Last Monday, ahead of Thursday’s crucial meeting in Vienna among world’s major oil producing countries, crude prices stopped sliding and went up for the first time in five months, bolstered chiefly by a temporary truce between US and China and over expectations that the Organisation of the Petroleum Exporting Countries (OPEC) meeting would result in a production cut.
The Wall Street Journal reported that the market was expecting a slash in output from anywhere between 1 and 1.5 million barrels per day while OPEC’s Economic Commission Board recommended a total output cut of 1.3 million barrels a day. At a relative ease since oil had started its southward journey, the development spelled trouble for India which imports nearly 80 percent of its energy needs.
Higher oil prices have a domino effect on Indian economy. It widens both current account and fiscal deficits, slows economic growth, stokes inflation, weakens the rupee and puts less money in the hand of the government. Eventually, it affects consumption and investment. According to analysts at Nomura, every $10 rise per barrel erodes India’s GDP growth by 0.4 percent. Analysts say that if Brent (a marker of international crude prices) averages $75 per barrel in 2018, India’s current-account deficit (CAD) would widen to 2.5 percent of GDP from 1.5 percent in 2017.
Little wonder that in May, when Brent crude had just broken through the $80 per barrel mark, a concerned India requested Saudi Arabia, the world’s biggest oil producing nation and de facto leader of OPEC, to moderate and stabilise oil prices. Dharmendra Pradhan, the Union petroleum minister, dialed Saudi energy minister Khalid al-Falih and made a strong case for oil prices to be stabilised at around $50 per barrel.
For India’s burgeoning economy, stability in oil prices is as important as moderation. These twin factors also carry a political consequence for Prime Minister Narendra Modi as India approaches general elections next year. In this context, Modi’s recent meeting with Saudi crown prince Mohammad bin Salman (MBS) assumes a greater significance.
Modi, as the elected leader of world’s largest democracy, was under no illusion that this meeting on the sidelines of recently concluded G20 Summit in Argentina might be construed in some quarters as a moral transgression on his part and a validation of sorts for a Head of state who has invited global opprobrium for his alleged role in Washington Post reporter Jamal Khashoggi’s killing.
And yet, as this Firstpost piece recently argued, Modi was ready to do a little trade-off between MBS’s need for acceptance among G20 leaders — many of whom treated him as a pariah and avoided being caught in the same frame during the customary photo, leave alone a bilateral — and India’s need for energy security where Saudi Arabia (which produces 12 percent of globe’s total oil output) can play a big part.
Modi’s lurch away from idealism towards realism also fitted nicely with the ‘balancing-act’ principle that has been the fulcrum of India’s foreign policy. It opened up the space for diplomacy where the Indian prime minister, not getting bogged down by the question of morality while sitting down with MBS in his residence, could focus on achieving India’s core aim of ensuring stability in energy prices and getting Saudi Arabia to invest in various sectors from energy to food security, infrastructure and defence.
Concomitantly, Riyadh is also trying to move away from its overwhelming reliance on oil and diversify economy into other sectors where India, as a key Asian economy, can serve its interests. This dovetailing of interests between New Delhi and Riyadh presented Modi with a leverage, and his deft diplomacy in engaging with MBS in a bilateral at a rather difficult time for the crown prince enhanced India’s position further.
Mindful of the aces in his sleeve, Modi, according to Foreign Secretary Vijay Gokhale’s media briefing on the bilateral, “Stressed about the importance of having stable and predictable energy prices and some discussions took place between the two leaders on how Saudi Arabia can contribute and help in stabilising energy prices particularly for India.”
Modi’s sidestepping of the Khashoggi affair and focusing on India’s core aim with Saudi Arabia seems to have paid dividends. As he arrived in Vienna for the all-important OPEC meet, Khalid al-Falih, the Saudi energy minister, stressed that the organisation will “seriously consider” Indian prime minister’s views on oil pricing before a decision is taken on production cuts during the meeting.
Al-Falih recalled Modi raising the issue during his one-on-one with the crown prince in Argentina. “We would take the views of Modi seriously. Privately, he made those points in Buenos Aires (during the G20 summit) to us (Saudi Arabia), that he cares for the Indian consumers. I have seen him several times at energy events in India, where he has been vocal about it.” The Saudi minister added that Modi “put his consumer-centric views on oil prices very strongly.”
Interestingly, Al-Falih was specific in his mention of Modi when reporters asked him about US president Donald Trump’s intervention on oil price policy.
This is very interesting. Khalid A. Al-Falih, Minister of Energy of Saudi Arabia, is implicitly saying that Prime Minister Modi's persuasion is an important factor in global crude prices cooling down. (question was about President Trump, yet he specifically mentioned PM Modi). pic.twitter.com/Jr2LLEE5v6
— Akhilesh Mishra (@amishra77) December 6, 2018
The meeting in Vienna remained inconclusive as OPEC members failed to reach a consensus on production cuts — Iran, for instance, vehemently resisted output slash — and oil prices recorded a further slide. Which is good news for India.
What we saw here was an example of Modi’s out of the box diplomacy that seeks to harness the personal equation that he enjoys with other world leaders to achieve India’s core interests. Not for nothing did Saudi Arabia end a 70-year ban in March and allowed Air India to fly to Tel Aviv over Saudi airspace.
Modi has given new impetus to India’s relationship with Gulf nations: the result of which is evident in Christian Michel’s extradition from the UAE. It points to a refreshing change in foreign policy.
Updated Date: Dec 08, 2018 16:08 PM