Possible Russo-Indian Oil Supply Deal Fraught with Sanctions Implications

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Russia is looking to secure Asian markets for its oil as the Western sanctions over the annexation of Crimea threaten to bite hard, and India is looking for new long-term sources of oil supply to meet growing demand and refinery capacity utilization. Not a "'deal made in heaven," but a good fit, with both parties having some leverage, if and when they come to the final deal-making table.

Russia's oil major, Rosneft (OTC: RNFTF) (Moscow, Russia), has joint ventures (JVs) with U.S. oil majors, including Exxon Mobil Corp. (NYSE:XOM) (Irving, Texas) and Chevron Corp. (NYSE:CVX) (San Ramon, California), which could come under review, and is testing the ground with Indian oil and gas companies who are looking for hydrocarbon sector cooperation.

Discussions have already taken place between Rosneft Chief Executive Officer Igor Sechin, India's state-owned Oil and Natural Gas Corporation (BSE:ONGC.BO) (Dehradun, India) and private sector Reliance Industries Limited (NSE: Reliance.NS) (Mumbai, India). It is reported that ONGC Videsh (OVL), ONGC's international division, is pursuing cooperation with Russian companies such as Gazprom (OTC:OGZPY) (Moscow, Russia) and Novatek (OTC:NOVKY) (Tarto-Sale, Russia).

OVL already has a stake in Russia's Sakhalin -1 project, and has also acquired Imperial Energy, which operates in the Tomsk region.

RIL needs to meet a daily demand for 1.25 million tons of crude oil to feed its two refineries, which it currently sources from North Africa, Saudi Arabia and South America. The company's situation is complicated by the fact that it is working with BP and its exploration activities are providing a source of controversy. Any Russian deal could see it hit with sanctions from the West in where it has had an important and established market relationship.

RIL has been building its overseas oil and gas portfolio and has four blocks, two in both Yemen and Peru, and has signed for two further blocks in Myanmar.

To be factored into this scenario of double whammies and no-speaks is the fact that bonds between U.S. and Russian energy companies have been strengthening in parallel to the Crimea crisis. Exxon Mobil and Rosneft have planned oil exploration in the Arctic in a $500 billion JV formed in 2011. The two companies are also planning to conduct hydraulic fracturing in shale fields in Siberia, drill a well in the Black Sea and start construction on a natural gas export terminal in eastern Russia.

The "oil lobby," which used to be easy to indentify as two dimensional (us and them), is now, at least, three dimensional with multiple issues and alternative prime energy sources in addition, to keep the international market cauldron boiling.

For related information see March 20, 2014, article -- Rosneft CEO: Russian Business Can Turn Elsewhere if Sanctions are Passed and March 24, 2014, article -- Tense EU-Russia Relations Spur Diversification on Both Sides.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.