India, China join hands on oil
This is the first institutionalised arrangement between the two sides to cooperate in energy though they have several groups on issues such as counter-terrorism and the boundary dispute.Updated: May 07, 2019 10:30 IST
India and China are working closely on common trade concerns, including cooperation in buying oil and gas, against the backdrop of a US squeeze through tariffs and sanctions on Iranian oil imports, officials with direct knowledge of the matter said.
Efforts have been made by the world’s second- and third-largest oil importers to find common ground and energy cooperation is one of the key areas where the two sides can collectively bargain for better prices from producers, the officials added, asking not to be identified.
Following a visit to New Delhi in March by Li Fanrong, deputy chief of China’s National Energy Administration, the two sides created a joint working group on oil and gas. This is the first institutionalised arrangement between the two sides to cooperate in energy though they have several groups on issues such as counter-terrorism and the boundary dispute.
“A meeting between petroleum and natural gas secretary MM Kutty and the vice minister of China’s National Energy Administration, Li Fanrong, was held on March 26 in New Delhi to discuss cooperation in the oil and gas sector,” one of the government officials cited above said.
A person familiar with thinking in official quarters in Beijing said “both sides are closely discussing” cooperation in key areas such as oil purchases. He confirmed these issues had figured in the meeting between Kutty and Li in March.
Cooperation in energy has been on the agenda for some time – Kutty visited China last October – but the issue gained steam with the US announcing the end of exemptions to sanctions on Iranian oil imports last month.
Iran is important for the energy security of India and China as it is one of the largest suppliers of crude to the two major economies and the supply disruption due to US sanctions has huge strategic and economic costs for the two countries, Indian officials said on condition of anonymity.
The economic interests of India and China have also been threatened by the Trump administration’s announcement on ending preferential arrangements with India under the Generalized System of Preferences (GSP) programme and raising import duties from 10% to 25% on Chinese goods worth $200 billion. New Delhi and Beijing are coming closer to counter trade barriers created by the US that threaten the two major Asian economies, the officials said.
Among issues that India and China can jointly work on is the “Asian premium” charged by the Organization of Petroleum Exporting Countries (OPEC), the officials said. India is also concerned about the impact of US sanctions that kicked in on May 2 and cut off supplies from Iran, which accounted for more than 10% of the country’s oil requirements, and the need to rein in prices, they added.
The new arrangement marks a significant shift from the times when India and China often competed with each other to acquire stakes in oil and gas fields in Asia and Africa. Their cooperation in the field of energy was limited and India is now also looking at the possibility of also getting South Korea and Japan to join the buyers collective so as to create some sort of a grouping of buyers, officials said.
People familiar with developments on both sides said the cooperation is in line with the “Wuhan spirit”, a reference to the informal summit last year between Prime Minister Narendra Modi and President Xi Jinping that reset bilateral relations after the 2017 military stand-off at Doklam. They also pointed to Beijing’s changed stand on the UN listing of Pakistan-based terrorist Masood Azhar.
Though India has raised the issue of flexibility on the sanctions on Iranian oil, the US has been non-committal. On Monday, visiting US commerce secretary Wilbur Ross said his country will not ensure sale of cheaper oil to India as the commodity is controlled by private firms.
“Oil is owned by private people, so the government cannot force people to make concessionary prices,” Ross, here to participate in a trade forum, told reporters.
However, US ambassador Kenneth Juster said his country is working with other producers such as Saudi Arabia to ensure “adequate supply of oil”.
Though India has turned to alternative suppliers such as Saudi Arabia, the UAE and Kuwait to make up for the lost volumes from Iran, supplies from these sources is unlikely to be as cheap as Iranian oil as Tehran provided 60 days of credit and covered shipping and insurance costs.