The Strategist

China and India ponder over creation of mega oil partnership

05/08/2019 - 05:00

The main consumers of oil on the planet, China and India, are about to conclude a formal agreement and establish a kind of oil importers club. This even will probably play a huge role in shaping the price of the resource. Neither Delhi nor Beijing has officially confirmed the information. However, this is not the first time when the two most populous countries on the planet, the relations between which are far from easy, are trying to create a club of oil buyers.

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The idea of creating an organization of oil buyers is obvious. The club of oil importers will make it possible to better influence formation of the resource’s prices. Members of the club of importers will be able to buy more American oil in order to reduce the “weight” of OPEC, both in the global oil market and in the pricing process. These obvious reasons for creating the club were cited in a statement by the Indian Ministry of Petroleum Industry back in June 2018, when the prices  went up on the eve of the introduction of American sanctions against the Iranian “oil industry”, and when Delhi and Beijing started the first consultations on this issue.

 “Given the chaos that OPEC games bring with oil prices,” the statement said, “India is now discussing with China the possibility of creating a club of oil buyers in order to negotiate more favorable prices from oil-producing countries and oil sellers, but also to purchase large amounts of American oil to mitigate the dominance of the oil cartel.”

"India and China should work together to make oil prices more acceptable," said Srikanth Kondapalli, a professor at Jawaharlal University.

The Livemint portal, which first published news about the imminent establishment of a club of oil importers with reference to three officials from the Indian Ministry of Oil, has now explained that after the summer of 2018, the Indian and Chinese delegations and made significant progress in the discussion.

Indian Oil Industry Minister Dharmendra Pradhan has repeatedly spoken of the harm that high oil prices cause to the Indian economy. He has repeatedly appealed to OPEC with a request to think when making decisions that could influence prices, not only about oil-producing countries and sellers, but also about oil buyers.

The messages about strengthening cooperation between India and China appeared at the very moment when Washington decided not to renew permits for the purchase of Iranian oil for eight countries, which include, by the way, India and China. These permits expired on Thursday, May 2. After they are canceled, any country or company that buys oil from Iran, starting from May 3, risks falling under the effect of secondary US sanctions.

China is the main buyer of Iranian oil, which Washington wants to export. India is listed as importer of Iranian oil in second place. Both countries negatively reacted to the decision of the White House. Beijing, for example, declared a formal protest in which it stressed that it would protect the interests of Chinese companies. Obviously, we are talking about companies that buy oil from Tehran, and that the Chinese are not going to refuse it.

Delhi took a more cautious position and said that the country would continue the attempts to get some indulgence for India.