When PM Modi visited Houston for his ‘Howdy, Modi!’ Summit last year, an important item on India’s agenda was to promote energy cooperation by investments and imports of natural gas from the US. New Delhi was putting in place plans to diversify its energy imports, as the earlier monopoly of traditional exporters like Saudi Arabia, Iran and Iraq was coming to an end, with the discovery of vast reserves of shale gas in countries like the US and Canada. Russia was also emerging aggressively on the world stage with its vast energy resources, and arrangements were underway for increasing imports of Russian natural gas by India. The OPEC countries were finding it difficult to charge extortionist sums for oil and gas. Energy cooperation with India was an important item during Trump’s visit to India last year. Saudi Arabia and the UAE, meanwhile, had agreed to make substantial investments in developing the oil and gas sector in India.
Global oil production was keeping pace with international demand, even before the Covid crisis broke. It was, however, becoming evident that with Russia and the US entering the global supply chain, OPEC would be compelled to cede greater space in determining oil prices. Things reached the breaking point when Saudi Arabia Crown Prince Salman decided to challenge Russia’s demands for higher prices by suddenly increasing production a few weeks ago. He bit off more than he could chew, as Russia responded with increased production which sent global prices on a downward spiral. Coming under pressure from US producers of shale oil and gas, President Trump, who needs their financial support for the forthcoming presidential elections, caved in to the pressures. He forced Saudi Arabia and Russia to reach a compromise that would not undermine the US oil and gas industries.
Not surprisingly, the agreement brokered by Trump amidst the usual fanfare he is given to, soon collapsed. What has followed is an unprecedented fall in global oil prices, which has shaken not only major traditional producers like Saudi Arabia, the UAE, Kuwait and other Gulf monarchies but also countries like Iraq, Nigeria, and Venezuela. Global oil consumption arises primarily from road, rail, and air transport, which are today used minimally, or not at all. Oil storages worldwide have hardly any capacity left. While OPEC was expected to reduce supplies because of falling demand, global demand has fallen well below what was expected.
Trump’s efforts to provide some respite to his potential electoral backers in the US oil industry are now in tatters. Large sections of the oil and gas industry are now fast running out of potential buyers. Covid has resulted in the prices falling from $60 a barrel in January to around $20 a barrel. It is going to take quite some time before the US, Russia and OPEC can restore some semblance of earlier normalcy in prices. With over six million Indians living in Arab countries, our foreign exchange reserves received $83 billion remittances last year. These remittances are expected to fall by 20% this year. We will be able to balance our books, because the drastic fall in demand globally will significantly reduce the massive amounts spent annually on energy imports.
What is adding to the problems that have accompanied the oil crisis is the whimsical approach of President Trump. His sole priority today is to ensure that he is re-elected President. When the crisis broke out in January, he refused to take any action against China, with his attention then focused on a trade ‘deal’ with it. Covid had picked up momentum by December 2019, yet, on January 24, he proclaimed: ‘China has been working very hard to contain the coronavirus. The United States greatly appreciates their efforts and transparency.’ Adding to the confusion in the US was his propensity to make sweeping proposals, which were at total variance with reality. One of these proposals, which he initially pushed, despite strong expert opposition, was his belief that the virus could be eliminated by people consuming hydroxychloroquine. Much time and efforts were expended in importing large quantities of this drug, to little or no avail.
The US is now going through a situation, where rather than dealing seriously with immense challenges, its President is virtually at war with his own advisers and America’s best experts. He is isolated and opposed even within the White House, because of his readiness to back Conservative State Governors and his party’s right-wing, which wants a rapid drawdown and end of restrictions on the movement of people.
Xi Jinping, meanwhile, appears determined to replace the US as the most formidable power. There should be no illusion that China will give minimal strategic space to India in a world order it dominates. PM Modi has handled the diplomatic crisis following the coronavirus challenge skillfully. India played a constructive role in persuading Saudi Arabia to convene both a summit and a meeting of health ministers of G20 — the most representative global economic grouping. Modi is among the very few leaders in the world who has a good personal equation with the mercurial Trump. One is looking forward to a carefully calibrated phase to reduce the rigours of the present restrictions on movement and economic activity in India. While global industrial and energy cooperation can realistically move only in a measured and slow manner, India can be very satisfied if its agricultural sector successfully meets national needs. How we handle the coming harvest seasons is of crucial importance. One hopes that in the meantime, research by scientists across the world will find remedies to overcome the dangerous challenges we now face from Covid.