Russian oil shipments to India will avoid Strait of Hormuz

Sourcing of Russian oil is a part of India’s strategy for diversifying crude oil supplies from non-OPEC countries

February 07, 2020 07:34 pm | Updated 09:55 pm IST - Atul Aneja

This image provided by NASA shows the Strait of Hormuz taken from the International Space Station. File

This image provided by NASA shows the Strait of Hormuz taken from the International Space Station. File

Russian energy giant Rosneft has decided that its India bound shipments will avoid the Strait of Hormuz — a global artery for transiting oil and gas — which is in the cross-hairs of military tensions between the United States and Iran.

The decision is in tune with India’s call on diversifying energy sources, and lowering reliance on the Persian Gulf, where geopolitical rifts are rife.

IOC signs contract

On Wednesday, Indian Oil Corporation Limited (IOCL) signed the first ever supply contract of two million metric tonnes of crude oil with Russia’s Rosneft. “Sourcing of Russian crude oil through long term contracts is a part of India’s strategy for diversifying the country’s crude oil supplies from non-OPEC countries...” said a statement issued by the Press Information Bureau (PIB).

It pointed out that that the contracted oil “will be loaded in Suezmax vessels at Novorossiysk port of Russia and will come to India, bypassing Straits of Hormuz.” Suezmax ships are medium to large sized vessels of 1,20,000 to 2,00,000, tonnes, which can transit through the Suez Canal when carrying a full load.

Nearly one third of world’s production of liquefied natural gas and 25% oil transits through the Strait of Hormuz — a passage between the Persian Gulf and the Gulf of Oman.

Energy security

Analysts point out that the drone attack, claimed by Yemeni Houthi fighters last September on two giant refineries in Saudi Arabia was a turning point, which imparted urgency to diversify imports to beef up energy security. “The attack on the two Saudi Aramco refineries, which together process a mammoth 8.45 million barrels of crude per day, was noted with grave concern in New Delhi. Thankfully the Saudis responded with maturity and did not retaliate,” says R.S. Sharma, former head of Oil and Natural Gas Corporation (ONGC), during a conversation with The Hindu , on the sidelines of the World Energy Policy Summit in New Delhi. The Houthi rebels are apparently backed by Iran, and are seen as part of a larger regional Shia “resistance” network led by Tehran against Saudi Arabia and Israel.

Soleimani’s killing

Mr. Sharma stressed that the assassination of Qassem Soleimani, top Iranian general, in a U.S. drone attack outside Baghdad airport on January 3 has further fuelled anxiety in India. “The Iranians have threatened to block the Strait of Hormuz and it is well within their capability to do so. If the situation worsens we would be worst hit as India does not have the economic firepower that is comparable to other major energy importers such as China or Japan,” Mr. Sharma observed.

Asked whether a more prominent inclusion of Russia in India’s energy basket was a welcome step, he pointed out that, “India has to urgently diversify its energy procurement — whether it is from Russia, the United States, Africa or Venezuela.”

The oil contract signed on Wednesday appears part of deeper energy engagement between New Delhi and Moscow, covering Russia’s resource rich Far East as well as the Arctic zone. The Nikkei Asian Review is quoting Rosneft as saying that Indian oil companies will join the $157 billion Vostok oil development project in the Arctic. Reuters had earlier reported that Rosneft also wanted Japanese investors to pitch in 10 to 40% of development costs of the Vostok project. China was also on the company’s radar.

Working group

During the meeting on Wednesday between Rosneft head, Igor Sechin — a close ally of Russian President Vladimir Putin — and Petroleum and Natural Gas Minister Dharmendra Pradhan, a decision was taken to set up a working group representing Indian and Russian companies, on the Vostok project, the PIB statement said.

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