It is no revelation to say that India, as it begins to bloom as a global power, is adopting a China-like posture in its search for new oil suppliers. New Delhi’s quest for energy supplies, as well as other extracted resources, has brought the Asian powerhouse to the Western Hemisphere, and to Washington’s attention. India is befriending potential oil suppliers, be it Mexico or Venezuela, Cuba or Canada. Even more interesting are New Delhi’s approaches to Cuba regarding the island’s possible oil reserves. It seems clear that India is hungry for guaranteed oil sources in order to maintain its booming economy’s momentum and its growing geopolitical influence, and in Latin America it is finding these potential suppliers and new friends.
Indian Oil Hunger
On July 2nd, the Financial Express published an article predicting that the Indian government will send the Indian Navy to fly the flag throughout the hemisphere in oil-rich zones, especially locations where the state-owned oil company, ONGC Videsh Ltd (OVL), has invested in oil and gas exploration. Pranab Mukherjee, external affairs minister, said that maritime diplomacy has become an essential component of India’s overseas foreign policy and that it must fulfill its necessities outside the immediate geographical area. “We have to look at the investments ONGC Videsh is making in energy rich areas such as Sakhalin, Sudan, Nigeria and Venezuela and extend our maritime interests through maritime diplomacy,” Mukherjee said.
Furthermore, a senior member of the Confederation of Indian Industry (CII) said the obvious when he noted that “oil is the need of the hour and India has to focus on new markets to get the momentum going. We have to go beyond Europe and build economic cooperation.” According to a report issued by the Indian news agency PTI, the growth of oil imports in the first four months of 2006-07 came to 43 percent, 32 percent in 2005-06 and 62 percent in 2004-05. India is importing crude oil not only to meet domestic demand of petroleum products, but also for export of value-added products. The report mentions that Indian oil imports, mostly comprised of crude oil, were valued at $19.87 billion between April 2007 and July 2008. India also has plans to have as much as 5 million tons of oil in reserve for emergency use. The country currently imports around 70% of the oil it consumes.
It is only natural that India will soon have to turn in a major way to areas with reliable sources of oil, like Latin America, which presently is the second-largest source of oil reserves after the Middle East.
Last September, as reported by the Caracas daily El Nacional, Venezuela’s Hugo Chávez was quoted as saying: “India needs more oil each day. Venezuela wants to become and will become India’s oil supplier.” Not long after that, in January 2007, there were reports that Venezuela’s state oil company, Petróleos de Venezuela SA, or PDVSA, was looking at the possibility of setting up a refinery in India and establishing a petroleum retailing venture there. An Associated Press article elaborated that the proposed refinery would process the Venezuelan crude from the San Cristobal block, where India’s ONGC Videsh Ltd., an arm of ONGC, has been offered a 30 percent stake. The block has the potential to produce 900,000 to 1 million barrels of oil daily. On February 16, AFX International Focus reported that President Chávez said he is ready to divert oil exports from their current markets to other countries like China and India, although his ability to find an immediate alternative market is complicated because most refineries capable of processing Venezuela’s heavy crude are located in the United States.
Recently, Chávez ran into trouble with foreign oil companies regarding the nationalization of oil production ventures in the South American country. As a result, oil companies like Exxon and Conoco operating in the country decided to liquidate their stakes in Venezuela and seek just compensation. It is unclear if this nationalization would also affect Indian companies, but it seems clear that, regardless of whatever decisions Chávez carries out, New Delhi intends to go well out of its way to obtain a share of Venezuelan oil rights. This is particularly true after the recent $10-billion deal signed between Beijing and Caracas. China already is India’s direct competitor in Asian energy markets, and New Delhi cannot afford to be left out of the race for dwindling global oil supplies.
As important as Venezuela is, due to its vast oil reserves, it is noteworthy that India is also looking for oil suppliers elsewhere in the region.
A March 29 article by Business Times Singapore provides the example of Brazil as an untapped oil giant. The article explains that with almost 12 billion barrels, Brazil ranks third in proven oil reserves in the region, after Mexico and Venezuela; it also has much unexploited potential reserves. Sixteen per cent of Latin America’s oil supply in 2005 came from Brazil and the country’s market share is scheduled to expand to 21.5 per cent by end-2010, with 2.5 million barrels per day in production.
Brazil’s major oil reserves are certainly of interest to India. A June 4 AP Financial Wire article reported that India’s state-run Oil and Natural Gas Corporation (ONGC) and the Brazilian state-run oil leader Petróleo Brasileiro, or Petrobras, “agreed to swap interests in oil exploration blocks, as part of efforts to boost economic cooperation between the two countries.” The blocks are located in Maranhão, in the Sergipe-Alagoas Basin and in the Santos Basin. Last year, the Indian company bought a 15-percent stake in a Brazilian offshore oil field for about US$170 million from Royal Dutch Shell PLC, after Petrobras agreed to waive its first right to buy that stake once it became available. Under the latest agreement, Petrobras plans to offer 25- to 30-percent stakes to ONGC in three exploration blocks in Brazil.
