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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Can Washington Regain Influence On The World Stage?

  • The global geopolitical system changed forever at the end of the Cold War, and the U.S. has struggled with how to play the new game, unsure of its position on the world stage.
  • A lack of consistency and clarity in U.S. foreign policy has meant that supposed allies of the U.S., such as India, feel comfortable deepening diplomatic relations with Russia.
  • The continued aggression of Russia in Ukraine and the strong response from Washington and the EU may bring all of this to a head, forcing allies to choose a side.

It is a matter of profound irritation to the U.S. that countries around the world will not play the roles that Washington has designated for them in its game of global geopolitical chess, but it only has itself to blame. For much of the time since the end of the Second World War, the U.S.’s principal opponent in the game was Russia, and both sides took an uncompromising view on how to deal with countries that were not aligned with them. Over the past 20 years or so the game has changed for two key reasons. First, the hard-power approach of Russia has been superseded by the more sugary checkbook diplomacy of China, which makes bitter pills easier to swallow. Second, the U.S. has dithered over how it wishes to project itself into all corners of the world, if at all, as evidenced by its equivocation over Russia’s invasion of Georgia in 2008, and Crimea in 2014, and its withdrawal from Iraq and Afghanistan in 2021, among others. The great Asian power of India is now a case in point, highlighted by its burgeoning oil business with Russia, despite strong U.S. protests in the wake of Moscow’s ongoing invasion of Ukraine. According to several local and international reports, in the two month period from 25 February (a day after Russia moved into Ukraine) to 25 April, India bought over 40 million barrels of Russian, which is around twice as much as it had done in the two month period leading up to the outbreak of the war. According to industry data, this most recent two-month total is also more than twice the amount of crude oil that India bought from Russia during the whole of 2021. Of course, India can – and has – argue that it is a free country that needs to protect its own energy security and, to this effect, should avail itself of the opportunity to buy deeply-discounted barrels of oil from any country, including Russia, if it so chooses. Indeed, India’s 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.” From Washington’s perspective, and correctly so, there are greater considerations in this equation than just the price of a barrel of oil, and India knows it too, whatever its ministers may say in public.

What is happening with India, and several other countries that were designated one role or another in the Oval Office security briefings over the past few years – including, from the oil markets’ perspective, much of the Middle East – is a confused foreign policy doctrine and even more confused implementation out of Washington that allows New Delhi to play both sides of the superpower game with much more impunity than ever before. So lacking in concern is India about any meaningful ramifications from the U.S. about its indulging the overtures of Russia, and by extension even its arch regional rival China, that just before Christmas it signed range wide-ranging set of deals with Moscow, following a personal visit from Russian President, Vladimir Putin, to Indian Prime Minister, Narendra Modi. As analyzed in-depth by OilPrice.com at the time, among the 28 investment deals signed between Russia and India were even contracts for India to produce at least 600,000 Kalashnikov assault rifles and, even more disturbing for the U.S., was Indian Foreign Secretary Harsh Vardhan Shringla’s adjunct comment that the 2018 contract for Russia’s S-400 air defense missile systems was now being implemented. The breadth and depth of the deals took the U.S. and the E.U. by surprise, according to several highly-placed sources in Washington and Brussels exclusively spoken to by Oilprice.com at the time.

Since then, not only has India’s oil business with Russia increased enormously but it is expected, according to the deals signed in December, to see trade and investment between the two countries boom, according to Modi: “We have set a target of US$30 billion in trade and US$50 billion in investment by 2025.” There are further opportunities for bleed-through military elements to appear in the oil and gas projects as well, with Rosneft’s oil deliveries to be shipped through the Russian Black Sea port of Novorossiisk, with off-loading facilities in India to be built out if and when required, with Russian security personnel deployed at the sites, also as and when required. This newly re-energized relationship between India and Russia has found practical political resonance as well in the fact that India has abstained from all procedural votes at the various multilateral security bodies, including the U.N., that condemn Russia’s invasion of Ukraine. 

Related: JPMorgan Slashes Demand Outlook Amid Soaring Oil Prices

This is all a long way from the U.S.’s vision of the role India was to play in its world order, and in its new oil markets order. As analyzed in-depth in my new book on the global oil markets, Washington had earmarked India to become over time the global backstop bid for oil, replacing China in this role that it has held for the past 25 years or so. From the U.S. perspective, there appeared to be a new willingness on India’s part to stand up to its dominant and domineering neighbor, 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 pushback 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’ (OBOR) power-grab project. At the same time, coinciding closely with the signing of the first Israel-Arab state relationship normalization deal (that with the UAE), India began to shift from its previous policy of trying to contain China to advancing its own ‘Neighborhood First’ policy alternative to China’s ‘OBOR’ initiative. A further basis for U.S. optimism in this regard is that India was one of the founding members in 2007 of the ‘Quadrilateral Security Dialogue’ that discusses and to some degree coordinates security issues and strategy between the U.S., Australia, Japan, and India, particularly when it comes to dealing with China’s ongoing expansionist policies in Asia-Pacific.

