Delhi- In the last week, Indian government asked refiners in speeding up their diversification and reduction of dependence in the Middle East-days after Opec+ mentioned regarding the maintenance of production cuts. However, it sent a message about its clout and foreshadowed changes to the world’s energy maps.
For years, it was a move which had been in the workers for years that is fuelled by repeated comments from Indian Oil Ministers Dharmendra Pradhan who in the year 2015 called oil purchases a “weapon” for his country.
Notably, when the organization of the Oil Exporting Countries and Major Producers have extended the production cuts into April. India Unsheathed that weapon. Moreover, it is the Indian refiners that has planned to cut imports from the Kingdom by a quarter in May as per the sources report and also will be dropping them to around 10.8 million barrels from monthly average of 14.7-14.8 million barrels.
Oil Secretary Tarun Kapoor informed the top bureaucrat in the ministry that India is now asking for state refiners for jointly negotiation with the oil producers for getting better deals but he was not ready to comment on the plan to cut the Saudi imports. He added, “India is a big market so sellers have to be mindful of our country’s demand as well to keep the long-term relationship intact.”
Even the Saudi state oil company Saudi Aramco and the Saudi energy ministry had declined to comment. Moreover, Pradhan who finds high oil prices as threat to India’s economy recovering is also saddened by the OPEC+ decisions. However, even the India’s fuel import bill has also rocketed along with the fuel prices.
The International Energy Agency forecasts India’s intake to double and its oil import bill to triple from 2019 levels to more than $250 billion by 2040. An oil ministry official mentioned, OPEC+ cuts have created uncertainty and made it tough for refiners to plan for procurement and price risk. Thus, this provides a chance to the Americas, Africa, Russia and elsewhere to fill the gap.
In the recent years it is found that India has curtailed the share of crude oil imports from the Middle East in recent years. In the last seven years, India’s oil demand has risen by 25% which is more than any other major buyer and country has surpassed Japan as the world’s third-largest oil importer and consumer.
The country has already curtailed the dependency on the Middle East by more than 64% import in 2016 and almost 60% in 2019.
Due to pandemic, in 2020 demand for fuel has forced Indian refineries in buying oil from the Middle East under the terms of contract, shunning sport purchases. Expensive refinery exaltations that allow for the dispensation of cheaper, heavier oil grades have encouraged importers to seek out far-flung sources. HPCL-Mittal Energy Ltd bought the country’s first cargo from Guyana this month, and Mangalore Refinery and Petrochemicals Ltd just imported Brazilian Tupi crude for the first time.
In past years, refiners have mutually negotiated about oil deals with sanctions-hit Iran, which presented free shipping and price discounts, and now design to do the same with other manufacturers.
From the time of interruption with Saudi Arabia began, Pradhan has had meetings with United Arab Emirates’ minister of state and chief executive of Abu Dhabi National Oil Co (ADNOC), Sultan Ahmed Al Jaber, and U.S. energy secretary Jennifer Granholm to strengthen energy partnerships.
Pradhan recently said African nations could play a central role in India’s oil diversification. The country is looking at signing long-term oil supply deal with Guyana and reconnoitering possibilities to raise imports from Russia, the oil ministry source said.
A separate Indian government source said the government supposes Iranian sanctions to simplify in three to four months, hypothetically offering India a cheaper alternative to Saudi oil.
Two traders settled that Iran stood a good chance to benefit from India’s shift, as did Venezuela, Kuwait and the United States. An Indian refinery source believed the U.S., Africa, Kazakhstan’s CPC Blend and Russian oil would possibly get a look too.
Though Indian importers will expose growing volumes of appealingly priced global grades, most analysts assume the Middle East to persist India’s primary oil supplier, largely because of lower shipping costs.
India’s oil ministry is working with refiners on a framework to together negotiate terms with suppliers.
Kapoor said “Buyers have alternatives in today’s market and these alternatives are going to multiply going forward. There are so many companies in India that do buying at their own level, so these companies coming together also becomes quite a big bloc.”
On Thursday, Saudi Arabia and OPEC+ approved after conferences with U.S. officials to ease oil limits beginning in May.
Saudi energy minister Prince Abdulaziz bin Salman accepted that the production cuts had put state oil company Aramco “in some difficulty with some of its partners.”
Analysts believes that the oil fight does not need to spill over into broader premeditated ties in other sectors, involving defence.
Consultancy Eurasia said in a note, “Until recently, the balance of power was skewed towards Saudi Arabia, but increasingly, India is using access to its market and the diversity of options to put pressure on Saudi Arabia. For Saudi Arabia, losing market share in a global environment in which most developed economies are already seeing their oil demand decline due to green policy implementation, would be a blow.”
Abdulaziz established that Aramco had preserved normal April oil supplies to Indian refiners while cutting volumes for other buyers – a sign Saudi Arabia is anxious about India’s search for new sources.
Saudi Arabia is India’s fourth-biggest trade partner, importing a slew of items, comprising food. Saudi Armaco is looking at buying a 20% stake in Reliance Industries’ oil and chemicals business. It is also a part of a united venture to build a 1.2 million barrels per day refinery in India.
Amitendu Palit, senior research fellow at National University of Singapore, said it would be problematic for Saudi to discover a steady substitute buyer if India remains with abridged purchases for too long.
Palit mentioned, “This bilateral relationship should not be impacted due to any decisions on one commodity. However, in a global surplus, market buyers have a lot of negotiating power and sources.”