Will India look towards Latin America and the Caribbean to
balance the Crude oil import?
Article in Audio :
Increasing petrol and diesel prices is the main
concern for the growing middle-class population in India. The increasing fuel
prices also impact the Indian economy and the transportation costs. In April
2019, the United States announced that it would not extend beyond May 01, 2019
the waivers it had granted to eight countries and including India, on sanctions
related to the imports of oil from Iran. Due to this Brent crude oil price
suddenly jumped to more than $75 barrel. India has imported nearly $12.95
Billion crude oil from Iran in the period of Jan-Dec 2018, however, after the
announcements by the Trump administration to end the waiver, Indian government
will face the immediate challenge to find alternative suppliers to meet its
huge energy demand.
To understand India’s growing crude demand – it is prudent
to compare the 2017 and 2018 Crude oil import from the world, which has
increased by 39.59% in 2018 over 2017 and recorded total $114.51 Billion value
crude oil import from the world.
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Currently, India’s major suppliers are Iraq
and Saudi Arabia, India has recorded Crude oil import from Iraq ($22.98
Billion) and Saudi Arabia ($21.19 Billion) in 2018, the graph is showing the
importing of crude oil from Jan-Dec 2018 in India from origin countries.
Due to the US sanction on Iranian crude oil, India can seek
additional supplies from other major oil-producing countries to compensate for
the loss of Iranian crude. But it’s not so easy, most of the Indian oil
refineries are set to process Iranian grade crude oil and it is not possible to
overnight run refineries on other grade crude oil. The Iran Crude oil situation
due to US sanctions has shifted the focus on the Venezuelan Crude oil and the
transaction to be done in Indian currency. However, the question arises “Will
INDIA ACCEPT ALTERNATIVE PAYMENT MECHANISM ?” whereby entire payment can be made
in rupees for Venezuelan Crude oil. If India were to accept this transaction
terms, though this will impact the trade with the South American country
Venezuela, leading to imbalance in trade but on the other hand the buying crude
oil Indian currency can secure Indian buyers for Venezuelan crude oil.
India
import of Crude oil from Venezuela is recorded $7.38 Billion in the period of
Jan-Dec 2018, where importing of Venezuelan crude oil is at 20-30% discount
below prevailing world crude oil prices. Reliance Industries and Nayara Energy
are the biggest Crude oil importer of Venezuelan oil, because their advanced
refining systems can process the thick Venezuelan grade into high-valued fuels
such as Gasoline, Low-Sulfur Diesel (LSD) and Jet fuel. Although, in January
2019 the Trump administration has imposed sanctions to end those sales and
starve Mr. Maduro’s government of revenue.
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Is Latin America and the Caribbean
region the answer to India’s energy security?
Over the last few decades the
import of crude oil from Latin America and the Caribbean Countries has gone up.
From period Jan to Dec 2018 India has imported $13.14 Billion Crude Oil from
Latin America. Venezuela topped the chart at $7.38 Billion in exporting crude
to India, followed by Mexico $3.71 Billion, Brazil $1.49 Billion, Colombia
$0.371 Billion and Ecuador ($0.126 Billion) as shown in figure.
The bilateral
trade between Indian and Mexico has witnessed an upswing and recorded in
Jan-Dec 2018 $8.88 Billion out of which $3.578 Billion Crude oil has been
imported and it is expected to go up further. Earlier this year Indian Oil Corp
(IOC) signed its first annual contract with US suppliers and raised supplies
from Mexico.
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However, distance between India and Origin country (crude oil
exporter) is an important factor as this adds to the freight cost, taxes on
crude oil and cost of production. If an available crude is traded at a discount
to Brent crude with a difference of $3 to $5 a barrel and flexible payment
terms (credit), it can make it very attractive. The graph shows and example of
increasing the Cost of Crude oil and Crude oil price movement.
Note : The Article was published in "The Financial Express" by author Sandeep Wasnik.
Article by Sandeep Wasnik | Latin America & the Caribbean Market Expert
Contact : latinosbiz@gmail.com
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