Russia’s Rosneft harnesses Indian oil tiger

M.K. Bhadrakumar June 16, 2015 11:03 AM (UTC+8)
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China has been a big beneficiary of the chill that has descended on Russia’s relations with the West. The dramatic acceleration of the energy cooperation between the two countries bears testimony to it.

Yesterday, President Vladimir Putin was briefed at a Kremlin meeting that negotiations are on course and that the two countries have “already laid the foundations for a future contract” for a gas second pipeline known as the West-Route in addition to the East-Route deal that was signed last year between Russia and China.

It could be India’s turn now to benefit out of Russia’s “pivot” to Asia in its energy export policies at a time when the western sanctions are impeding the optimal development of Russia-European Union energy ties.

For the first time, Russia is making a big investment India’s oil industry, according to media reports. A deal is possibly going to be announced later today in Moscow whereby Russia’s oil company Rosneft (which faces western sanctions) will be acquiring 49% equity worth over $2 billion in India’s oil and company Essar Oil. The deal will make Rosneft by far the biggest shareholder in Essar Oil.

Essar Oil is engaged in the exploration and production of oil and natural gas, refining of crude oil, and marketing of petroleum products and petrochemicals with estimated total revenue of $16 billion as of last year.

Essar Oil has about 700000 bpsd (barrels per stream day) of global crude-refining capacity and in marketing the company operates a network of over 1400 retail outlets across India and an additional 600 outlets are in the stage of commissioning.

Essar Oil was the first private Indian company to enter petro-products retailing and it concentrates on the consumers in India’s heartland. Its main refinery in Gujarat produces LPG, Naphtha, light diesel oil, Aviation Turbine Fuel (ATF) and kerosene. It has been designed to handle a diverse range of crude — from sweet to sour and light to heavy.

Evidently, Essar Oil is just the sort of young “tiger” that Rosneft will find attractive to conquer a new market. Rosneft’s interest will be three-fold: a) supplying Essar Oil with Russian oil and oil products for its refining facilities; b) gain a foothold in the highly lucrative downstream retail market in India; and, c) work on prospective expansion plans to make a big presence in India’s energy sector, which is expected to grow phenomenally in the coming decades.

Of course, this will be the first big splash by a Russian company in Prime Minister Narendra Modi’s “Make in India” project – investing in India, manufacturing in India instead of merely exporting to India.

Surprisingly, Russia had not paid much attention to India in the past as a partner in energy cooperation when the European market used to be its main focus. This may be about to change. It is entirely conceivable that Russia may open up its upstream oil sector to big Indian investments.

Rosneft is headed by Igor Sechin whom Britain’s Independent newspaper once described as “the oil man at the heart of Putin’s Kremlin.”

From the Indian point of view, getting Sechin hooked to the Indian energy industry all but guarantees that Russian-Indian cooperation is poised to shift gear to a qualitatively far higher level – an unexpected bonanza, no doubt, from President Barack Obama’s relentless containment strategy against Russia.

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M.K. Bhadrakumar
MK Bhadrakumar served as a career diplomat in the Indian Foreign Service for over 29 years, with postings including India’s ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001). He writes the “Indian Punchline” blog and has written regularly for the Asia Times since 2001.
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