china-india-brief-123


Published Twice a Month
August 31, 2018 - September 18, 2018

Centre on Asia and Globalisation
Lee Kuan Yew School of Public Policy


Guest Column

China, India, and the Slippery Business of Oil

By Rollie Lal   

CIB123_Drill

 

China and India’s rapid economic growth in the past few decades has been fueled (pun intended) by rising levels of energy consumption, and the global implications of these heavy-weights as players in the oil market cannot be underestimated. If growth slows in these two behemoths, the result would be a glut of crude oil and a drop in global prices. Conversely, if growth accelerates beyond what is expected, or richer Chinese and Indians consume more oil than anticipated, the world will find itself in an oil crunch, with prices rising rapidly.

In either scenario, oil suppliers in the Middle East, Russia, and elsewhere are finding their destinies tightly intertwined with the energy paths of these two countries. Furthermore, the question of where China and India decides to purchase oil from - Saudi Arabia, Iran, or Russia - carries weight beyond simple monetary considerations. These choices are ways in which China and India can exhibit their blessing or curse.

China is now the world’s biggest importer of crude oil, taking in 8.4 million barrels per day (bpd), a role that gives it considerable clout in the international economy. And in a fascinating turn of events, Russia is China’s largest single supplier, providing 15% of China’s oil. As such, China has been able to avoid dependency upon US ally Saudi Arabia, threatening to pull back oil imports from the Kingdom when faced with rising prices.

In the meanwhile India has leapt to become the world’s third largest importer, receiving 4.9 million bpd, just behind China and the US (7.9 million bpd). And while US oil consumption has stagnated, China and India have continued their rapid pace of consumption growth, with India at 4.2% and China at 5.7%. Both countries together provided two thirds of global oil demand growth last year, making them the critical players in determining prices in the crude oil market going forward.

China’s growth in energy demand is so great that even its shift from fossil fuels to electric has not had the positive impact on the environment that many anticipated. China’s move towards electric buses and vehicles, while reducing petroleum-based fuel emissions from passenger cars, increases the load on the electricity grid. However, approximately 66% of electricity generation in China comes from coal, hardly a clean fuel. In fact, China remains the largest producer and consumer of coal in the world, with coal the source of 71% of China’s carbon emissions.[i]

India and China are the top two destinations for Iran’s oil exports, and as such they play a critical role in Tehran’s strategy to counter US oil sanctions. Between January to June of 2018, India was importing approximately 600,000-700,000 barrels per day from Iran, and China approximately 718,000 bpd. According to an Iranian analyst, as long as China continues to buy Iranian oil, the country would be able to resist the US.[ii]  Iran’s total oil exports in May of 2018 were 2.7 million bpd, indicating the immense importance of oil sales to China and India.

In contrast, Indian companies are negotiating under the threat of sanctions against Iran by President Trump. In July, Hindustan Petroleum cancelled a crude shipment from Iran because it could no longer insure the cargo in the face of US sanctions, and Indian refiners are trying to avoid being cut off from the US financial system. India has been working hard in recent years to buttress its relationship with the US, under both the Obama and Trump administrations. New Delhi is in a bind in that it has a strong desire to expand oil trade with Iran in the face of India’s burgeoning demand, yet it is hesitant to put a crimp in its growing relations with the US. Nonetheless, India’s need for Iranian oil would mean that it is unlikely to cut imports to zero, and some analysts estimate that India may only halve its imports from Iran.[iii]

China’s situation is more complex. Because its own oil production is limited, in the coming years, the Chinese government accepts that it must depend increasingly upon imports and stability in the price of imported oil. As a result, in its current trade war with the US, Beijing has been less willing to back down in the face of Washington’s demands. As each country continues to slap billions of dollars of sanctions on each other’s goods, China has stated that it will ignore US sanctions on Iran. The Chinese government has argued that its trade with Iran does not violate any UN Security Council resolutions, and therefore, is protected. China’s stance on the Iran sanctions supports the continuation of the 2015 Iran nuclear deal, and as such the EU agrees with the Chinese position.

Certainly, China and India together have an inordinate influence on the oil trade and the global alliances and disputes that are created by this trade. The most recent events with regard to Iran indicate that China alone can undermine US policy maneuvers, and together with India they can create a policy conundrum for the US.

Adding intrigue is the role of Russia. The US has imposed sanctions on Russia, effectively pushing Russia and China towards closer cooperation. As China’s largest oil supplier, Russia may be looking to expand its exports further given the opportunity of reduced US oil exports. This would isolate the US and reduce its policy options even further.

Lastly, the influence of China and India on global climate goals cannot be ignored. Whereas most countries are aiming to reduce reliance on high carbon emission fuels, 2017 saw the power sector sucking up the same share of coal for power generation as in 1998. [iv]

China and India lead the pack in expanding power generation, and as a result, carbon emissions are not likely to see improvement in the near future. A ray of hope remains that as such massive consumers, if China and India decide to move decisively towards solar, wind and geothermal energy, the world will need to move with them.

