The Aakhya Weekly #83 | Old oil in a new barrel

Feb 09, 2024

[Part of the Energy Series by Aakhya Weekly]

By Sasanka Kanuparthi

Despite India’s bold net-zero emissions commitments for 2070, the reality indicates that it has to accommodate likely increases in crude oil imports in the coming years. This is owed broadly to the burgeoning automobile industry, growing demand for petrol and diesel consumption at home, and India’s energy security plans of maintaining strategic reserves. To meet its needs and keep import bills low, India has sought the diversification of crude supplies.

Energy diversification is a sizable component of the Ministry of External Affairs diplomatic agenda. While oil import diversification has been a longstanding agenda of Indian governments even in the past, India’s position in the global arena since the Ukraine conflict is marked by a strategic heft. With elections around the corner, stabilising the commodity markets’ volatility would naturally help any incumbent government mitigate jolts.

As a part of its diversification strategy, India has nurtured and developed relations with one of the leading oil producers in the world such as Saudi Arabia, Russia, Venezuela, Iran, among others. With the oil-rich nations of Venezuela and Iran being in the crosshairs of the US, India’s options were curtailed and its initial pushback was futile. Geopolitical realities and the US’s sanctions regime ensured that the supplies from the Latin American oil giant stalled in 2019, even while Iranian oil supplies were severely restricted. However, other opportunities presented themselves, and India had also started orienting its diplomatic efforts towards diaspora relations. This turned out to be pivotal, helping India link it to crude imports and its interests in Latin America.

Why is Crude Import Diversification Crucial For India?

With more conflicts and battle fronts opening up the world over, food and energy security became buzzwords once again. It is amidst these developments that India found its voice to defend its oil purchases from Russia. Despite the western media’s blitzkrieg against India’s overt posturing on Russian oil purchases, India positioned itself as a representative of the global south, defending the interests of the poorest consumers. Amidst this pandemonium, any alternate sources of crude imports, including those from Latin America, could assist India in its growth, while allowing it to keep domestic prices stable.

Several major countries in the Global South viewed India’s arguments favourably, as it critiqued the west for imposing restrictions on the Global South’s Russia oil and food imports, even while Europe and North America protected their respective interests. Nevertheless, some would argue that India’s strategy in dealing with the US, paid off to some extent. Principally, India’s focus was on presenting the price competitiveness as a case for purchasing Russian oil in the aftermath of Covid-19 and its impact on developing Asia and Africa. In addition to this, it showed that outside the US and the countries in West Asia, limited alternatives were available. On the bright side, prospects for diversification improved with the off-shore oil finds off the coast of Guyana in 2015. Naturally, this led to an economic boom for Guyana, while eliciting envy from its neighbour in economic distress, Venezuela, which now claims two-thirds of Guyana’s territory, namely the Essequibo region, based on a 150-year old dispute.

Opportunities For India’s Latin American Oil Trade

Guyana has emerged as a significant player in the global oil & gas sector, with substantial discoveries and projected production increases. Apart from the US and its crude companies’ oil extraction interests in Guyana’s off-shore crude, India has other priorities. A former colony of the British Empire, and a Latin American country with an overwhelming 44% ethnic Indians as its population, Guyana’s cultural connection with India helped the Central Government build momentum. At the highest levels of the government, the relationship with Guyana was prioritised, with the Prime Minister and his cabinet doubling down on engagements with the Guyanese leadership and Indian diaspora in Guyana. In fact, the Union Cabinet has approved an MoU in January 2024, between the Ministry of Petroleum & Natural Gas of India and the Ministry of Natural Resources of Guyana. This is expected to facilitate cooperation in various aspects of the hydrocarbon value chain, including sourcing of crude oil from Guyana, participation of Indian oil companies in refining, exploration, and production activities, among others.

Similarly, the global pressures on oil trade and arguments made by the biggest oil buyers like India, seemed to have influenced the US’s decision to ease access to Venezuelan oil. The US moved swiftly to relax energy sanctions on Venezuela from October 2023 through April 2024, after President Maduro and the opposition signed the Barbados Accord, which included a roadmap toward holding competitive elections. The sanctions targeted Venezuela's oil and gas sector as well, to pressure the Maduro regime to hold free and fair elections, among others, in line with the US’s playbook on sanctions. They were imposed in 2019, after the US accused the incumbent President Nicolás Maduro of causing political unrest, expressing concerns over the legitimacy of the presidential election held in 2018.

