The Ukrainian crisis has radically altered the contours of the global energy landscape and created a tangle of relationships and issues for India. To smoothen this tangle and address the issues India should adopt “a whole of the system” approach to energy policy. Six months back before the start of the Ukrainian conflict, there was a deepening sense that fossil fuels and the industry built around them were in terminal decline and that the era of oil, gas and coal was, if not at its end, certainly at the beginning of its end (to misquote Winston Churchill out of context). Today, one is hard-pressed to support that contention. The petroleum market is tight and prices are ratcheting up. Oil prices are close to $120/bbl and gas prices have jumped 500 per cent year on year in Europe. The regulatory constraints on petroleum exploration and distribution infrastructure have been eased and several countries have removed the output limits on thermal power generation and reopened mothballed coal mines. The share prices of the oil majors are trading at multi-year highs.
India is caught in the vortex of this turmoil. Three issues are of particular significance. One, as has been reported, India is now a major purchaser of Russian crude. Last month, it reportedly purchased an average of 1.2 mbd. If this figure is correct, Russia is now our largest provider of crude oil surpassing Saudi Arabia and Iraq. The reason for this ramp-up is the price discount offered by Russia. The decision is driven by good economics and energy security. The Western world does not, however, see it this way. They were initially publicly critical but when it was pointed out that the kettle must not call the pot black — Germany still imports 35 per cent of its gas from Russia — they limited their comments to private exchanges. The US, UK and Europe are, however, partners of strategic and economic significance. So even though our differences are off the front pages, the question does arise: What might be the medium to longer-term implications of our “support” to Russia on relations with Capitol Hill, Whitehall and the European Commission?
Two, Russia and China have, for long, shared the view that the US is their biggest security threat. Their leaders are not personally close but this common strategic outlook is the reason they signed a “no limits” partnership a few weeks before the Ukrainian invasion. The invasion reportedly caught President Xi by surprise but he did not call out Russia. Instead, he threw it a lifeline by expanding China’s purchase of Russian oil and gas. Russia is also now the largest supplier of petroleum to China. This tightened economic and energy embrace has implications for India. Several questions will need to be addressed. How might a post-Ukraine weakened Russia that is in hock to China respond to India in the event matters deteriorate on our border with China? Will they be reliable providers of crude oil, military equipment, minerals, and metals essential for our green transition? Will they be politically autonomous or client states? Finally, as was widely publicised, President Joe Biden had during his presidential campaign declared Crown Prince Mohammed Bin Salman — and by extension Saudi Arabia – a persona non grata on the grounds that the prince was complicit in the murder of the Saudi journalist Jamal Khashoggi. He had refused to have any truck with the prince. The Ukrainian crisis has forced a presidential u-turn. Later this month, President Biden will visit Saudi Arabia. Several other European leaders will also beat a path to the Gulf, all in the hope of extracting a promise of higher production to lower oil prices and some to negotiate gas supply deals to offset the shortfall out of Russia. The situation is reminiscent of the mid-1970s when the Gulf producers had the global economy over the barrel.
India needs the Gulf producers for supply security. But it also wants oil prices to come down. The position of these producers in the reordered post-Ukraine energy landscape is, therefore, of relevance. Will they respond positively to the courtship of Russia/China, move back into the Western fold, or stay outside both orbits, neutral and opportunistic? The answer will bear on India’s energy security. Seen through a common lens, these three issues highlight the nature of our tangled relationships.
Our long-standing “friend“ (Russia) is now in the bad books of our other friends (the US and Europe) and in a deepening relationship with our adversary (China). The Gulf countries are crucial for our energy security but Russia has replaced them as our principal supplier. What must we do to navigate the consequential cross currents? I have often written about the need to create a mechanism for the development and execution of an integrated energy policy. I have also called for an energy tsar. This is because currently there is no executive authority responsible for energy. There are ministries responsible for components of energy policy but no formal mechanism for aligning their separate approaches. The Ukraine war has disrupted the existing energy order. The new energy (dis) order has created fissures that impact our national security, economic growth, trade, clean energy supply lines, transfer of technology and international relations. We cannot, therefore, afford to continue with our existing siloed approach.
The Niti Aayog has a new vice-chairman who is a world-class economist and an energy expert. He was formerly the Chief Economist of Shell. The agency is, therefore, well placed to provide the intellectual ballast for designing and developing relevant new institutions. Towards that objective, it should first pull together the widest swathe of expertise and build scenarios of the alternative futures that India might confront in a post-Ukraine world. It should define the issues that may arise under each scenario and prepare the road map for developing institutional mechanisms for facilitating a “whole of the system“ approach to energy policy. And then it should persuade the political leadership to give its recommendations.
The writer is chairman, Centre for Social and Economic Progress
