New Delhi: India and China are working towards establishing a buyers’ bloc to bargain collectively for crude oil purchases amid escalating tensions in the Persian Gulf. Li Fanrong, deputy administrator of China’s National Energy Administration, visited New Delhi last month as part of a high-level Chinese delegation to participate in the 6th India-China Strategic Economic Dialogue, said several Indian government officials.
Li had visited New Delhi in March also, following India’s petroleum secretary M.M. Kutty’s visit to Beijing in last year October. China and India are the world’s second and third largest crude oil importer, respectively.
Mint reported on 26 April about China and India nearing an arrangement to form a buyers’ bloc to check the influence of Saudi Arabia-led Organization of the Petroleum Exporting Countries (Opec) cartel on oil prices. India is also trying to stitch a wider alliance with Japan and South Korea - the world’s fourth and fifth-largest oil importers.
“The vice administrator of China’s National Energy Administration was part of the Chinese delegation that visited India in early September," said a senior Indian government official, requesting anonymity.
The 6th India-China Strategic Economic Dialogue was held from 7-9 September with round table meetings of Joint Working Groups (JWG) on infrastructure, energy, high-tech, resource conservation, pharmaceuticals and policy coordination. The talks were led by India’s federal policy think tank NITI Aayog and China’s National Development and Reforms Commission.
Following the strategic dialogue came the 14 September drone attacks on Saudi Arabian Oil Company or Saudi Aramco’s facilities that caused the biggest ever-disruption in global crude oil supplies.
“There is a need for a joint front given the day-to-day escalation in hostilities and uncertainty in energy markets," said a second Indian government official who also did not want to be named.
The unfolding events in West Asia have raised the spectre of a spike in transportation fuel prices in India, with traders worldwide speculating if oil will cross the $100-mark yet again. Any sudden increase in global prices will affect India’s oil import bill and its trade deficit. Every dollar increase in the price of oil raises India’s import bill by Rs10,700 crore on an annualised basis. India spent $111.9 billion on crude oil imports of 207.3 million tonnes in 2018-19.
The cost of the Indian basket of crude, which averaged $47.56 and $56.43 a barrel in FY17 and FY18, respectively, was at $59.35 in August, according to data from the Petroleum Planning and Analysis Cell. The average price jumped to $62.35 a barrel on 27 September. The Indian basket of crude represents the average of Oman, Dubai and Brent Crude.
Queries emailed on late Sunday evening to spokespersons of India’s petroleum and natural gas ministry and the Chinese embassy in New Delhi remained unanswered.
The potential collaboration between the Asian rivals is not only for crude oil purchases, but may also involve liquefied natural gas (LNG), including cargo swap options for gas. The tie-up, if it happens, and which is expected to have a major bearing on the global energy architecture, will also see the two countries look at alternative fuels such as shale oil and gas, and gas hydrates.
China and India are the world’s second and fourth largest importers of LNG as well. A record gain in crude oil prices could also aggravate India’s fiscal situation and make it tougher for the government and the central bank to effectively combat a slowdown in economic growth. India is particularly vulnerable as it imports more than 80% of its oil requirements and around 48% of natural gas.
Any potential tie-up, will have a major bearing on the global energy architecture. There has been an escalation in hostilities with the Donald Trump administration restricting entry into the US “for senior Iranian government officials and members of their families" and also imposing sanctions on Chinese firms and individuals for transporting Iranian oil.
Also, global shipping transportation prices have increased substantially post Trump administration’s plans to deploy an additional patriot missile battery, sentinel RADARS and additional personnel to Saudi Arabia.
Tensions in the region have been on a boil for a long, following an alleged attack by Iran in June on oil tankers in the strategic Strait of Hormuz, which provides passage to a fifth of global oil supplies. US has also alleged that Iran shot down an American UAV and was behind the drone attacks on Saudi Aramco.