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