by R. Sasankan
The
Gulf nations are scrambling to grab a slice of India’s lucrative oil
and gas market. The latest to join the frenetic race is Kuwait,
following in the wake of the United Arab Emirates (UAE) and Saudi
Arabia. Kuwait should never have been cast in the role of a laggard;
after all it was one of the early birds and had signed a Memorandum of
Understanding (MoU) with Indian Oil Corporation – India’s largest
state-owned refining and marketing company -- way back in the 1990s when
it offered to pick up a 26 per cent stake in the 15 million metric
tonne per annum (MMTPA) refinery proposed at Paradip on the east coast
in the state of Orissa.
But Kuwait’s initial interest in India evaporated after the MoU
collapsed and the project languished for more than a decade before IOC
revived it after scrapping plans for the petrochemical unit. Paradip
Refinery was commissioned only a year ago. Obviously, both sides must
have wrangled over the terms of investment. But those details have never
been disclosed. Kuwait Petroleum Corporation (KPC), which signed the
MoU, cannot be blamed for its diminished enthusiasm for investment in
India. After all, back in the 1990s, India wasn’t recognised as a
top-notch investment destination. Ever since the oil boom, the oil-rich
Middle East nations have always preferred to park their funds in the
West. They could not obviously imagine that India would become the
world’s third biggest importer of crude and its economy would emerge
into the fastest-growing in the world.
In
contrast, the UAE leadership has shown sharper reflexes by deciding to
offer India an equity stake in a major producing field. The
traditionally conservative Saudi Arabia, which has been looking to pick
up an equity stake in an existing refinery, surprised the oil industry
when it opted for a 50 per cent stake in the proposed 60 million tonne
refinery that the country’s three oil PSUs have jointly decided to
establish. Kuwait is now playing catch up. It does not want to be left
behind and has started exploring opportunities to invest in an existing
Indian refinery. Kuwait lost the first mover advantage but it is better
to be late than never.
Readers may wonder why I picked this subject for a column. Clearly,
there is something more than that meets the eye. In the Middle East, the
UAE and Kuwait are extremely friendly with Saudi Arabia and accepts its
leadership without demur. The Saudi overture in India has only piqued
their interest in the region. But then that might be a very simplistic
explanation given the various undercurrents that are at play.
There
is a battle brewing among various oil producers around the world to
capture a share of India’s growing market. The Gulf brigade – which has
held a virtual hammerlock on India’s energy imports – was caught
completely by surprise when Vladimir Putin’s Russia wrested the 20
million tonne per annum Essar Oil’s refinery on the West Coast. Saudi
Aramco tried to muscle into the game with a counteroffer but Putin
intervened personally to ensure that Russia’s state-owned Rosneft bagged
the deal. The advantage of Essar Refinery is that its capacity can be
doubled which is precisely what Rosneft is now planning to do. It also
has got close to 4,000 retail outlets. Rosneft is also planning a
petrochemical unit at the same location.
Both geographically and politically, Russia is very close to Iran. The
Saudi-led oil rich countries have been close allies of the US. The
American leadership has been contemplating fresh sanctions against
Russia and Iran. Saudi Arabia and Iran are bitter rivals in the Middle
East. It is in the interest of the Saudi-led Middle East countries to
see that Iran and its friend, Russia, do not make further inroads into
the huge Indian market. Experts do not believe that Saudi and Kuwaiti
interest in investing in India are discrete and isolated instances.
India, they say, is moving closer to the US bloc, serving their
geopolitical interests.
Meanwhile,
Russia is laying a gas pipeline to Pakistan from Iran to sell its share
of gas that it gets from Iran. (Russia had helped Iran out of a sticky
situation after the West imposed debilitating sanctions against the
Ayatollah Khamenei regime. Russia was paid in oil and gas which it is
now trying to market).There is every possibility that this gas pipeline
will enter India at a later stage, providing a conduit for Iran gas as
well. Iran desperately needs the Indian market to peddle its gas. But
this raises a big question: Will Pakistan be able to defy the US if
asked to pull out of the gas pipeline project? Pakistan is now closer to
China than to the US. However, the US still wields enough clout which
can be used to destabilise any Pakistani leadership which goes against
its interests. Pakistan’s growing closeness to China may also scuttle
the possibility of Iran gas entering the Indian market, even at a later
stage.
In fact, it was India’s reluctance to join the proposed
Iran-Pakistan-India (IPI) gas pipeline that strained India’s relations
with Iran. Iran firmly believes that India acted under US pressure and
it must be said that there is considerable truth in that perception.
India, which sought and got the US support for its civil nuclear deal
during the tenure of George Bush, could not have acted in a manner that
would compromise the interests of the US, which has been totally opposed
to any such commercial deal with Iran. Equations in international
relations are dictated by self-interest.
Iran lacks the flexibility to adjust to harsh realities. It has annoyed
India on quite a few issues, especially in the development of Farzad B
gas field which was discovered by India’s state-owned enterprises. In
the emerging scenario, the Saudi-led Middle Eastern countries which are
close to the US are making a determined bid to enhance their presence in
the Indian market while Iran, which once enjoyed robust trade relations
with this country, is gradually becoming distanced from India.
Kuwait’s presence in the Indian refinery sector will certainly give a
further boost to the country’s petroleum sector. Its investment will not
be as large as that of Saudi Arabia. But it will matter a great deal as
Kuwait has traditionally been a major supplier of crude to India. With
so many big players in the queue to enter its market, India has
burnished its image as an attractive investment destination. Image
matters because it minimises the scope for wrangling. Oil producers are
facing the biggest threat to their business from electric vehicles and
solar energy. They desperately need safer markets. India is reckoned to
be the best bet because of its large appetite for crude oil and gas and
the expectation that it will be slow to embrace the razzle-dazzle
concept of electric automobiles.