Re-Energizing Old Relationships: India and Russia
- Aslesha Dhillon
- Mar 23, 2016
- 4 min read
“Russia is India’s closest friend, and the preferred strategic partner”- India’s Prime Minister Narendra Modi
The energy deals between Rosneft and Indian-state run oil companies have created a new chapter in the Indo-Russian ties. This is a very critical and important step for India in enhancing its energy security, developing its energy assets and enhancing its geopolitical and strategic position in the Asian continent.
ENERGY DEALS The leading Indian state-run oil companies have signed major deals, potentially worth over $4 billion, through acquiring a critical stake in the Russian Rosneft’s major Siberian oilfields. According to Sunjay Sudhir, the joint secretary for International Cooperation at India’s Oil Ministry, the consortium of the three Indian companies, namely, Indian Oil Corporation (IOC), Oil India and Bharat PetroResources will take a combined 29.9% share in Taas-Yuriakh Neftegazodobycha and a 23.9% stake in Vankorneft. Rosneft also offered a separate 11% in the project to Oil & Natural Gas Corp. (ONGC), which would be in addition to the 15% that the Indian explorer bought for $1.27 billion in September. If these deals are closed (which is anticipated to be by September), the four Indian state-run companies will own a total of 49.9% in the project, which is Russia’s second-largest oil development. On the other hand, Rosneft intends to buy a share of 49% in Essar Oil, an Indian refinery and has a contract with Essar to supply 10 million tonnes of oil per year to India that starts in 20163.
EVOLUTION OF INDO-RUSSIAN TIES
In the past, the bilateral relationship of India and Russia heavily depended on defense and strategic issues. India has deeply relied on Russia for its weapons, technology and industrial development. Specifically, during the 1965 and 1971 war of India and Pakistan, India heavily relied on Moscow’s diplomatic and military support. However, in recent times there has been a strain in the relationship due to Russia loosing some of the Indian defense deals to the U.S., Israel and other countries. While, the Indian defense establishment was also alarmed with Russia’s decision to supply Pakistan with military equipment. However, the two countries have re-engaged and signed various defense deals, last December. While, this clearly indicates that India perceives Russia as a critical element in their foreign policy, the current energy deals signed between the major state-owned oil companies of Russia and India, puts oil into the main picture of their bilateral ties.
MUTUAL-BENEFITS
Igor Sechin, the chief executive officer of Rosneft stated that these deals “establish a reliable energy bridge between our countries.” As Rosneft cannot get any finance from the Western states due to international sanctions, it is focusing on Asia for investment. Moreover the current fall in oil prices is only resulting in shorter supply of funding for geological exploration and development of energy reserves. In the current over supplied market, each producer is basically looking for buyers. Moreover, with Russia’s dependence on Europe as a consumer of its oil production, it is seeking to diversify its buyers for more security, leverage and funding.
India, on the other hand, is seeking to enhance its energy security and is thus, investing in assets abroad to match its increasing energy demand, amidst crude price volatility. As India’s economy is growing faster than most major countries, it is also replacing China as the center of the world’s oil demand growth. India imports 80% of its oil requirements and therefore, Prime Minister Narendra Modi has made energy security a priority for the country. India can choose to either sell all its cargo in the open market or ship its share from the Siberian fields to its domestic refineries. The latter would change the flow of the Siberian supply as it is mostly sent to closer regions. If it chooses to ship its share from the fields to run at domestic refineries, that would change the flow of Siberian supply, which is normally sent to closer regions. Sudhir Vasudeva, former chairman and managing director of ONGC stated that: “Energy security doesn’t mean you have to physically bring in oil and gas. You can sell your share and get money or you can swap this oil and get something nearby. But, at least you have the resources.”
GEOPOLITICAL AND STRATEGIC SIGNIFICANCE
The deals between Rosneft and the Indian-state owned companies have increased India’s share in two assets that are connected to the East Siberia-Pacific Ocean Pipeline. This pipeline has a direct connection to China, as it is the biggest buyer of Russian Crude oil in Asia and accesses majority of the supplies of the East Siberia-Pacific Ocean Pipeline6. While India is securing assets in the Asian continent for geopolitical and security reasons, it is also diversifying its crude-suppliers in order to protect itself from the geopolitical risks in the oil producing Middle East countries.
The energy deals between the Indian state-owned oil companies and Rosneft has made energy a very vital factor in their bilateral relationship. Energy is the backbone of the Russian economy and the path to India’s growth. Russia has turned to India to boost its sales, diversify its consumers and potentially grow their supply in the Asian market. While India, has gained access to production projects in Russia and enhanced its energy security.
References:
1 "India, Russia Oil Ties with $4billion Deals." The Times of India. 17 Mar. 2016|. Web. 2 Chakraborty, Debjit. "Russia Deepens Oil Ties to India With Siberian Field Sales." Bloomberg.com. Bloomberg, 16 Mar. 2016. Web. 3 Rosneft. Newsroom. Rosneft Confirmed Its Interest to Enter Essar Oil Limited Share Capital. Rosneft.com. 16 Mar. 16.
4 Chakraborty, Debjit. "Russia Deepens Oil Ties to India With Siberian Field Sales." Bloomberg.com. Bloomberg, 16 Mar. 2016. Web.
5 Chakraborty, Debjit. "Russia Deepens Oil Ties to India With Siberian Field Sales." Bloomberg.com. Bloomberg, 16 Mar. 2016. Web. 6 "Russia." EIA. U.S. Energy Information Administration - EIA - Independent Statistics and Analysis
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