I’m sharing a timely and interesting article written by my friend Dr. Scott MacDonald Chief Economist for Smith’s Research and Grading and Fellow with the Caribbean Policy Consortium.
“India is one of the world’s major oil consumers and Guyana is an up-and-coming petro-power. In March 2021, HPCL-Mittal Energy Ltd., a joint venture between state-run Hindustan Petroleum Corporation and Mittal Energy Investment, bought India’s first shipment of Guyanese oil. This was followed in July 2021 with India’s top refiner, state-owned Indian Oil Corporation (IOC), buying a second shipment of Guyanese crude. 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.
India has since bought more Guyanese oil. However, India’s effort to strike a long-term government-to-government deal was turned down by Guyana in August. The Caribbean country is in the process of selecting a company (through bidding) that will represent it in selling its oil on international markets. This does not rule out ongoing one-off sales and it appears that the two countries could be natural partners.
Why India? The South Asian country is a voracious consumer of imported energy, fueled by several decades of strong economic expansion and relatively meager domestic resources (with the exception of coal). Domestic production meets around 15 percent of total oil consumption. This high level of reliance on imported oil 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. While Iraq and Saudi Arabia remain India’s largest oil suppliers, U.S. sanctions have greatly reduced the role Iran as a major supplier.
India’s push to diversify brought it to Venezuela. This development began in the early 2000s and has continued through 2021. According to one source, India’s imports of Venezuelan oil in 2019 accounted for 40 percent of the South American country’s crude oil exports, equal to $5.5 billion. Considering the dire state of the Venezuelan economy, the revenues generated by Indian exports have been critical to regime survival.
There are a number of reasons for closer Indian-Guyanese oil trade. First, in 2020 India was the largest buyer of the Maduro regime’s oil. Over the past few years much of this was done through third parties and efforts were made to remain compliant with U.S. sanctions, but be in.
Second, Venezuela is increasingly a less reliable source of oil. The long years of the Chávez-Maduro regime have resulted in the degradation of PDVSA, the state-owned oil company. According to BP, Venezuela’s oil production in thousands of barrels per day was 3,038 in 2009; in 2019 it had fallen to 918. Venezuela’s oil production is back to 1940s levels. In contrast, Guyana’s oil production is on a strong upward trajectory. According to the U.S. Department of State, at-year end 2020, ExxonMobil (the largest oil company operating in the Caribbean country) reached production of 120 thousand of barrels per day and plans to expand production to 750 thousand barrels of oil per day by 2026.
Beyond the decline of Venezuela’s oil industry, rule of law is tenuous in Caracas, while many basic staples are unavailable, and the regime is heavily implicated in criminal activities. Moreover, over five million Venezuelans have left the country, sparking what is Latin America’s worst refugee crisis.
Third, while Venezuela struggles to be a reliable business partner, 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.
For Guyana, India represents an opportunity to develop closer relations with a country which is not fully engaged in the U.S.-Chinese rivalry in the Caribbean. Although India has its problems with China, in the Caribbean India’s motivation is non-ideological; it is driven by business and the need to find other non-OPEC sources of oil. For Guyana, carving out a space in the Indian market makes considerable sense, both from a business and political risk point of view.
Fifth, Guyana has more in common with India than it does with either China or the United States. The two countries share having been British colonies as well as a democratic form of government which has had to contend with the ongoing challenges in dealing with multi-ethnic and religious groups.
One other factor to be considered in the development of any Indian-Guyanese oil relationship is that it could set the stage for Suriname to sell its oil to India, which has enough demand to spread around. Suriname’s oil industry is less developed than Guyana’s, but it has had a state-owned oil company up and running for several decades and the oil that is beginning to flow is comparable to Guyana’s. 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.
Looking ahead, India has been a major buyer of Venezuelan crude, but the issues surrounding the Maduro regime are increasingly problematic, showing little chance of any major improvements over the medium term. In contrast, Guyana is emerging as an attractive alternative. For Guyana, gaining Indian market share would diversify its trade partners as well as gaining a closer friend in the broader world that is not wrapped up in the Chinese-American rivalry – at least not in the Caribbean. There remains work to be done to take the Indian-Guyanese relationship up to the next level, but there is a strong logic to it for both countries. And such a development could also benefit Suriname, broadening Southern Caribbean oil’s reach outside of the usual players, such as the United States and China.”
Dr Scott MacDonald