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India uses oil ‘weapon’ to reduce dependence on Saudi Arabia: report

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India’s oil demand has grown 25% in the past seven years

When the government asked refiners last month to step up diversification and reduce reliance on the Middle East – days after OPEC + said it would maintain production cuts – it sent a message about its influence and announced changes in the world’s energy maps. It was a decision that had been underway for years, fueled by repeated comments from Indian Oil Minister Dharmendra Pradhan, who in 2015 called oil purchases a “weapon” for his country.

When the Organization of the Petroleum Exporting Countries and Major Producers (OPEC +) extended production cuts until April, India drew the weapon. Indian refiners plan to cut imports from the Kingdom by about a quarter in May, sources told Reuters, bringing them down to 10.8 million barrels from a monthly average of 14.7 million to 14.8 million. barrels.

Oil Secretary Tarun Kapoor, a senior ministry official, told Reuters that India is asking state refiners to jointly negotiate with oil producers for better deals, but declined to comment on plans to cut oil prices. Saudi imports. “India is a big market, so the sellers should also be aware of our country’s demand to keep the long-term relationship intact,” he said.

Saudi state oil company Saudi Aramco and the Saudi energy ministry declined to comment. Pradhan, who sees high oil prices as a threat to India’s economic recovery, said he was saddened by the OPEC + decision. India’s fuel import bill has skyrocketed and fuel prices – inflated by government taxes imposed last year – have hit record highs.

The International Energy Agency predicts that India’s consumption will double and that its oil import bill will almost triple from 2019 levels to more than $ 250 billion by 2040. A ministry official Petroleum, which declined to be named due to the sensitivity of the matter, said OPEC + cuts have created uncertainty and made it difficult for refiners to plan for supply and risk of price.

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It also creates opportunities for businesses in the Americas, Africa, Russia and elsewhere to fill the void. If India is successful, it will serve as an example for other countries. As buyers see more affordable choices and renewables become more mainstream, the influence of large producers like Saudi Arabia could wane, altering geopolitics and trade routes. India has reduced the share of Middle East crude oil imports in recent years:

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India’s share of petroleum imports from major suppliers
Photo credit: Reuters

Diversification campaign

India’s demand for oil has grown 25% over the past seven years – more than any other major buyer – and the country has overtaken Japan as the world’s third largest importer and consumer of oil.

The country has already reduced its dependence on the Middle East from more than 64% of imports in 2016 to less than 60% in 2019.

This trend reversed, however, in 2020, when the pandemic hit fuel demand and forced Indian refiners to purchase oil from the Middle East on futures contracts, avoiding cash purchases.

As India shifts gears after Pradhan’s call for faster diversification, refineries look for new suppliers, the oil ministry official said.

Expensive refinery upgrades to process cheaper and heavier oils have encouraged importers to look for distant sources. HPCL-Mittal Energy Ltd bought the country’s first shipment from Guyana this month, and Mangalore Refinery and Petrochemicals Ltd has just imported Brazilian crude Tupi for the first time.

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In recent years, refiners have jointly negotiated oil deals with sanctions-stricken Iran, which offered free shipping and price discounts, and now plan to do the same with other producers.

Since the split with Saudi Arabia began, Pradhan has had meetings with the Minister of State and General Manager of Abu Dhabi National Oil Co (ADNOC) of the United Arab Emirates, Sultan Ahmed Al Jaber and the US Secretary to energy Jennifer Granholm to strengthen energy partnerships.

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Pradhan recently said that African countries could play a central role in India’s oil diversification. The country plans to sign a long-term oil supply agreement with Guyana and explore options to increase imports from Russia, the Oil Ministry source said.

A separate Indian government source said the government expects Iranian sanctions to be relaxed in three to four months, potentially providing India with a cheaper alternative to Saudi oil.

Two traders agreed that Iran had a good chance of benefiting from India’s change, as did Venezuela, Kuwait and the United States. An Indian refinery source said the United States, Africa, Kazakhstan’s CPC mix and Russian oil would likely also be interested.

Although Indian importers will reap increasing volumes of global qualities at attractive prices, most analysts expect the Middle East to remain India’s main supplier of oil, mainly due to falling costs. shipping. India’s petroleum ministry is working with refiners on a framework to jointly negotiate terms with suppliers.

“Buyers have alternatives in the current market and these alternatives will multiply in the future,” Kapoor said. “There are so many companies in India buying at their own level, so these companies coming together become a pretty big block as well.”

Saudi Arabia and OPEC + on Thursday agreed after talks with U.S. officials to ease oil restrictions from May.

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Saudi Energy Minister Prince Abdulaziz bin Salman admitted that production cuts had put state-owned oil company Aramco “in trouble with some of its partners.”

The relationship

Analysts say the spit of oil doesn’t need to spill over into broader strategic ties in other sectors, including defense. “Until recently, the balance of power was skewed in favor of Saudi Arabia, but increasingly India is using market access and diversity of options to pressure Saudi Arabia “, said consultancy firm Eurasia in a note. “For Saudi Arabia, losing market share in a global environment in which most developed economies are already seeing their demand for oil drop due to the implementation of the green policy, would be a severe blow.”

Abdulaziz confirmed that Aramco has maintained normal April oil supplies to Indian refiners while cutting volumes for other buyers – a sign Saudi Arabia is concerned about India’s search for new sources.

Saudi Arabia is India’s fourth largest trading partner, importing a large number of items, including food. Saudi Armaco plans to buy a 20% stake in the oil and chemical business of Reliance Industries. It is also part of a joint venture to build a 1.2 million barrels per day refinery in India.

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But Amitendu Palit, a senior researcher at the National University of Singapore, said it would be difficult for Saudi Arabia to find a stable alternative buyer if India continued to cut back on purchases for too long.

“This bilateral relationship should not be affected by any decision on a product. However, in a global surplus, buyers in the market have a lot of power and sources of negotiation,” Palit said.

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