants as an early sign that the role Washington had envisioned for the country at the time of the 2020 ‘relationship normalisation’ deals might be in play again. This buying pattern, though, is unlikely to be sustained and, even if it is, Saudi Arabia and Russia are still working too closely together in the oil market to allow the U.S. any greater leverage over oil flows and pricing than would otherwise be the case. In terms of specific figures, India shipped in 877,400 barrels per day (bpd) of oil from Russia in July, a drop of around 7.3 percent from June, while India’s oil imports from Saudi Arabia increased to 824,700 bpd in the month, a rise of 25.6 percent from June. This was the highest oil take by India from Saudi Arabia for three months, according to industry data, and the figures also marked the first fall in India’s crude oil imports from Russia since March. “As was underlined by India’s finance minister just after the Russian invasion of Ukraine [on 24 February], India had – and has – no intention of stopping or even decreasing its purchases of oil from Russia based on anything other than pricing, and this is what accounts for this drop,” a senior oil and gas source who works closely with the European Union energy strategy groups told OilPrice.com last week.
Indeed, 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 had been trading at a discount of around US$30 per barrel to the Dated Brent benchmark at the time], 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 recent high-level meetings in New Delhi between Russian Foreign Minister Sergei Lavrov and senior Indian government officials. These meetings 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.
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India’s stance on U.S.-led sanctions against Russia is directly due to the extraordinary intervention of Russian President Vladimir Putin in a wide-ranging set of deals agreed between Russia and India in December 2021. The main hydrocarbons deal agreed was for Russia, via oil giant Rosneft, to supply almost 15 million barrels of crude to Indian Oil, by the end of 2022. The deal took on even more significance as it was just one part of 28 investment deals between Russia and India signed during the visit of Putin to Indian Prime Minister, Narendra Modi. These covered a broad range of subjects, including not just oil, gas, and petrochemicals, steel, and shipbuilding, but also military matters, with Modi highlighting that: “We have set a target of US$30 billion in trade and US$50 billion in investment by 2025.”
The opportunities for bleed-through military elements to appear in the wide-ranging accord was highlighted in a joint statement from Russia and India that ran: “[We have] reiterated their intention to strengthen defence cooperation, including in the joint development of production of military equipment.” Specifically, according to further official statements from one or both sides, Indian will produce at least 600,000 Kalashnikov assault rifles – the weapon of choice for terrorists and militias across the Middle East and elsewhere – and, even more disturbing for the U.S., India’s Foreign Secretary, Harsh Vardhan Shringla, said that a 2018 contract for the S-400 air defence missile systems was in the process of being implemented.
The scale and scope of the pivot towards Russia and away from what the U.S. had planned for India could not have been more stunning. In the run-up to the U.S.-backed 2020 relationship normalisation deals done between Israel and several Middle Eastern and North African countries, India had been earmarked by Washington as potentially being the big new backstop bid for oil, taking this mantle – and power - away from China. As analysed in depth in my latest book on the global oil markets, the idea had been galvanised in Washington earlier in 2020 when military units of China and India had clashed in the disputed territory of the Galwan Valley in the Himalayas.
Washington saw the Galwan Valley action as a sign of 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 Beijing’s ‘One Belt, One Road’ (OBOR) power-grab project. From around 2018, when the U.S. had unilaterally withdrawn from the Joint Comprehensive Plan of Action (‘nuclear deal’) with Iran and had then announced that it was withdrawing its ground troops in Syria, China had been dramatically upping the tempo of this OBOR-related policy. To Washington at that point in 2020, then, it looked like India had finally begun to take a more aggressive stance towards China, from previously trying to contain Beijing to actively advancing its own ‘Neighbourhood First’ policy alternative to China’s ‘OBOR’ initiative.
Economically, India looked to the U.S. as though it was well-placed to take over as the alternative big bid in the global oil market. Shortly after the 2020 relationship normalisation deals, a report was released by the International Energy Agency (IEA), showing that India would make up the biggest share of energy demand growth, at 25 percent, over the next two decades, as it overtook the European Union as the world’s third-biggest energy consumer by 2030. More specifically, India’s energy consumption was expected to nearly double as the nation’s GDP expanded to an estimated US$8.6 trillion by 2040 under the current national policy scenario. This would be underpinned by a rate of GDP growth that added 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 would make it more reliant on fossil fuel imports.
With Washington’s plans for India dashed by its huge, multi-faceted deal with Russia in December 2021, hopes that the switch in its oil buying patterns from Russia to Saudi Arabia have emerged. These, though, might be similarly ill-founded, as Saudi Arabia has tightened up its ties to both Russia and China in recent years, especially since Donald Trump was voted out of the presidency in the 2020 election. As also analysed in depth in my latest book on the global oil markets, the Aramco initial public offering (IPO) debacle brought Saudi Crown Prince Mohammed bin Salman and his country much closer to China, where it has stayed, and Russia coming to the rescue of the Kingdom and OPEC after the disastrous 2014-2016 Saudi-led Oil Price War, has cemented those two countries together for the foreseeable future.
By Simon Watkins for Oilprice.com
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