Russia Buys Into Indian Energy: 5 Things To Know

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Russia Buys Into Indian Energy: 5 Things To Know

Russian oil giant, Rosneft, announced Monday that it finalized the purchase of 49% of Essar Oil Limited, an Indian refinery. Another 49% was purchased separately by a joint effort by commodities trading firm, Trafigura, and by United Capital Partners, a Russian based private investment firm. This new purchase gives Russian oil a foothold in the desirable Indian market, and speaks to larger transformations in the global oil market.

    1. Rosneft is acting like a typical international oil company (

      , BP , etc.). Rosneft is buying downstream operations outside of its home country to secure outlets for crude oil  and to stabilize some profits during crude price fluctuations. Aramco began this process in the 1990s, building off of its domestic downstream and its Motiva investment, by participating in major downstream operations across Asia. Rosneft, and the Russian energy industry as a whole, has been working to expand and diversify similarly. The Essar purchase is a big step.

    2. The rift between Indian energy businesses and Iran is not over. The fight began when the two found themselves in a dispute over the development of the Farzad B natural gas field. An Indian company discovered the offshore field and was supposed to develop it with the Iranian National Oil Company. However, the Iranian oil minister claimed that OGC Videsh, the overseas arm of India’s largest oil and gas exploration company, did not offer enough money in its proposal. Instead, Iran threatened to and ultimately signed a deal with Russia’s Gazprom to develop the field in June 2017. Traditionally, Iran had been the consistent energy supplier to India, and Essar used to receive oil from Iran. Moreover, Iran and India have cultural and historical ties going back centuries. But this acquisition indicates that it may take longer to repair this once-close relationship developed over energy.
    1. India is diversifying the sources of its oil imports.

      Workers perform maintenance work on Indian Oil Corp. tanks at Cochin Port in Cochin, India. (Dhiraj Singh/Bloomberg)

      This has even included buying increasing amounts of oil from the United States. This sale of the Essar refinery shows that this diversification is a long-term plan, with essentially a long-term commitment now to purchase oil from Russia.

  1. India is displaying more signs of openness to foreign investment. Foreign investment has always been tricky in a country that still remembers years of British colonialism and other foreign invaders (often driven by commercial opportunities). India has operated under economic protectionist policy, but there has been a trend toward economic liberalism over recent years.

    Indian oil refinery belonging to Essar Oil at Vadinar. (SAM PANTHAKY/AFP/Getty Images)

    This refinery deal, which has the blessing of Prime Minister Narendra Modi, gives control of India’s second largest refinery to Russian interests. This is a major sign for global energy businesses that wish greater access to the India market through such investments and even to industries other than energy.

  2. This is a major bet by the Russians against the promise of electric vehicles to transform energy markets in the coming decades. Less than four months ago, Piyush Goyal, the Indian minister for energy, announced plans to ensure that all cars purchased in India by 2030, would be electric vehicles (EVs).

    Newly unveiled Mahindra E20 electric cars are displayed near India Gate in New Delhi (MANAN VATSYAYANA/AFP/Getty Images)

    Recently, officials from several others countries, including China, the U.K., France and Austria, have made similar statements or issued regulations to create such mandates. Russia’s refinery purchase deal is the first bold statement by a major oil player that the oil industry is not too worried about EVs . For many refineries, half of their output is gasoline or diesel fuel. Russia is clearly betting that electric vehicles will not transform the India anytime soon.

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