Special Report: India Making Sense of its Oil Needs

2005

Auriol Weigold

Following Jayanthi Iyengar's article on likely economic gains for India from its new nuclear status (August issue, Asian Analysis), India's oil needs merit exploration in a triangular context with China and the United States.

As the US pushes its set of interests across Asian regions, arguably treating India and China as rivals rather than equals (Al-Ahram Weekly On-line, 4-10 August 2005), what has it achieved?

India has been legitimised as a nuclear power and has promised to 'combat terrorism relentlessly', which it was already doing.

US pressure on China for an upward evaluation of the yuan, following the Chinese bid to buy US oil producer Unocal, realised a 2.1 per cent re-evaluation that will not improve prospects for US manufacturing exports; but a stronger yuan will make it less costly to buy US oil companies.

Neither represent much more than paper gains for the US, but its militarism and drive to control world oil supplies is of great concern to energy-hungry India and China and is reminiscent of earlier episodes of the 'great game'.

For India it makes oil sense to cooperate with China. India imports close to 70 per cent of its oil needs, consuming over 2 million barrels a day in 2004. China, however, consumes a massive 6.79 million barrels a day, importing some 40 per cent. Its demand growth accounted for almost one third of world output last year. (Resource Investor, 11 August 2005).

The Indian Government forecasts that by 2025, India's daily oil consumption will be 7.4 million barrels a day. Together with a projection of China's oil and gas needs, the two nations' combined needs suggest an unprecedented competition with the developed world.

India and China held a first round of strategic energy discussions in Beijing in mid-August to explore ways to cooperate in the acquisition of overseas oil and gas assets, and are reported to be exploring options in Africa, Central Asia, Latin America and Russia. Russia was the site of rivalry between India and China early in 2005, both seeking a stake in the Yukos assets, emphasising the sense in taking a collaborative approach to acquisitions of oil and gas.

Economic and geopolitical conflicts between India and China are long-standing, but while each value their separate relationships with the US, both would prefer a multipolar world order that recognises their importance. This reinforces the advantage of pragmatic cooperation in a supply area vital to both.

India is wary of US aims to make it a player in any future confrontation with China and is also wary of the outcome of future competition with China over energy resources.

With such caveats in mind, Indian Prime Minister Manmohan Singh recently stated: "Diplomacy has changed and today it is about economics, trade and petroleum" - reflecting India's 'oil sense'.

WATCHPOINT: Indian and Chinese Heads of Government have similar interests in promoting rapprochement. On the economic front both countries have agreed to establish joint economic groups and closer financial relations more generally. One key area is oil and gas, and the Indian proposal that a pipeline from Iraq, crossing Afghanistan, Pakistan, India and Myanmar to Yunnan province, may see further US action to anchor more firmly its newly strengthened ties with India.

 

About our company:

AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

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