Economically as well – and with direct positive implications for Middle Eastern oil producers looking for a global backstop bid for their hydrocarbon 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.

All, though, is not necessarily lost, for the U.S.’s intentions for India, as domestic corporate lobbying in new Delhi about the longer-term effects of U.S.-led global sanctions on Russia might deter a fully-fledged allegiance between India and Russia, exacerbated by a broader sense of mistrust at tangentially cozying up to Russia’s geopolitical partner, China. Notable in this context is the resistance from some leading Indian companies. According to various reports, the Indian government has asked state-run energy companies to consider buying the 19.75 percent stake in Russian oil giant Rosneft that international super-major BP wants to off-load in light of Russia’s invasion of Ukraine. According to the same reports, the Indian government has also asked India’s OVL (the overseas investment arm of Oil and Natural Gas Corp) to consider buying the 30 percent stake held by Exxon Mobil Corp in Russia’s Sakhalin 1 project, also as a consequence of the invasion of Ukraine. Senior oil and gas security sources in the E.U. spoken exclusively to by Oilprice.com last week highlight that although there are several synergies for India in such deals – OVL already holds a stake in Sakhalin 1 and in Vankorneft (as does a consortium of Oil India, IOC, and BPRL), most notably – concerns over possible U.S. retaliation on India over further stepping up its de facto support for Russia remains a stumbling block to the deals going ahead, at least for now.  

By Simon Watkins for Oilprice.com

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Leave a comment
  • Big B on May 09 2022 said:
    India has been non-aligned since 1947. Why does the US government continue to delude itself into thinking that it can force sovereign nations into doing what it wants? That only works on tiny countries without nuclear weapons. Should have gotten India on your side back in the 50s and 60s when they were dirt poor. Instead the US funded Pakistan. Now Pakistan is a near failed state while India's economy continues to grow. The US is so used to not being held accountable for its actions that this will be no doubt take a long time for them to learn.
  • Big B on May 09 2022 said:
    "This is all a long way from the U.S.’s vision of the role India was to play in its world order"

    Perhaps the Americans should ask the people of the world's largest democracy what role they envisions for themselves?
  • Big B on May 09 2022 said:
    This is gonna sound crazy to Westerners but its almost like there are entirely different perspectives on the world that yours.
  • Bambu Ming on May 10 2022 said:
    the author misses mentioning the US overtures to India as a strategic partner is fairly recent relative to Russians who have a proven time tested relationship dating decades. It is not only India, US helplessly watches Europe surge in the buying of Russian oil and traditional Middle East suppliers are replacing Russian oil in Europe. There is unease in Asia about the way US dictates terms to its allies with an imperative of &#039;with us or against us&#039;, and then abandon them when they are needed most! BTW, it is American based Exxon and UK based BP who want to offset their Russian assets to India!
  • Mamdouh Salameh on May 10 2022 said:
    The opening statement by the author is a study in self-delusion and arrogance. By stating that “it is a matter of profound irritation to the U.S. that countries around the world will not play the roles that Washington has designated for them in its game of global geopolitical chess, but it only has itself to blame”, he is either deliberately ignoring the transformation that is enveloping the world or he is deluding himself.

    What does the author thing the Ukraine conflict is about? It is but one aspect of the World Order already moving away from a multipolar system led by the United States as has been the case since the collapse of the former Soviet Union to a unipolar one being ushered in by the China-Russia strategic alliance. The outcome of this conflict will impact the global economy, energy resources, and the US dollar as the dominant global reserve currency and the basis of the global financial system.

    The author makes India a case in point, highlighted by its burgeoning oil business with Russia, despite strong U.S. protests in the wake of Moscow’s ongoing invasion of Ukraine. But he forgets that India has been a close ally of Russia since independence with the then USSR providing huge economic aid and the bulk of India’s weaponry, a tradition that continues to this very day.

    The United States has recently attempted to befriend India taking advantage of recent clashes on the border with China and trying to play one against the other exactly as the Nixon administration did with China and the former Soviet Union and the United States has been playing Iran against Saudi Arabia since the Shah days until now. Instead, China, the most dangerous rival of the United States has become the closest strategic ally of Russia. The author may not realize that despite the tense relations and rivalry between India and China, their mutual strategic, economic and geopolitical interests as the two titans of the Asia-Pacific region are far bigger than any relations India may have with the United States. The United States tried but failed miserably to make India part of its US-Israel-UAE alliance confronting the China-Russia-Iran axis. Now even the UAE has moved away from the US-led alliance because of deep differences with the United States.

    India with a GDP of $11.75 trillion is the world’s third largest economy after China and the United States based on purchasing power parity (PPP) which is the only reliable measure of the economies of the world. It is also a nuclear power in its own right. Therefore, it neither dances to the tunes of the United States nor would it accept to play any role designated to it by the United States.

    Since the Ukraine conflict started, India has been demonstration its independence by its newly re-energized relationship with Russia and by abstaining from all procedural votes at the various multilateral security bodies, including the U.N., that condemn Russia’s invasion of Ukraine.
    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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