Addressing the Majlis Al-Shura, Saudi Arabia’s 150-member consultative assembly, is a rare honour granted to few outside the Kingdom’s ruling elite. Late in February this year, Prime Minister Manmohan Singh was accorded this privilege shortly after he signed the Riyadh declaration, taking the relationship between the two countries beyond India’s thirst for crude oil to security, extradition and defence — issues that lie outside the boundaries of pure commerce.
Just months after Prime Minister Singh’s visit to Riyadh, it was oil diplomacy at its slickest in July, as foreign minister S.M. Krishna reopened talks with Iran to import gas from the giant South Pars field. Iran, with the largest reserves of gas, is critical for India’s future imports whether as CNG or through an Iran-Pakistan-India pipeline. Balancing interests between Iran and Saudi Arabia, two of the world’s most energy-rich nations but at opposite ends of the West Asian political spectrum, is an example of realpolitik that India has begun to excel in — driven entirely by the need to secure resources for growth.
India needs to sustain an economic growth rate of at least 8 percent over the next 25 years. Primary energy supply, says planning commission chief Montek Singh Ahluwalia, will have to grow by 3 to 4 times and electricity generation capacity by 5 to 6 times from the levels at the beginning of this decade — a lot of this will be fuelled by imported coal, oil, gas and uranium.
Today, most of India’s major geopolitical relationships involve an energy dimension. In an energy-constrained world, India’s energy strategy needs external policy support to succeed. India has to develop close co-operation with not only oil-rich countries but also oil importing and technologically advanced countries. It should also maintain a diplomatic balance on conflict issues to safeguard its energy interests. Proximity and historical linkages with some of the world’s hydrocarbon-rich regions such as West Asia, East Russia, Africa and Central Asia uniquely positions India to forge stronger energy ties with them.
Hedging Against Risks
India and China share similar concerns over energy security as skyrocketing demand forces them to look beyond their territorial boundaries. In a paper titled ‘Energy as a factor in India’s external politics’, written for research organisation Icrier, V. Raghuraman, Suman Kumar and Inder Raj Gulati point out that India has often lost the race to China in Kazakhstan, Ecuador and Myanmar. ONGC’s joint venture with Mittal Energy, OMEL, lost its bid to acquire a stake in PetroKazakhstan as China put its full diplomatic might behind securing the deal. Similarly, an agreement between ONGC Videsh Limited (OVL) and Shell to buy half of an offshore oilfield in Angola fell through after China lured Angola to exercise its right of refusal with a $2 billion aid package, they say. The deal by the Myanmar government to export gas to China through a pipeline or as LNG has stymied India’s plans to import gas from Myanmar. India, however, recently showed its changing diplomatic colours when it rolled out the red carpet for General Than Shwe of the Myanmarese military Junta that rules the country.
India should continue to hunt for resources for a different reason too — to hedge against price-volatility. The International Energy Agency says India’s dependency on imported energy will go up to 90 percent by 2030 as the economy grows. “Equity in a coalmine or an oilfield gives the advantage of a price hedge. We do not necessarily have to physically ship the minerals to India — they can be traded in local markets at the price of the day. The advantage is that if prices go up, we have locked in our price,” says Ashok Sinha, chairman of oil refining and marketing company Bharat Petroleum. His company has already made the moves, successfully staking out in diverse geographies such as the Brazilian offshore and Mozambique.
Over the past few years, Indian private and state-owned companies have hedged political risk by diversifying the search for oil to various parts of the globe. A few, led by government oil company OVL, moved into strife-torn parts of the African continent, Russia and Latin America, which many Western majors are reluctant to enter. The International co-operation division of the ministry of petroleum and natural gas is where a lot of the geopolitical mapping on energy takes place these days. It is not entirely a coincidence that the Indian ambassador to Saudi Arabia, Talmiz Ahmad, was earlier the additional secretary in charge of this wing.
The government has allowed OVL to push the diplomatic envelope and invest in Sudan, knowing fully well that this might close doors for the company in the United States. Private oil companies have been quick to follow the lead and are making their own way. Reliance Industries Ltd. (RIL) has begun exploration drilling in its two onshore blocks in Iraq’s semi-autonomous Kurdistan, signing up as an early mover even when the government in Baghdad strongly disapproved. RIL has also led the way in sourcing crude oil all the way from South America for its Jamnagar refineries, scripting options to the traditional West Asian suppliers.
Politics of Climate Change
(This story appears in the 27 August, 2010 issue of Forbes India. To visit our Archives, click here.)