Buyer's Bloc: A Joint China-India Initiative on Anvil
IndraStra Global

Buyer's Bloc: A Joint China-India Initiative on Anvil

By IndraStra Global News Team


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According to local media reports the two Asian powerhouses — China and India — considered to be world's second and third largest importers of oil respectively — "to form a buyers' bloc" which could "dramatically tilt bargaining power in favor of importers." The production cut imposed by the Organisation of the Petroleum Exporting Countries (OPEC) and the tightening of United States sanctions against Iran and Venezuela are seen as signs of oil trouble.

Removal of U.S. Sanctions Waivers on Iranian Oil Export


Last week, a high-level representative from China's National Energy Administration visited India to put the "buyer's bloc" on the fast track. The visit came just before the lifting of the U.S. sanctions waivers that enabled several major economies (such as China, India, Japan, South Korea, and Turkey) to continue buying crude oil from Iran. Many considered these waivers just a temporary relief and they were right because these waivers will lapse on May 2, 2019 (which happens to be tomorrow).

Yesterday, while speaking at a Carnegie Endowment event, newly appointed India's ambassador to the United States Harsh Vardhan Shringla said — India understands Washington has issues with Iran. But excessive use of sanctions can at a certain stage become counterproductive, especially when administered by one country alone, and "affect friend and foe alike." 

However, many considering the removal of Iran’s oil export sanctions waivers on a promise of higher supply from Saudi Arabia and the United Arab Emirates (UAE) is gambling oil prices. This year oil reached US$ 75 per barrel for the first time and not far from last year’s trajectory when it jumped to US$ 86 per barrel. Although, it seems to be safer than last year’s situation — "so far as Iran’s exports are half of 2018’s levels while the spare capacity of OPEC and its partners is almost 500,000 barrels a day higher."

Removal of Asian Premium


Last year, during the 16th biennial International Energy Forum Ministerial Meeting (IEF16) in New Delhi, India's Union Petroleum Minister Dharmendra Pradhan had said at that time - the country will coordinate with China and other Asian countries to voice against the "Asian Premium" being charged by the OPEC which has a 40 percent share of total global oil production. The meeting was held under the theme: "The Future of Global Energy Security - Transition, Technology, Trade, and Investment".

Some analysts are considering the concept of forming a "buyer's bloc" is a right move to counter "Asian Premium," which is happening at the right time. "With shale oil increasingly coming online and greater emphasis being placed on renewables, crude-producing countries are witnessing their ability to call the shots in the energy market decline. The stated aim of Saudi Arabia’s Vision 2030 to end the Islamic Kingdom’s dependence on oil exemplifies this situation," says Rudroneel Ghosh of Times of India.  He further adds, "Collective bargaining and sourcing by an India-China-led buyers’ bloc can force OPEC to scrap this prejudicial pricing mechanism."

According to Jin Lei, an associate professor at the China University of Petroleum in Beijing, the chances of China and India forming a "buyer's bloc" is high. Jin said, "OPEC was born out of a time of crisis. Something could be born out of the current situation. But,  the founding parties will need to solve issues such as the positioning of such a bloc and how can it play an effective role to intervene in global crude oil pricing."

And, according to Professor Srikanth Kondapalli of Jawaharlal Nehru University (JNU) in New Delhi, "the world's largest crude oil importers have so far not formed any clubs. China and India should do so to grab more bargaining power to make oil prices more sustainable." 

Kindly Do Note:

According to Anadolu Agency, a similar discussion was carried out last week between senior Turkish presidential advisor Ibrahim Kalin and India's national security advisor Ajit Doval in New Delhi. Both Turkey and India are the major importers of Iranian crude.