Round The World

New Delhi, 18 October 2018

Rising Oil Prices

INDIA TALKS TO MIDDLE EAST

By Dr D.K. Giri

(Prof. International Politics, JMI)

The whopping rise of oil prices, petrol and budget has hit the small and tertiary sector of the Indian economy badly, in the election year. The ruling party in New Delhi is unnerved. Consequently, they have got into serious negotiation with the oil producing Middle Eastern countries. On Monday last, Prime Minister Narendra Modi himself urged the visiting heads of oil companies and ministers. His appeal included the common proverb “do not kill the hen that lays golden eggs”, obviously referring to India as the hen that gives staggering revenue to Middle Eastern countries for the oil it imports heavily.

The occasion for Modi’s intercession with the oil producers was provided by the CERA Week -- Cambridge Energy Research Associates, organising India Energy Forum from 15 October. The meeting was attended Saudi Arabia’s energy, industry and mineral resource minister, and Chairman of world’s biggest oil producer, Saudi Aramco, a Saudi Arabian oil company Khalid A Al-Falih, Minister of State in UAE Sultan Ahmed Ali Jaber, CEO of State-run Abu Dhabi National Oil Co. (ADNOC) and BP’s group CEO, Bob Dudley. In addition, there were representatives from Russia’s OAO Rosneft, the world’s largest publicly traded oil firm, Pioneer Natural Resource Co. Abu Dhabi’s Mubadala Development Co., Schlumberger Ltd, Wood Mackenzie, World Bank, International Energy Agency and many others. India was represented by Finance Minister Arun Jaitley, Petroleum Minister Dharmendra Pradhan, and NITI Ayog Vice-Chairman Rajiv Kumar.

It may be noted that, CERA Week provides energy analysis regionally and globally by examining markets, geo-politics, technology, projects, environment, finance, operational dynamics etc. It started in 1983 in the US and has become popular worldwide. It has been monitoring India’s oil needs and challenges etc.

As expected, the Indian participants including Modi highlighted the negative impact of the rising oil prices that included resource crunch, inflation and push-back in the economy. He appealed to the oil producing countries to cooperate and alleviate the crisis and reminded the OPEC promise to increase oil production by 1 million barrel a day. Petroleum minister underlined the statistical fact and said, “The crude prices have jumped 50% in dollar terms and 70% in rupee terms since last year”.

On their part, the oil-country delegates affirmed their commitment to increasing the production and meeting the demands of importers, including India. Saudi Arabia’s Minister said “oil will be easily in 3 digits today, had it not been for the extra efforts that the kingdom has done”. They maintained that the fundamentals of the oil market are balanced at the moment. “If prices stay at these levels for another 18 months, we might see the demand dropping. It is still healthy though,” commented one of the oil producers from abroad.

Where does that leave Indian leadership in controlling the oil price and assuaging public outrage? The strategy is simple really. I was talking to a retired Air Marshall who is legend in his own right, the hero of Longewala battle. He keeps himself abreast of major developments and told me as I am writing this piece that the oil prices are linked with international pricing, but we add a lot of tax to it. We must reduce the taxes, and minimise the pain it causes to common people. Why is the Government shy of doing this? The lower oil prices boost the economic activities, production etc. and controls inflation. The common (wo) man on the street does not understand the sophistication of the economy, they know how it pinches their pockets at the petrol station.

Now looking at the larger picture of India’s oil imports and energy policy, we have argued in the past in this column that India should, sooner than later, have an energy mix, the renewable growing whilst the fossil fuel is reduced. India has become the world convener of solar energy, yet our use of renewable is minimal. Why cannot India switch to renewable swiftly, like Germany has done, even by decommissioning the nuclear plants? The leadership needs to be practical and visionary to do so. Agreed that the installation costs of the renewable energy is quite high like the birth-pangs. But once the baby is born, there is mirth all around.

The second point is India’s oil import-strategy. It is linked to our Middle East policy. Historically, India’s Middle East policy was driven by non-alignment, and relations were purely transactional on oil. Gradually, as India began to make strategic alliances, it made bilateral contacts with major countries, by putting anti-terrorism as a front-runner. The Muslim countries responded as they were also marred by Islamic terrorists. The January 2006 visit to Delhi by the late King Abdullah bin Abdulaziz -- the first Saudi Monarch to visit India in 51 years was a watershed development. There have been many such visits to and fro, to many other countries. India has moved closer to Israel without rocking the boat with Muslim countries. A balancing act, New Delhi is known for.

Of late, Iran is a diplomatic challenge for India against the backdrop of impending US sanctions. New Delhi imports oil heavily from Iran. Saudi Arabia and Iran are at loggerheads too. Currently, Saudi Arabia and Iran are directly involved in two civil wars in West Asia. In Syria, Saudis are backing the Sunni anti-government rebels, whereas Iran is on the side of President Bashar-al-Assad. In Yemen, Riyadh and its allies are backing the government of Abdrabbuh Mansur Hadi, while Teheran is behind the Shia Houthi rebels.

The call New Delhi has to take is to whether it should be drawn into the proxy war between Riyadh and Teheran. Presumably, India has a vantage position here. India has an ‘act West’ policy when West Asian countries are ‘looking East’. Both Saudi Arabia and its allies, and Iran are wanting to be a partner with India. As the relation between the Gulf countries and the US gets worse because of the hawkish policy of Donald Trump, the Gulf needs alternative pastures to makeup the losses. India seems to them to be a greener pasture.

The oil prices and New Delhi’s diplomacy in West Asia are not so much linked. But New Delhi will do well to link these, as politics and trade or economics are complementary as well as interdependent. New Delhi can use its diplomatic leverage to bargain for greater imports to ease the supply deficit. India’s foreign policy, in general, has suffered from a mismatch between our political and economic interests and strengths. It is time we correct it. Shall we begin in West Asia from where we have heavy imports of oil?---INFA

(Copyright, India News & Feature Alliance)