India’s foreign
policy has ruffled a few feathers of late. Largely restrained and reactionary
the Ministry of External Affairs has been working overtime to secure India’s
energy interests. The global oil markets are going through a rough patch. Iran threatened
to close the Strait of Hormuz; South Sudan stopped oil production in early January,
loss of Syrian oil because of embargoes, drop in exports from Yemen due to
strikes and closure of North Sea rigs due to repairs; all this has lead to a
situation of panic in the global oil market. The Economist reported that all
these disruptions have shaved off 1.25 million barrels a day of crude output
globally. The situation might improve later in the year with most of the
production resuming, however this is a clear signal to net oil importing
economies that a small disruption in the supply chain can cause serious
troubles at home.
India imports 80%
of its fuel requirements and offers subsidies on diesel, kerosene and cooking
gas. The provisions towards fuel subsidy in the budget of 2012-13 are Rs.
43,580 crores (USD 8.5 billion, at Rs 51.15 for a Dollar). Any increase in crude
price will have a huge impact on India’s fuel bill. With a fast growing economy
India cannot afford to be caught in a situation where its energy requirements
are compromised with. At present India imports a lot of oil from the Middle
East, Saudi Arabia being the largest exporter, followed by Iran. Together Saudi
Arabia and Iran contribute one third of India’s imports, making India heavily dependent
on these two countries. With uncertainty looming large over the region, India
has rightly decided to revisit its global oil policy.
To diversify its
oil basket India has started exploring other options. There are three instances
where India has taken a stand contrary to its established foreign policy. The overseas arm of ONGC
has engaged in off-shore exploration in South China Sea. China for long has
claimed sovereignty over most of the South China Sea sighting historical
evidences. In later 2011 and early 2012, China has raised concerns over Indian expeditions
in the region. China also terms the Indian endeavours as provocative and urges
restrain. So far the Chinese statements on this matter have been restrained and
a direct reference to India is not made. On the other hand Chinese neighbours
like Vietnam (which claims the oil reserves to be in its Exclusive Economic
Zone), Taiwan, The Philippines, Malaysia, Indonesia, Cambodia and Thailand all
have territorial disputes over the South China Sea. Some political commentators
describe this region as the most dangerous point of conflict in the region.
India’s attempt to seek commercial and strategic foothold in such a region is
clearly unprecedented.
In early days of
April 2012, India appointed as special envoy for Sudan and South Sudan, again a
departure from India’s established foreign policy. For the first time India has
categorically mentioned its oil needs as the prime reason for appointing a special
envoy. Press statements quote ministry officials saying, "There were three
main reasons to send a special envoy - ensure our oil interests are protected,
communicate our support for the peace initiative between the two nations and
strengthen our technical support to them." India is also challenging the
Chinese claims of setting up an alternate pipeline through Kenya in less than
two years time.
 |
| Lets talk crude |
Of all attempts
made by India to secure its energy needs the manoeuvres with Iran are the most
interesting. International pressure on an Iranian oil embargo is such that it
is impossible to pay for Iranian oil through conventional means of bank
transfers. The US and EU have banned the payment mechanism in place in Dubai
and have delisted all Iranian banks from the SWIFT facility (an electronic
funds transfer facility). India as maintained that it will not stop its oil
imports from Iran (so have China, Russia, South Korea and Japan). India is now
exploring mechanisms to pay for Iranian oil in Rupees. There are technical
difficulties in doing so (including many from the Iranian side), however India
and Iran are trying to work together to find a solution. In the mean while
government of India has announced tax breaks for exports to Iran done in
Rupees. The Indian exports will be used to pay for Iranian oil.
These may be
considered as bold steps by the Indian government, especially given the fact
that they might annoy India’s two largest trade partners, the US and China. But
these steps are also testimony to the fact that India is slowly but surely
asserting itself in the global geopolitics. The far reaching implications of
these actions are not clear as of now, however what is clear is the short term
gain. India might get cheap oil from Iran, since less people are buying from it.
This might prove to be a breather for a government which is unpopular with masses
and high oil price is one of the reasons.
