India rejigs its energy basket as Gulf tensions escalate

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India has been spreading around its energy basket to address the volatility in the Gulf region. Photo: iStock

As tensions and turmoil in West Asia escalate, India finds itself in an unenviable position of reassessing, re-finessing and realigning its energy0security blueprint. This is in the light of fast-changing diplomatic, security and military dimensions in the Middle East, coupled with new aggressive and deliberate strategies pursued by the US, the superpower, and Russia, which wishes to regain that status, in the region. These developments began a few years ago, but have quickly acquired new contours in 2017.

Over the past several years, and especially once the Narendra Modi regime assumed power, India, which imports 86% of its crude oil and most of its liquefied natural gas (LNG) from member of the Organization of the Petroleum Exporting Countries, has rejigged its energy sources. The country’s oil minister, Dharmendra Pradhan, had a “hard talk” with OPEC’s secretary general, Mohammed Sanusi Barkindo. The message was that India would reduce its over-dependence on OPEC, and on West Asia. The reasons were implicit, but not spelled out: a new energy-security vision, and changing global diplomatic-security equations.

These trends need to be analyzed in a complex context – what’s happening in West Asia, the role played by the US and Russia, and India’s relations with those two countries and key West Asian nations. The narratives can be seen through various prisms and lenses. The logic from the extreme West (US), center (Middle East), and East (India, China and Russia) seem intricate and multifarious. The same is true with the actions of Iran (and its ally Qatar), Iraq and Saudi Arabia, along with its allies such as the United Arab Emirates.

Of those five West Asian nations, it is Qatar that supplies LNG to India. Iraq, Saudi, Iran and the UAE are top crude-oil exporters. India wants to reduce its dependence on Saudi and, hence, has weaned toward Iran and Iraq. It now has problems with Iran, albeit with a push from the US, and has lowered its oil imports from that country. The US has offered to be an additional crude-oil supplier to India, to counter OPEC, as long as global prices are around US$40-$60 a barrel.

The Saudis are against Iran and Qatar. Iran hopes to dominate West Asia, and has several fingers in Iraq’s pie. Saudi, aided by the US, hopes to take away the pie. Iraq, which has battled Iran and Saudi Arabia in the past, today has love-hate relationships with them. Russia, which allegedly influenced the US presidential elections, plays several games at the same time in the Middle East. Qatar is caught in the middle of the tussle between Iran and Saudi. China treats enemy’s enemies as friends in its bid to take on America.

No one understands the global energy-diplomacy-security ramifications better than Rex Tillerson, the US secretary of state. As the former head of ExxonMobil, the largest oil conglomerate, he was in the thick of such tensions, tussles, and battles across the globe – from West Asia to Russia, Africa to Latin America. But even he seems to have lost his “magic” touch in his political avatar, as opposed to his earlier-cultivated apolitical persona.

Here’s a lowdown on India’s energy-security diplomacy vis-à-vis various countries.

India-Saudi: End of domination

Until the beginning of 2017, Saudi Arabia was India’s largest crude-oil supplier. This changed in recent months. According to a Bloomberg report in June, OPEC’s No 2 – Iraq – has “dethroned the cartel’s leader – Saudi Arabia.” In May, imports from Iraq comprised 23% of India’s overall imports, compared with Saudi’s 17%. In August, Reuters reported that imports from Iraq shot up 31.5%, and it retained the top slot “for the fourth consecutive month.”

Experts contend that this happened for several commercial and security reasons. One, OPEC’s production cuts, led by Saudi Arabia, forced India to look for other options, specifically purchases in the spot market, as opposed to long-term contracts. According to the same Reuters report, India “picked up sour crude from Iraq and Russia among others.”

Two, oil insiders told Business Insider that Indian refiners could now use “crude with higher sulfur content, such as Iraq crude,” which is being offered at “attractive” prices.

