By Sandeep Wasnik
Will India look towards Latin America and the Caribbean to balance the Crude oil import? Increasing petrol and diesel prices is the main concern for the growing middle-class population in India. The increasing fuel prices also impact the Indian economy and the transportation costs. In April 2019, the United States announced that it would not extend beyond May 01, 2019 the waivers it had granted to eight countries and including India, on sanctions related to the imports of oil from Iran. Due to this Brent crude oil price suddenly jumped to more than $75 barrel. India has imported nearly $12.95 Billion crude oil from Iran in the period of Jan-Dec 2018, however, after the announcements by the Trump administration to end the waiver, Indian government will face the immediate challenge to find alternative suppliers to meet its huge energy demand. To understand India’s growing crude demand – it is prudent to compare the 2017 and 2018 Crude oil import from the world, which has increased by 39.59% in 2018 over 2017 and recorded total $114.51 Billion value crude oil import from the world. Currently, India’s major suppliers are Iraq and Saudi Arabia, India has recorded Crude oil import from Iraq ($22.98 Billion) and Saudi Arabia ($21.19 Billion) in 2018, the graph is showing the importing of crude oil from Jan-Dec 2018 in India from origin countries.
Due to the US sanction on Iranian crude oil, India can seek additional supplies from other major oil-producing countries to compensate for the loss of Iranian crude. But it’s not so easy, most of the Indian oil refineries are set to process Iranian grade crude oil and it is not possible to overnight run refineries on other grade crude oil. The Iran Crude oil situation due to US sanctions has shifted the focus on the Venezuelan Crude oil and the transaction to be done in Indian currency. However, the question arises “Will INDIA ACCEPT ALTERNATIVE PAYMENT MECHANISM?” whereby entire payment can be made in rupees for Venezuelan Crude oil. If India were to accept this transaction terms, though this will impact the trade with the South American country Venezuela, leading to imbalance in trade but on the other hand the buying crude oil Indian currency can secure Indian buyers for Venezuelan crude oil. India import of Crude oil from Venezuela is recorded $7.38 Billion in the period of Jan-Dec 2018, where importing of Venezuelan crude oil is at 20-30% discount below prevailing world crude oil prices. Reliance Industries and Nayara Energy are the biggest Crude oil importer of Venezuelan oil, because their advanced refining systems can process the thick Venezuelan grade into high-valued fuels such as Gasoline, Low-Sulfur Diesel (LSD) and Jet fuel. Although, in January 2019 the Trump administration has imposed sanctions to end those sales and starve Mr. Maduro’s government of revenue.
Is Latin America and the Caribbean region the answer to India’s energy security? Over the last few decades the import of crude oil from Latin America and the Caribbean Countries has gone up. From period Jan to Dec 2018 India has imported $13.14 Billion Crude Oil from Latin America. Venezuela topped the chart at $7.38 Billion in exporting crude to India, followed by Mexico $3.71 Billion, Brazil $1.49 Billion, Colombia $0.371 Billion and Ecuador ($0.126 Billion) as shown in figure.
The bilateral trade between Indian and Mexico has witnessed an upswing and recorded in Jan-Dec 2018 $8.88 Billion out of which $3.578 Billion Crude oil has been imported and it is expected to go up further. Earlier this year Indian Oil Corp (IOC) signed its first annual contract with US suppliers and raised supplies from Mexico. However, distance between India and Origin country (crude oil exporter) is an important factor as this adds to the freight cost, taxes on crude oil and cost of production. If an available crude is traded at a discount to Brent crude with a difference of $3 to $5 a barrel and flexible payment terms (credit), it can make it very attractive. The graph shows and example of increasing the Cost of Crude oil and Crude oil price movement.
Author: Sandeep Wasnik, Chairman, Atlassons Business Services Private Limited