Rollie Lal is a Visiting Associate Professor at the Elliott School of International Affairs where she teaches graduate courses on Transnational Threats and International Political Economy.


 

[i] CSIS, “How is China’s Energy Footprint Changing?”  https://chinapower.csis.org/energy-footprint/

[ii] Anjli Raval and Najmeh Bozorgmehr, “Iran Eyes Asia Buyers to Protect Oil Exports from US Sanctions,” Financial Times, 15 July 2018. https://www.ft.com/content/e54129b4-85cc-11e8-96dd-fa565ec55929

[iii] Julian Lee, “Iran Oil Sanctions Will Hurt More than You Think,” Bloomberg, 12 August 2018, https://www.bloomberg.com/view/articles/2018-08-12/trump-s-iran-oil-sanctions-will-hurt-more-than-you-think

[iv]BP Statistical Review of World Energy, June 2018, British Petroleum, https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf  


The views expressed in the article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.


News Reports

Bilateral relations

Nothing comes for free, says Army chief Bipin Rawat on aid from China 
The Times of India, September 17
Indian Army Chief General Bipin Rawat said here on Sunday (September 16) that countries which have taken financial aid from China will soon realise that "nothing comes for free."

India not lowering guard on China border: Nirmala
The Hindu, September 16
India will not lower its guard along the Line of Actual Control with China, while maintaining border peace in sync with the “Wuhan” spirit, Defence Minister Nirmala Sitharaman has said.

‘Just a few hours ride’: China plans bullet train from Kumming to Kolkata
Hindustan Times, September 13
China is “looking forward” to bullet train services connecting Kunming in south western China and Kolkata in Bengal, Chinese consul general in Kolkata, Ma Zhanwu, said on Wednesday (September 12).

India wants drones to monitor Himalayan border with China
Asia Times, September 4
India wants to purchase a remotely piloted aircraft system that can operate at an altitude of more than 5,500 meters above sea level, the Russian news agency Sputnik reported from New Delhi on Monday (September 3).

China, India in talks to set up 'direct confidential telephone' link between defense ministries
CGTN, August 31
China and India are in talks to establish a “direct confidential telephone” link between their defense ministries and are also discussing the possibility of a revision of the 12-year-old bilateral defense agreement with an aim to set up a new mechanism for military cooperation, the Chinese Ministry of National Defense (MND) revealed on Thursday (August 30).


News Reports

China and India in the Region

China watching, India cautious to US move on talks with Japan and Australia
The Indian Express, September 11
Sources said the Indian side conveyed to the US that the quadrilateral grouping should not be conflated with the Indo-Pacific issue, but should be kept separate.

Insult to injury: Nepal to now join military drill with China
The Times of India, September 10
Nepal’s decision to pull out of the joint Bimstec military drill in Pune couldn’t have come at a worse time for India with the Nepal army set to participate in a 12-day long military exercise with China later this month.

China engages in Australia's largest maritime drill for first time
Reuters, September 9
China is participating for the first time in Australia’s largest maritime exercise as more than 3,000 personnel from 27 countries engage in joint training off the strategic northern port of Darwin.

Nepal says China to allow access to ports, ending Indian monopoly on transit
Reuters, September 7
China will allow Nepal the use of four of its ports, the Nepalese government said on Friday, as the landlocked Himalayan nation seeks to end India’s monopoly over its trading routes by increasing connections with Beijing.

China welcomes India-US 2+2 talks; declines to comment on security pact
The Times of India, September 7
A wary China on Friday (September 7) welcomed the first 2+2 Dialogue between India and the US but declined to comment on the landmark security pact under which Indian military will have access to critical and encrypted American defence technologies.

India boycotts inauguration of China funded bridge in Maldives
The Times of India, September 2
The Indian ambassador, Akhilesh Mishra, chose to stay away from the inauguration of the Sinamale Bridge on Thursday (August 30) - China’s flagship infrastructure project in the Maldives.

India says to help Nepal build rail link to Kathmandu
Reuters, August 31
India will help Nepal construct a rail link between capital Kathmandu and an Indian border town for smoother movement of passengers and cargo to the landlocked Himalayan nation, which neighboring China is also trying to woo with a similar plan


News Reports

Trade and Economy

India shares post biggest loss in six months as China-US trade spat hurts regional markets
Nikkei Asian Review, September 10
Indian shares suffered their biggest losses in about six months on Monday (September 10) as U.S. President Donald Trump's threat to further escalate a trade feud with China hurt investor appetite for regional equities.

India may impose anti-dumping on certain types of Chinese steel
The Economic Times, September 9
India may impose anti-dumping duty of up to USD 185.51 per tonne for five years on certain varieties of Chinese steel with a view to guard domestic players from cheap imports of the commodity from the neighbouring country.

