An oil war is brewing between the world’s largest crude exporter, Saudi Arabia, and the world’s third-largest crude consumer, India.
India has long pleaded with Saudi Arabia to keep oil prices lower to help sustain economic growth in the developing and emerging economies of Asia.
In rather hushed tones, for diplomatic reasons, India has protested high oil prices, saying these are often jacked artificially.
Recall that Mani Shankar Aiyar, the Indian oil minister in Manmohan Singh’s first cabinet after the 2004 election, urged oil-producing countries to keep prices manageable for the underdeveloped but growing economies of the world.
With Asia emerging as a major oil consumer, the International Energy Forum, under founding secretary general Arne Walther (2004 to 2009), tried to formalize dialogue between oil producers and major Asian crude consuming countries. Through Asian ministerial round tables, the group endeavoured to develop a sense of crude bonhomie between the two sides.
Those were different days, when India couldn’t afford to pick an open fight with Saudi Arabia.
But things have turned full circle since then. With new players on the global oil scene and a sense that it could pick and choose its suppliers, India is in an open rift with Saudi Arabia.
Saudi Arabia wants to optimize its crude oil revenues, while India is clamouring for lower prices, especially in the post-COVID-19-pandemic era.
In recent months, Indian Petroleum Minister Dharmendra Pradhan has pleaded with Saudi Arabia and its allies in OPEC+ to ease their production cuts, arguing that the resulting high oil prices could impede global economic recovery. Pradhan has also chided the Organization of Petroleum Exporting Countries kingpin Saudi Arabia for “creating confusion” among consuming countries.
Saudi Arabia wasn’t inclined to pay much attention to Indian requests. Instead, the Saudis stunned the markets earlier this year with an extra output cut of one million barrels per day.
In response to a question related to India’s pleas at a news conference after the March OPEC ministerial meeting, Saudi Oil Minister Prince Abdulaziz bin Salman was straight and firm: “With regard to India, very simple. I would ask my friend that he withdraw some of the cheap oil that they bought in April, May and June (2020).” He was referring to the 16.7 million barrels of crude India bought and stored in its strategic reserves through the second quarter of last year at an average price of $19 a barrel.
India was left fuming. After all, the 16.7 million barrels of strategic reserves Abdulaziz referred to basically covered just four days of Indian needs.
And then in early April, Saudi Arabia disregarded Indian pleas and announced it was hiking the official selling price for its oil for Asian buyers.
India clearly was fed up at that point.
Pradhan stressed last week that Saudi Arabia’s advice to India to reduce oil stores to tackle high crude prices was undiplomatic. He said India would buy crude from any country that offered cheaper and favourable deals. “We are an open, free market,” he emphasized.
Indian public-sector refining companies have reportedly been instructed to increase imports from the United States and Africa because the giants in the Middle East are artificially jacking up the prices.
“We will cut imports from Saudi at least by one-third in May,” a senior Indian executive was quoted as saying. Instead of the average monthly import order of 14.8 million barrels, the Indian public-sector refiners have placed orders for just 9.5 million barrels of Saudi oil in May.
Those same refiners are also looking to purchase from Brazil, Guyana and Norway.
Can India sustain this tug of war, which carries geopolitical connotations?
It remains to be seen.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.