Diplomatist Magazine Diplomatist March 2019 | Page 52
SPOTLIGHT
quantities. Essar Oil, founded in
1989 as part of the private Essar
group, was acquired by Rosneft in
2016 for a record US$12.9 billion
and renamed Nayara Energy in 2018.
Despite this new Russian ownership,
there is no Russia-India-Venezuela
trilateral dialogue or relationship to
speak of—India enjoys a strategic
and historical relationship with
Russia and would be hesitant
to bring Caracas into the mix.
However, renewed U.S. sanctions
on Iranian oil imports could push
Nayara Energy gradually to replace
Iranian oil with Venezuelan crude
in the long run.
The oil exchanges between India and Venezuela go beyond
transactional imports and include a strategic imperative from
the Indian government to participate in joint exploration and
downstream projects in Venezuela’s vast oilfi elds.
ONGC Videsh Limited, or simply OVL, the overseas arm
of the Oil and Natural Gas Corporation (ONGC), acquired a
40 percent participating interest in the San Cristóbal oilfi eld
in the Orinoco region, with PDVSA holding the remaining 60
percent stake in the joint venture Petrolera IndoVenezolana.
OVL agreed to invest US$354 million and redevelop the fi eld
to increase production.
This was followed by a much bigger acquisition: a three-
member consortium of Indian public companies invested in
Venezuela’s Carabobo-1 oil block, including an 11 percent
stake for OVL (for US$1.33 billion), and 3.5 percent each for
Indian Oil Corporation and Oil India Limited (for US$454
million each). Since all three are publicly-owned companies,
India’s Cabinet Committee on Economic Aff airs approved
an initial investment of US$2.18 billion in March 2010. It
is diffi cult to overstate the sheer magnitude of this strategic
investment: the Carabobo-1 oil fi eld holds an estimated 31
billion barrels of oil reserves, making it the fourth largest
onshore oil fi eld in the world, and the investors have been
granted a license term of up to 40 years. In comparison, the
United States holds 50 billion barrels of oil reserves.
Despite OVL’s earnest and strategic entry into Venezuela,
and its nearly US$2 billion investment commitment in the
country, the company has faced various setbacks, in the form
of unpaid dividends and rapidly falling production levels.
Venezuela has reached record low levels of oil production.
This has had a temporary impact on India’s imports of
Venezuelan oil. From 2012 to 2017, India imported on average
424,000 bpd of crude oil from Venezuela each year—which
comes down to an average of roughly 35,000 bpd per month.
In 2018, as per data available through October, India’s average
monthly import has decreased to
29,400 bpd, a 16 percent drop.41
This is a surprisingly moderate
reduction in imports, considering
that Venezuela’s overall production
has dropped by 51 percent in the last
three years.
Nevertheless, this decrease in
production levels has had a direct
impact on Indian investors like
OVL. Production in the Carabobo-1
oil block, where OVL has an 11
percent stake, currently stands at
about 24,700 bpd, only 6 percent
of the expected peak capacity of
400,000 bpd. The company’s latest
2017–18 annual report notes the following:
Venezuela’s staggering drop in production, where
production has fallen by more than 500,000 bpd in the past
one year and is projected to drop by another 600,000 bpd by
December 2019, is a more near-term threat to the stability
of global oil markets. While the list of countries posing
geopolitical risk is largely Middle-East dominant—the
biggest risk in terms of signifi cant oil supply disruptions
comes from Iran (on account of possible re-imposition of
sanctions by the United States) and Venezuela (with its
rampant decline in production from its aging fi elds and state
of severe sovereign economic crisis).
In the short term, due to Venezuela’s near-total economic
collapse—with an economy shrinking by 9.9 percent in
2018, infl ation at 1,365,323 percent and oil output possibly
falling below 1 million bpd in 2019—India will have to look
elsewhere to make up the shortfall in oil supplies. But in
the long run, the fortunes of both countries are inescapably
tied together. Venezuela’s economy is bound to recover
eventually, especially if global oil prices rise in the short
and medium term. According to a December 2018 report by
Oxford Economics, the country’s GDP is forecast to grow
by 4.6 percent and exports by 11.9 percent in 2021. This
potential economic recovery, coupled with increased oil
production, will be favorable to India-Venezuela ties and
most likely result in an increase in Venezuelan oil exports
to India.
The oil exchanges between
India and Venezuela go beyond
transactional imports and
include a strategic imperative
from the Indian government to
participate in joint exploration
and downstream projects in
Venezuela’s vast oilfi elds.
* The author is a Latin America analyst specializing in
India-Latin America relations. He tweets at @haricito and
can also be reached at [email protected]
This article is an edited version of a report originally
published by The Wilson Center, accessible at https://www.
wilsoncenter.org/publication/india-venezuela-relations-case-
study-oil-diplomacy
52 • Extraordinary and Plenipotentiary Diplomatist • Vol 7 • Issue 3 • March 2019, Noida