Trump wants to stop subsidies to economies like India, China
The Times of India, September 8
President Donald Trump on Friday said he wants to stop the subsidies that growing economies like India and China have been receiving as he wants the US, which he considers as a “developing nation”, to grow faster than anybody.

RCEP talks to go beyond 2018, India claims big gains
The Economic Times, September 5
Negotiations for a mega-trade pact among 16 Asia-Pacific countries including India will continue in 2019, commerce and industry minister Suresh Prabhu said as the country claimed substantial gains at the latest round of talks.

Suzuki exits China to boost focus on India and Africa
Nikkei Asian Review, September 5
Suzuki Motor will stop producing vehicles in China, the world's largest car market, amid flagging sales and the rise of electric vehicles, a field the Japanese carmaker has not waded into. It will instead focus its resources on the growing Indian market and the relatively unexploited market of Africa


News Reports

Energy and Environment

China vows greater efforts to curb ozone-depleting chemicals
Reuters, September 17
China will send out inspection teams to ensure that its provinces are complying with tough international restrictions on the production of ozone-depleting substances (ODS), government officials said on Monday (September 17).

Has flood warning turned the tide in China-India Relations?
South China Morning Post, September 9
Last year, China was blamed for a flood in northeastern India. This year, it is being praised for helping to minimise the damage.

India's offshore wind power capacity to hit 30 Gw, equal China's by 2030
The Business Standard, September 8
India's offshore wind power generation capacity is seen climbing to 30 Gw by 2030, on par with China and accounting for 30 per cent of the envisaged capacity of 100 Gw in Asian economies.

India allows state refiners to use Iran tankers, insurance for oil imports
Reuters, September 3
India is allowing state refiners to import Iranian oil with Tehran arranging tankers and insurance after firms including the country’s top shipper Shipping Corp of India (SCI) (SCI.NS) halted voyages to Iran due to U.S. sanctions, sources said. This mirrors a step by China, where buyers are shifting nearly all their Iranian oil imports to vessels owned by National Iranian Tanker Co (NITC).


Analyses

How India will react to the Rise of China: The Soft-Balancing Strategy Reconsidered
War on the Rocks, September 17
By T.V. Paul, James McGill professor of international Relations, McGill University

Recent developments in China-India ties have suggested two potential future pathways for the bilateral relationship.

Too close for comfort? On the India-U.S. 2+2 meeting
The Hindu, September 9
By Happymon Jacob, Associate Professor of Disarmament Studies, Jawaharlal Nehru University

The India-U.S. relationship shouldn’t be allowed to define India’s geopolitical character, strategic future or the limits of its other bilateral relationships.

‘Crude’ benefit for India in ongoing US-China trade war
Daily News Analysis, September 4
By Sanjay Kumar Kar, Associate Professor & Head, Department of Management Studies, Rajiv Gandhi Institute of Petroleum Technology

The ongoing tariff war initiated by the United States has started to show ripple effects in China and is poised to disturb global trade dynamics.

To Balance Chinese Influence, India Needs to Ensure Its Africa Gaze Is More Constant
The Wire, September 1
By Luke Patey, Senior Researcher at the Danish Institute for International Studies and Lead Senior Research Fellow at the Oxford Institute for Energy Studies

As China’s top-level Africa forum is held in Beijing on September 3 and 4, and India is slated to hold its next triennial Africa summit in the near future, the foreign policy establishment in New Delhi will once again turn its geopolitical gaze west to the African continent.

Raising China-India Relations To A New Height
Eurasia Review, September 1
By Zhu Zhiqun, Professor of Political Science and International Relations at Bucknell University

The Doklam/Donglang incident served as a wake-up call for both China and India: distrust still runs deep in the relationship and they must work hard to manage the relations prudently. The incident also made the two countries realize once again the importance of cooperation and the risks of confrontation

Books and Journals

It Takes Two to Tango: Autocratic Underbalancing, regime legitimacy and China’s responses to India’s rise

Journal of Strategic Studies, Published online July 2018
By Oriana Skylar Mastro, Assistant Professor of Security Studies, Edmund A. Walsh School of Foreign Service at the Georgetown University.

What factors do autocracies evaluate when responding to perceived threats and why might they fail to balance appropriately? I posit that autocratic leaders may choose greater exposure to an external threat if, by doing so, it preserves regime legitimacy. Specifically, the desire to promote a positive image to one’s domestic public creates incentives to publicly downplay a rival’s military progress, which then affects the state’s ability to mobilize resources to respond to the growing threat. This theory is tested in the case of China’s response to India’s military rise. This research contributes to balancing theory and empirical work on East Asian security.



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Compiled and sent to you by Centre on Asia and Globalisation and the Lee Kuan Yew School of Public Policy, National University of Singapore.

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