This shrunk its GDP by over three quarters of its worth in 2014. The sanctions aimed to restrict Venezuela's access to international markets and reduce its ability to generate revenue from oil exports, which constitute a significant portion of the country's income. Venezuela, aiming to increase its crude production to 1 million barrels per day, has become a potential supplier for India, which imports 85% of its oil needs. The withdrawal of some of the sanctions on Venezuela also offers hope for India to recover unpaid dividends of around $600 million owed to ONGC Videsh Ltd., India's state-owned Oil and Natural Gas Corporation's overseas investment arm, from the San Cristobal oilfield project in Venezuela. The joint-venture project faced obstacles due to sanctions, leading to pending dividends and stalled agreements. With sanctions easing, India anticipates the release of stuck dividends and seeks to sell its share of oil from the San Cristobal field to interested buyers, with the hope to restart its oil trade diversification originating from Latin America.

Challenges and Way Forward

The non-binding referendum held by President Maduro in Venezuela on annexing the region of Essequibo in Guyana, just before the election could play spoilsport, even if it is just a pre-election gimmick to gain popularity. As expected, the US and UK responded strongly in support of Guyana, raising tensions in the region despite the lifting of some of the sanctions on Venezuela. This leaves India in a precarious position once again, given that any action by either side would be detrimental to India’s crude oil imports and extraction of dues from ONGC Videsh’s stake in Venezuelan oil fields.

In addition to this, India’s friendly relations with Venezuela and diaspora connections with Guyana forces it to walk the diplomatic tightrope. Apart from urging for a peaceful resolution of the dispute, it seems there is little India can do to assuage fears of a conflict. Just when India thought it would benefit from the easing of sanctions on Venezuela, it is faced with a regional crisis, accentuating the geopolitical risks once again. In the short term, India can be confident that a conflict is unlikely to break out. Given Venezuela's desperation for economic revival, it cannot afford a major conflict with a country that enjoys wider support from western allies. For India, its foot in the Latin American door remains a cautious one, just as in the case of its oil purchases from other conflict regions of the world.

Top Stories for the Week

Lok Sabha passes anti-cheating legislation with bipartisan support

The Public Examinations (Prevention of Unfair Means) Bill 2024 was passed in Lok Sabha on Tuesday, 6th February, in a rare show of bipartisanship among Lok Sabha MPs. The bill aims to curb malpractices and organized cheating in public examinations held by UPSC, SSC, Railways, banking recruitment examinations, and all computer-based examinations administered by National Testing Agency. In recent years, there have been alarming instances of cheating affecting millions of candidates across multiple states, leading to delays and cancellations that undermine the aspirations of countless youth.

In light of these challenges, the bill aims to combat organized groups and individuals involved in unfair practices during exams, such as deploying solver gangs, impersonation, and paper leaks, for monetary gains. It addresses exam-related cheating not covered by the Bharatiya Nyaya Sanhita. Government officials involved with these entities will also be penalized. However, exam candidates are excluded from the bill's scope and assured that they will remain governed by the regulations of the examining agencies.

The bill also suggests establishing a high-level national technical committee to enhance the security of computerized exams. This committee will recommend measures to secure digital platforms, develop robust IT security systems, implement electronic surveillance at exam centers, and establish national standards for both IT and physical infrastructure required for exams.

The incoming law proposes a punishment of a minimum of three to five years of imprisonment and a fine of up to 10 lakhs. For those involved in organized crimes of cheating, there will be a sentence of five to 10 years of imprisonment and a minimum fine of ₹1 crore. The aim is to enhance the credibility of public examination systems and assure students that their hard work will be duly recognized.

Progressing toward enactment, the bill is scheduled to be tabled in the Rajya Sabha in the coming days.

India, EFTA on the verge of finalising $100bn investment deal

India and the European Free Trade Association (EFTA), comprising four nations—Iceland, Liechtenstein, Norway, and Switzerland, are on the verge of closing a trade deal that could see investment of US$100 billion over the next 15 years. The investment is expected to come from both state-sponsored enterprises and private industry players in the EFTA, and will be directed towards existing and new manufacturing projects in India.

The trade deal is expected to generate over 1 million jobs in India, provide market access for some agricultural projects, and ease movement of Indian professionals to EFTA countries. While the specific terms of the deal have not yet been made public, reports suggest that the foundational framework of the deal has been established and that the deal is in the advanced stages of negotiation, with the precise number (in terms of investment) being ironed out between the negotiating parties. It has been hinted that the investment pledge will be non-binding and target-based, although India is pushing for a binding commitment. Efforts are being made to finalise and sign the deal well before election season begins in India.

A Few Good Reads

Dr. Prabhash Ranjan sheds light on how BITs and ISDS mechanisms are crucial in attracting foreign investment for the country, a sentiment echoed in the FM's budget speech.

Gita Gopinath warns how deglobalisation, "friend shoring" etc may yield benefits in the short term but will ultimately result in a more dangerous world.

Anupam Manur criticizes Karnataka's plan to fix prices for Uber-Ola cabs, warning that it is likely to “boomerang badly”.
Read this Economist piece on how “China’s population is shrinking and its economy is losing ground.

The Aakhya Weekly