Why Is India in a Rush to Brag about Oil Imports from America?

As oil minister tells OPEC delegation about other buying options, here’s why India needs to give measured response.

As oil minister tells OPEC delegation about other buying options, here’s why India needs to give measured response.
As oil minister tells OPEC delegation about other buying options, here’s why India needs to give measured response.

Oil minister Dharmendra Pradhan met the chief of the 14-member cartel of oil producing nations, the Organization of the Petroleum Exporting Countries (OPEC), in New Delhi on Sunday, 8 October and told him that New Delhi has other buying options.

Pradhan's hard talk with OPEC Secretary General Sanusi Mohammad Barkindo came on the heels of the first-ever supply of crude oil from the United States to India which
was $2 a barrel cheaper than Dubai crude.

Political Posturing on Oil Imports

However, the minister should have known better. If Pradhan’s “hard talk” with the OPEC chief was meant to be just political posturing it’s another matter. But the hard fact is that the first-ever American crude oil supply to India is neither a game-changer nor a substitute for the current mechanism of Indian oil imports.

The bigger picture is much more complex and convoluted – and vastly different. It’s virtually a chess game involving the world’s big powers like the US, Russia, OPEC and many others. Read on!

During this meeting, Pradhan’s team told the OPEC delegation that “responsible pricing” was important for India’s socioeconomic development. While highlighting India’s policy of giving top priority to diversifying its crude oil supply sources and tapping new supply sources, Pradhan’s team also highlighted the recent supply of 1.69
million barrels of crude oil (two lakh tonnes) from the US to India.

(Photo: <b>The Quint</b>)
Petroleum Minister Dharmendra Pradhan tells OPEC Chief  that India has other buying options.

Banking on American Crude Oil Supply

Clearly, the Modi government is gung-ho about the new oil route from America, and is trying to leverage this first aid supply to a cartel like OPEC which accounts for 86 percent of crude oil, 75 percent of gas and 95 percent of liquefied petroleum gas (LPG) imported by India.

The first-ever American crude oil supply to India, though a welcome move and potential game-changer in foreseeable future, is as of now nothing more than a gimmick.

An example of this is the first-ever visit of Saudi King Salman bin Abdulaziz Al Saud to Russia a few days ago. One of the objectives of the Saudi King's unprecedented visit to the world’s largest oil producer was to ensure that oil-producing countries close ranks and cut down production so that oil prices could go through the roof again.

India imported 214 million tons of crude oil in 2016-2017 fiscal year, a jump of 5.4 percent from a year earlier.

Himendra Kumar, an international oil trade analyst, says the US wants to distort India's crude oil supplies from Iran and to an extent, from Saudi Arabia.

Killing Two Birds with One Stone

It’s a much larger American strategic game wherein America wants to kill several birds with one stone: Iran, Russia and Saudi Arabia, to name a few.

The Trump administration wants to isolate Iran as it views the Islamic State as an axis of evil and wants to cut its access to the US dollar to the farthest extent possible. The crude oil trade is in US Dollar.

Similarly, the US wants to exert further pressure on Saudi Arabia, through a concerted effort to keep international oil prices well below $60 a barrel so that its budgetary deficit widens to unmanageable proportions.

Currently, Saudi Arabia is dipping into its rich but fast depleting Sovereign Wealth Fund to meet its budgetary shortfall, but it is expected that the country will exhaust this contingency fund within next three years. At their current level of spending, Saudi Arabia’s budget deficit is bound to spiral out of control.

The Saudis need oil well above $80 a barrel to balance their budget. At some point, depending upon Saudi Arabia’s vulnerability, the Americans would make an overt move to take control of Saudi Aramco (state-run oil company).

At the Expense of Riling Iran

For India, theoretically, the addition of the US as a crude supplier widens the pool of suppliers and gives a fillip to its energy security. However, it comes at the cost of a big and time-tested supplier turning hostile towards India.

At the US’ behest, India has significantly trimmed its oil supplies from Iran in recent months, which resulted in Iran withdrawing some concessions to Indian refiners.

India received its first shipment from the US of 1.69 million barrels this week and its current order book is of the size of 1 million tonnes or 8.45 million barrels, which would arrive in due course.

“The oil the US has chosen to export to India is of the sour variety, not the expensive shale oil,” says Kumar.

That’s all very well, given that the Indian refineries are configured to process the Middle East sour oil grades. The US has turned a net exporter of crude oil and the commodity’s largest producer in the world on the back of a shale oil revolution made possible by the pioneering horizontal drilling and hydraulic fracturing technology, popularly known as fracking.
Himendra Kumar, Analyst, International oil trade

Oil Needs of the US

An important fact which must not be overlooked is that although the US has significantly cut down its oil imports from the Middle East, it still needs to import significantly high quantities of crude oil to meet its burgeoning needs.

The US currently produces about 9.3 million barrels of oil per day, while its domestic consumption for oil and oil equivalent cumulatively is more than 19.5 million barrels per day.

Now, the obvious question is how can India afford to cut its umbilical chord of oil imports from the OPEC on the strength of American oil supplies to India when the US itself continues to be dependent on the OPEC?

(Rajeev Sharma is a strategic analyst and columnist who tweets @Kishkindha. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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