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New Delhi: With the US ban on imports of all Russian oil and gas and energy, Indian state-owned firms that have invested $16 billion in Russia’s energy sector are trying to work out a way to sequester their investments from any potential fallout, said Indian government officials aware of the development.
Mint earlier reported about Oil India Ltd having no 'near-term' plans to acquire energy assets in Russia in the wake of Western sanctions.
The Indian government is also keeping a watch on the likely impact on dividend payouts and future investments of Indian state-run firms in energy sector projects located there, with the payment channels hit by Western sanctions on Russia.
“Today I’m announcing the United States is targeting the main artery of Russia’s economy," US President Joe Biden said on 8 March and added, “We’re banning all imports of Russian oil and gas and energy."
Post the announcement, global oil prices continued their rally on Wednesday with Brent trading at $131.2 a barrel and West Texas Intermediate at $126.3 a barrel at press time. The cost of the Indian basket of crude, comprising Oman, Dubai and Brent crude, was at $126.36 per barrel on 7 March. Brent had touched an all-time high of $147.50 a barrel in July 2008. Given the impending ban, Russia had warned of $300 per barrel oil prices.
While Russian energy supplies to India are low, the Russian crude and LNG will be now off the market for US, which may further lead to a spike in prices. This also raises concerns about India’s and Russia’s multi-pronged energy engagement that involves energy sourcing and supplies, upstream investments, and joint collaboration in petrochemicals.
India, the world’s third-largest oil importer has been leaning on its old energy partner Russia and has been eyeing more long-term crude oil contracts through preferential pricing. India signed the first term contract for crude oil sourcing from Russia in February 2020, with IOC and Rosneft inking the agreement for 2 million metric tonnes (mmt) of Urals grade crude.
“That means Russian oil will no longer be acceptable at U.S. ports, and the American people will deal another powerful blow to Putin’s war machine," Biden said.
This assumes significance for an energy-dependent India that imports to meet 85% of oil demand and 55% of natural gas requirements. India spent $62.71 billion on crude oil imports in FY21, $101.4 billion in FY20, and $111.9 billion in FY19.
“We’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us," Biden said.
Indian state-owned firms have invested in the Far East and East Siberia in oil and gas assets such as Sakhalin-1, Vankor and Taas-Yuryakh. State-run ONGC Videsh Ltd (OVL) owns a 20% stake in the Sakhalin-1 hydrocarbon block and acquired Imperial Energy Corp. Plc’s Siberian deposits. While OVL, Oil India Ltd (OIL), Indian Oil Corporation Ltd and Bharat Petroresources own 49.9% in Vankorneft Subsidiary, another consortium comprising of OIL, IOC and Bharat Petroresources owns 29.9% of Taas-Yuryakh Neftegazodobycha.
“We are enforcing the most significant package of economic sanctions in history, and it’s causing significant damage to Russia’s economy," Biden said.
This ban comes in the backdrop of a consortium of OVL, IOC and Oil India Ltd seeking to invest jointly in the massive Vostok project of Russia’s Rosneft. India has also been looking to invest in Novatek’ Arctic LNG-2 project as part of its energy security playbook.
Also, Rosneft-owned Nayara Energy runs a 20 million metric tonne per annum refinery at Vadinar in Gujarat. Given the sanctions, CARE Ratings on Monday put Rosneft-backed Nayara Energy under credit watch.
Queries emailed to the spokespersons of OVL, OIL, Indian Oil Corp., Bharat Petroleum Corporation Ltd, Nayara Energy, Rosneft and India’s petroleum and natural gas ministry on early Wednesday morning wasn’t immediately answered.
“The United States produces far more oil domestically than all of European — all the European countries combined. In fact, we’re a net exporter of energy. So, we can take this step when others cannot. But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well," Biden said.
This comes in the backdrop of a high-level inter-ministerial task force of senior Indian government officials working to finalize measures required to limit the impact of the current rise in global oil prices on retail prices of petroleum products as reported by Mint on Wednesday.
“In coordination with our partners, we’ve already announced that we’re releasing 60 million barrels of oil from our joint oil reserves. Half of that — 30 billion — million — excuse me — is coming from the United States," Biden said and added, “And we’re taking steps to ensure the reliable supply of global energy."
International Energy Agency (IEA) members maintain emergency oil reserves equivalent to at least 90 days of net imports. IEA countries hold 1.55 billion barrels of public emergency oil stocks. In addition, 650 million barrels are held by industry under government obligations and can be released as needed. India’s petroleum ministry last month said that it is committed to “supporting initiatives for releases from Strategic Petroleum Reserves, for mitigating market volatility and calming the rise in crude oil prices."
India had earlier agreed to release five million barrels of crude oil from its strategic petroleum reserves in coordination with other major consumers including the US, China, Japan and South Korea. Mint reported on 18 November about the US reaching out to India and other major oil consumers to release their strategic petroleum reserves to temper rallying crude oil prices. India has an existing crude storage capacity of 5.3 million tonnes (mt), sufficient to meet around nine-and-a-half days of India’s crude oil requirements.
“Russia’s aggression is costing us all, and it’s no time for profiteering or price gouging," Biden said.
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