Third, at a holistic level, India is fueled by a desire to expand its basket of oil imports from an undue reliance on OPEC, especially Saudi Arabia. Hence the decision to purchase in the spot market, as well as seek new sources. Recently, India imported 1.69 million barrels from the US, which, according to BloombergQuint, was the “first-ever supply … which was $2 a barrel cheaper than Dubai crude.”

Finally, for years, New Delhi was miffed with Riyadh’s overt and covert support to terrorist groups in Pakistan. Although this may have gone down in recent years, especially after the US declared Pakistan a terrorist state, India isn’t totally convinced. The energy diplomacy, or animosity, was based partially on this aspect. However, after US President Donald Trump came to power, he has sided with the Saudis in a bid to take on Iran. New Delhi too shifted its global alliances toward Washington. This may have an impact on India’s energy diplomacy in the future.

India-Iraq: Friends in times of need

A report on Al Jazeera in October summarized the relations between Iraq and Saudi Arabia over the past three decades. “The fallout in Saudi-Iraqi relations began after Iraq’s invasion of Kuwait in 1990. Following the demise of [Saddam] Hussein’s regime, incoming prime minister Nouri al-Maliki’s administration in Baghdad did not offer much optimism to solve the myriad of postwar problems.”

However, India-Iraq diplomacy became strong as India sought new energy sources, which were in abundance in Iraq, and as Iraq sought foreign investment, especially during the era when it faced sanctions. Indian companies invested in oilfields in Iraq, and Baghdad also became a trusted source of crude-oil imports. According to the Indian External Affairs Ministry, “Iraq has consistently been among the top largest suppliers of crude oil to India.”

But after 2015, the relationship between Iraq and Saudi Arabia thawed. Recently, according to Al Jazeera, the two nations agreed to allow Saudi investment, open the border, jointly develop ports and highways, and relaunch air flights.

At the inaugural meeting of a new Saudi Arabia-Iraq Coordination Committee, Tillerson seemed gung-ho about the diplomatic linkages between the two countries. “Your growing relationship between the Kingdom and Iraq is vital to bolstering our collective security and prosperity and we take great interest in it,” he said. The US, he added, was “grateful for this progress,” and it was ready to “support continued cooperation between Saudi Arabia and Iraq.”

The new Washington-Riyadh-Baghdad axis of security and military may have an impact on India’s energy security.

India-Iran: Hate in the times of love

All these developments and trends are ultimately rooted in global terror – rather, how different nations, including India, change their perceptions about the shifting “axes of evil” in this context. For decades, such axes has swung, but have remained largely confined to Asia. Saudi Arabia, Pakistan, Afghanistan, Iraq and Iran have featured prominently, time and again. The US, Russia and China have altered their allegiances and, hence, their topmost enemies. Today, Iran, along with smaller allies such as Qatar, represents the new axis of evil – once again.

But first, let’s consider the India-Iran crude-oil story. Even in the days of sanctions against Tehran, New Delhi latched on to it as an oil ally. Its imports of Iranian crude oil zoomed. As Reuters reported, “India was one of the four countries – China, Japan and South Korea being the other three – that continued to import large quantities of Iranian oil after sanctions were toughened in 2012.”

In the sanction-less era, followed by the US-Iran nuclear deal, the oil diplomacy between India and Iran was bound to reach greater heights. Unfortunately, this didn’t happen as a more confident and resurgent Tehran sought new and more powerful friends, such as Russia. The turning point came when Tehran “snubbed” New Delhi over India’s proposed development of the lucrative Farzad B Field in Iran. According to media reports, the field’s concession went to state-owned Russian giant Gazprom.

As a counter, India reduced its oil imports from Iran. In July this year, monthly purchases fell by more than 16% from the previous month, and 20.7% from a year ago. Reuters said India planned to “order about a quarter less Iranian oil in the fiscal year to March 31, 2018.” Iran retaliated and imposed stiffer payment conditions on the Indian importers. However, an Indian private company, Reliance Industries, swayed Iran’s way. In July, it purchased crude oil from the South Pars field for the first time.

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