A September 10 Deutsche Presse-Agentur article explains that in 2006 crude oil accounted for 90 percent of Mexico’s exports to India, which makes petroleum the cornerstone, at this time, of Indian-Mexican relations. In addition, the Mexican Energy Secretary has released a press statement announcing that four companies—the Colombian state oil company Ecopetrol, Japan’s Itochu, India’s Reliance, and the U.S. company Valero—have shown interest in building a refinery in Central America. The members of the Plan Puebla Panama (PPP) co-operation scheme back the project, with four countries (Costa Rica, Guatemala, Honduras and Panama) interested in being considered as the location for the new refinery.
The idea of building this type of oil facility was first announced by former Mexican president Vicente Fox at the Summit of the Americas, held at Mar del Plata in November 2005. According to a July 9 article which ran on the AP Financial Wire, Mexico has promised to supply the plant with 80,000 barrels of heavy crude daily from the state-owned oil company, Petróleos de Mexico. The company that wins the construction bid will also be committed to supplying 55,000 barrels a day of gasoline and diesel stock (36 percent of regional demand) at a preferential price.
The aforementioned Business Times article regarding Mexico mentions that the country is stepping up oil production, and is expected to produce 3.8 million barrels of oil per day by 2010, which adds up in total to about 33 percent of Latin America’s supply. Mexico’s share of regional refining capacity, at almost 21 percent in 2005, is likely to expand to almost 23 percent. The country has six refineries with a total capacity of about 1.5 million barrels per day.
It will be interesting to see how the recent bombings around a dozen oil and gas pipelines in the Gulf Coast state of Veracruz affect, it at all, Indian-Mexican relations and oil-related projects. The People’s Revolutionary Army (ERP) has claimed responsibility for these attacks. President Felipe Calderon was actually on a visit to India when the incident occurred. He declared that “there is no room for such criminal acts in a democratic Mexico.”
Cuba & the Caribbean
In September 2006, India’s Oil & Natural Gas Corp. announced they will explore oil deposits in the N-34 and N-35 blocs of Cuba’s economic exclusion zone in the Gulf of Mexico. Cuban President Fidel Castro partly opened the oil sector to foreign investment in June 1999, in order to cut dependence on oil imports after years of power blackouts and fuel shortages. The blocs have an estimated size of about 1,660 square miles and are located in western Cuba. This is a six-year agreement through which the Indian oil giant will explore an area of 4,300 square kilometers (1,544 square miles) of Cuban waters. \
When the decision was announced, Florida’s daily St. Petersburg Times published an article explaining that: “exploring for oil ninety miles off the coast of Florida has set off a political debate over whether U.S. companies, sidelined by sanctions, should be allowed to explore there. Some Florida lawmakers say they are worried about environmental damage and the potential threat to Florida’s tourism industry, and want companies exploring with Cuba punished.” U.S. companies are barred from oil exploration in Cuba’s offshore due to executive-mandated trade sanctions enforced against Havana since 1962.
It is noteworthy that Cuba is not the only country that India is courting in the Caribbean, nor is it only oil on India’s mind. An April 24 article by Business Line explained how relations are improving between Trinidad and Tobago and India. The article explains that there have been on the Caribbean island, with its large Hindu population, a total of $3 billion in Indian investments. Mittal Steel has invested $1.8 billion, while Essar Steel is setting up another steel plant costing $1.2 billion. The island also possesses abundant oil reserves. Finally, the article notes that a delegation from Reliance Industries Ltd (RIL) was in Suriname last month looking at the possibility of oil exploration and production as well as mining projects.
Colombia, Peru and Bolivia
Meanwhile, with respect to Colombia, a key South American player, New Delhi is also making its presence felt. Last September, the Press Trust of India reported that the Indian Oil company paid about $425 million dollars to acquire 50 percent stake in the Colombian oil firm, Omimex de Colombia. The article explains that India’s state-owned ONGC Videsh Ltd, the overseas arm of ONGC, and the Chinese firm Sinopec are paying $850 million dollars to acquire Omimex de Colombia, which currently produces 20,000 barrels of oil per day.
With regards to Peru, the Indian company Reliance is at an advanced stage of closing contracts on two oil blocks in the Andean country.
Finally, as a side note but of equal importance, even if it is not oil-related, is a recent deal between New Delhi and La Paz, regarding El Mutún in Bolivia, the world’s largest undeveloped iron deposit, which is estimated to contain more than 40 billion tons of ore. Jindal Steel & Power Limited (JSPL) along with its subsidiary Jindal Steel Bolivia (JSB), signed a contract with the Bolivian government, through which JSPL will invest US$2.1 billion over eight years to develop an integrated steel plant in the country. A JSPL press release explains that “this is the largest investment by an Indian company in Latin America and the largest foreign investment in a single project so far in Bolivia.”
Oil and Friends for New Delhi
Along with China, India is one of the world’s growing superpowers. With this new position comes a demand for energy to supply its accelerating economy and its increasingly diversified industries. By entering the Western Hemisphere, India is expressing interest in Washington’s backyard; even more interesting is New Delhi’s approach to Cuba. This must be of major concern for Washington as it refuses to loosen its trade barrier on the Caribbean island. What’s worse for the U.S., it is hardly in a position to exercise pressure on its vital newfound Asian ally. Washington seems to be caught between a rock and a hard place, while Indian influence, in its quest for oil, continues to expand throughout the Western Hemisphere, unencumbered by ideological considerations or historic political animosities.