At $44 bn foreign interest, oil could be India's next geopolitical currency

In any war-like situation with Pakistan, both Saudi and UAE will be induced to pressurise Islamabad because of their high stakes in India's oil sector

Interim Budget 2019: FM has cheap crude oil to thank for his fiscal record
Representative Image

Saudi Arabia’s Aramco last week made headlines for reportedly being in discussions to pick a stake in Reliance Industries' core business. The deal, if successful, may take overall foreign interest in Indian’s oil and related assets to $44.46 billion. This includes the Rosneft investment made in 2017, a foreign participation share of proposed investment in the West Coast refinery and the speculated deal value for a stake in RIL's refining and petchem business. The invested and committed capital, in turn bring India higher geopolitical currency.

“Growing interest and investment by foreign oil companies, especially from the Middle East, helps as a strong geopolitical currency if a war-like situation arises,” said an oil and gas expert who did not wish to be identified.

Saudi Aramco is already committed to partner India’s oil marketing companies, along with Abu Dhabi National Oil Company (ADNOC) for an equal participation in a $44-billion west coast refinery. The project, at present, is stalled because of land issues.

ADNOC also has its interests in the Indian oil market, through India’s strategic oil storage facilities. The Abu Dhabi oil company has a pact to lease part of India’s its underground strategic oil storage in Karnataka for storing crude oil.

"In terms of any expected instability in the Indian market owing to Pakistan, both Saudi and UAE will apply pressure on Pakistan. Higher the oil interest the better is their incentive to do so," said Jayadeva Ranade, former Additional Secretary, Cabinet secretariat, Government of India.

In 2017, Russia Rosneft led consortium purchased Essar’s Gujarat refinery and related assets for $12.9 Billion, further strengthening Russia’s interest in India. India’s energy demand has outpaced the global growth. Foreign companies have been vying for a pie of the country growing fuel demand through investments in refineries, fuel retail business and related assets.

While this interest may help India in its diplomatic efforts, there is a word of caution. “The assumption that Russia, Saudi Arabia and Abu Dhabi would want to de-escalate tensions to keep their markets stable is rational but does not really factor in uncertainties with regards to regional security developments that countries cannot fully control," said Jean-Loup Samaan,a defense analyst based in the UAE.

He added, “For instance the impact of the war in Yemen on maritime security, or the consequences of the Iranian sanctions.”

For events like Iran, Ranade also suggests India diversifies its sourcing markets."We should look to diversify and source from as many countries as possible, and not find comfort with a small pool of countries,” he said. There seems to be an effort to do so. Data earlier submitted by the oil ministry before Parliament suggest Chad, the Ivory Coast, Cambodia, and Indonesia are some of the countries that have made a debut in India’s crude oil-sourcing map in the past few years.