Venezuelan President’s Visit Significant For India’s Oil Economy

Though other areas of possible collaboration, like pharmaceuticals, digital finance, and critical minerals, were discussed, the primary issue was related to energy, with a tour of the Reliance Industries’ Jamnagar oil refinery. 

The visit came at a time of enormous volatility in global oil markets, owing to the West Asia conflict creating disruptions in movement through the critical Strait of Hormuz. With 40% of India’s oil and gas imports having to traverse this chokepoint, there has been an urgency to diversify supplies to other parts of the world. Apart from Russia, which has now once again become the country’s leading oil supplier, more hydrocarbons are being sourced from a wide range of countries. Among these, Venezuela has rapidly emerged as the third largest supplier of crude oil.

For Venezuela, India is now the second largest buyer of oil after the US. 

India Pivoting To New Sources

The visit thus assumes great significance as India is now seeking to pivot away from its traditional oil and gas suppliers in West Asia following the blockade of the Strait of Hormuz, the narrow channel that connects the Gulf of Oman with the Persian Gulf. 

Fortunately, the decision to diversify suppliers had been taken by the Petroleum Ministry and oil refiners even before the war broke out. As a result, India, which is the world’s third largest oil importer, is now buying oil from as many as 40 countries. 

Even so, the blockage of the strait caused many uneasy moments at the outset of the war, especially in the case of liquefied petroleum gas (LPG) imports because as much as 85% of these cargoes move through the strait. The shortfall experienced due to supply disruptions has now eased considerably as domestic output of LPG has been ramped up.

The visit of Rodrigues is a signal that Venezuelan oil is likely to continue arriving in not just the short run but also in the medium to long term. It is a win-win situation for both sides as Venezuelan crude is a heavy and high sulphur petroleum that cannot be processed at most refineries in the world. India, however, has the capability to utilise this crude. 

Several refineries, including those of RIL, Bharat Petroleum Corporation, and the Mittal-HPCL refinery, can process it, making it a viable option for this country. 

Overcoming High Freight Cost

The issue in importing from Venezuela in the past had been the high freight cost which is five times higher than crudes from West Asia and twice that of Russian crude. But this disadvantage has now been overcome as discounts are being offered that make the price competitive with crudes from West Asia and Russia. 

Global brent crude prices have surged following the US-Israel attack on Iran. 

Though at present, it has fallen below the US$ 100 a barrel level, it was trading over $110 a barrel just a few weeks ago. 

At the same time, the long-term prospects for importing this oil will depend largely on the revival of production infrastructure in Venezuela. The facilities that had been established several decades ago have fallen into disuse. These will have to be rebuilt in a hurry if the country is to resume its role as a major global oil exporter.

The recent developments in Venezuela, including the abduction of President Nicholas Maduro by US President Donald Trump’s administration, must also be taken into account. The new system of finances related to oil sales are reported to be under the supervision of the American authorities, who have banned sales to some countries like China and Cuba. India, on the other hand, is being seen as one of the biggest consumers for Venezuela. 

Yet the long-term outlook for oil production there will remain uncertain until the facilities are revived completely. The US has sought to involve private oil companies in developing oil and gas infrastructure, but it is not clear whether any plans have yet got off the ground.

As far as India-Venezuela energy ties are concerned, it must be recalled that India had been importing crude right up till 2019, after which US sanctions were imposed on these sales. 

Indian Investment In Venezuelan Oil

What is also little known is that the international arm of the Oil and Natural Gas Corporation (ONGC), known as ONGC Videsh Limited had invested in the Venezuelan oil sector as far back as 2008. It even entered into a collaboration with the state oil company, Petroleos de Venezuela S.A. (PDVSA) to enter into oil exploration in the San Cristobal field. Subsequently, a consortium comprising the public sector companies OVL, Indian Oil Corporation and Oil India Limited acquired an 11 per cent equity stake in the heavy Carabobo I project in the Orinoco belt. In sum, these companies are reported to have invested about one billion dollars in these oil projects. 

Owing to international sanctions on Venezuela’s oil output for many years, these projects were not only stalled but the dividends from the ventures could not be realised. Some reports suggest that India is in talks with the US to recover the earnings from these sanctioned assets, which are estimated at about US$ 600 million. Given this backdrop and the altered political scenario in the Latin American country, it is evident there would be eagerness on both sides to resume collaboration on the energy front.

This cooperation must now be carried forward with vigour in the long run, in view of the fact that Venezuela has the largest proven oil reserves in the world, according to the US Energy Information Agency. 

These account for about 17%-20% of global oil supply. India had taken steps long ago to invest in the South American country’s oil sector and efforts must be made to ensure that these earnings are brought back to this country. 

The collaborations undertaken at that time also ensure that India has a head start in investing in a country that could potentially become one of the world’s biggest oil producers and exporters. We need to make sure that we are able to reap the benefits of this early mover advantage. The visit of Rodrigues must thus be viewed as positive economic diplomacy that is likely to have concrete and productive outcomes for this country.