Dr Scott B MacDonald
September 3 ,2021
Even as speculation had become rife that India’s oil supply challenges arising primarily out of an idiosyncratic production posture on the part of the Organization of Petroleum Exporting Countries (OPEC) might have been eased somewhat by the prospect of a long-term oil supply deal with Guyana, a media report published on Monday by the media group Caribbean News Global (CNG) says that Guyana has walked aside from such a deal.
India, one of the world’s biggest consumers of oil and a country that has enjoyed strong bilateral ties with Guyana since the two established diplomatic relations in 1966, had been thought to be almost certain to clinch a long-term oil supply deal with Guyana after it had become the first country to make oil purchases from the South American republic earlier this year.
On Monday, a report published by CNG quoted Chief Economist at Smith’s Research & Gradings and Fellow of the Caribbean Policy Consortium, Dr Scott B MacDonald, as saying that “India’s effort to strike a long-term government-to-government deal was turned down by Guyana in August.” MacDonald further asserts that while Guyana has, instead, opted to continue with a process that seeks to contract a company to sell the country’s oil on international markets, “this does not rule out on-going one-off sales” to India.
The writer’s assertion that the two countries could still be “natural partners” insofar as oil sales to India are considered is underpinned by the long history of ties between India and Guyana which, over more than half a century had witnessed a succession of initiatives designed to strengthen those relations. If the report that a long-term oil supply deal has been turned down by Guyana is true, however, India, a voracious consumer of oil, is likely to be disappointed given the prevailing idiosyncrasies of the global oil supply market.
The Stabroek Business had published earlier reports on the two one-off shipments of oil from Guyana to India, totalling one million barrels in each instance. This newspaper had also indicated that the Guyana oil supply option might now serve as a ‘safe’ port for India’s oil supply ‘storm’ given OPEC’s ongoing price-related oil supply manipulations as well as the loss of supplies from an embattled Venezuela.
Up to earlier this week there had been no official report emanating from the Government of Guyana confirming or denying that it is now unlikely, at least in the short term, for a signing on the ‘dotted line’ of a long term oil supply deal that could help allay India’s oil supply fears.
Back in March, the Indian company Mittal Energy Ltd, a joint venture operation between the state-run Hindustan Petroleum Corporation and Mittal Energy Investment, had acquired India’s first ever shipment of oil from Guyana following which, in July, came a second one million dollar barrel Indian purchase, this time, by the country’s leading refinery, the state-owned Indian Oil Corporation (IOC),
As Dr MacDonald puts it, “while these purchases are a drop in the bucket of global oil sales, they represent a potential new element in the changing face of geopolitics in the Southern Caribbean and could represent an opportunity for Guyana to broaden its trade and foreign policy partners.” He adds that while “India has since bought more Guyanese oil” its pursuit of a “long-term government-to-government deal was turned down by Guyana in August.”
While the media here had given widespread publicity to the two one-off oil sales to India earlier this year, the Guyana government has avoided any pointed official comment on the likelihood of a longer-term oil sales deal to that country.
The significance of this development reposes in the likelihood that India, described by MacDonald as “a voracious consumer of imported energy, fuelled by several decades of strong economic expansion and relatively meagre domestic resources” may now have to recalibrate its oil supply plans to take account of its reported failure to strike a long-term deal with Guyana.
India’s “high level of reliance on imported oil,” MacDonald writes, “has made the country’s economy highly sensitive to international price swings. This problem has been compounded by India’s traditional sources of oil being in the Middle East, where political risk is an ongoing problem,” he adds.
It would, one assumes, come as a disappointment to India that it has been unable to close an oil deal with Guyana given the historic ties between the two countries.
Earlier Stabroek Business reports had alluded to the challenges impacting on the security of India’s oil supplies arising out of the crisis in Venezuela where US pressures have succeeded in strangling Venezuela’s oil exports. In his article, Dr MacDonald attributes to “a source”, the assertion that the equivalent of India’s imports of Venezuelan oil in 2019 accounted for 40 per cent of the South American country’s crude oil exports, reportedly worth around US$5.5 billion.
In the longer term Dr MacDonald appears not to rule out the likelihood of a deal that could see a Guyana/India long-term oil sales deal ‘down the road.’ While he describes Venezuela as “struggling to be a reliable business partner,” he asserts that “Guyana’s oil industry is new, run by Western companies, which have the most up-to-date technology and competent management and worker teams. The Guyanese government is also seeking to maintain a transparent process of selling oil, preferring an open system over striking bilateral deals. Moreover, the government’s efforts to invest the money back into the economy and society are going to help it be a more reliable business partner. And, unlike Venezuela, expatriate Guyanese have returned to their homeland to work. “There is no Guyanese refugee crisis,” he writes.
“For Guyana, carving out a space in the Indian market makes considerable sense, both from a business and political risk point of view,” Dr MacDonald adds.
Another factor to be considered in the development of an India-Guyana oil relationship, according to Dr Mac Donald is that such a relationship “could set the stage for Suriname to sell its oil to India, which has enough demand to spread around… There would even be room for a joint Guyana-Suriname venture, which could strengthen the idea of a neutral geopolitical power like India being engaged in the region,” he adds.