BRIC countries stand at the junction of supply and demand fundamentals in the global energy market. While Russia and Brazil are key producers (and exporters), China and India are enormous consumers of energy and, given inadequate domestic production, importers too
The sixth BRICS (Brazil, Russia, India, China, South Africa) summit came at a time when trade and investment within the group has steadily been on the rise. While strategies to strengthen economic ties were naturally discussed during the summit, it is the energy sector which reflects hugely consequential trends in intra-regional cooperation. The recent Sino-Russian gas deal has garnered widespread media attention and rightly so. But this massive $400 billion deal is part of a wider narrative on energy cooperation between the BRIC countries that will cause deep geo-political realignment in the days to come.
BRIC countries today stand at the crux of both the supply and demand fundamentals of energy markets globally. The divisions, and thus the complementarities, are worth exploring. While Russia and Brazil are key producers (and exporters), China and India are enormous consumers of energy (and importers).
India is the fourth largest energy consumer while China leads the pack, riding on the back of unprecedented economic growth and industrialisation. Russia and Brazil, on the other hand, are among the top energy producers. Now, India still depends heavily on Gulf oil, but there is a potential for energy cooperation with Russia and China that could change tomorrow’s geo-economics. One merely needs to look at America’s foreign policy history to establish the connection between oil/energy and geo-politics. Indeed, it’s the slew of commercial deals in Russia and China, and to a lesser extent in Brazil and India, that will serve the geo-political punch.
Total intra-BRICS trade in 2012 was $310 billion. However, if one were to look beyond the general figures, the intensity of trade in the energy sector will come across as striking. From 2008 (when BRIC was formed) to 2012, there were huge increases in energy trade between member states — to the point of interdependence, driven mostly by Chinese demand. For Russia and Brazil, the third and 10th largest oil producing countries, China is now an important market for their exports and, in fact, their oil exports to China have shot up manifold. For example, Sino-Russian crude oil trade doubled from 2008 to 2012.
While Chinese firms continue to invest in Brazilian oil blocs, Brazil on its part has upped its oil exports to China, although absolute figures are still low. China has already pumped $10 billion into Brazil’s oil giant Petrobas, and the Chinese Sinopec Group is in talks with Petrobras to jointly pursue a refinery project in north-eastern Brazil.
Between Brazil and India, mineral fuels constitute the second highest export product but the potential for energy cooperation between the two countries lays largely unexplored. China depends on energy imports essentially because production at home is nowhere close to consumption demands. China’s colossal state-owned oil firms have been unable to make any major discoveries in recent times, unlike in Brazil, where a number of offshore oil discoveries have recently been made. Consequently, Brazil’s oil exports to China, and to a lesser extent to India, have risen substantially.
In 2012, Brazil exported almost 2.5 times more oil to India than it did in 2009. While lack of technical expertise in exploration has hindered India’s production capacity, it wrestles with rising domestic demands and the spectre of unlocked energy reserves. As a result, India imports 75 per cent of its total petroleum needs. But importantly, its energy imports continue to come from the Gulf.
While the Persian Gulf makes for simpler shipping routes and importing tankers from Russia is a pricey, if non-feasible, option, the India-Russia oil pipeline (connecting north-west China in its way) that is being talked about, is likely to be game-changer — much like the recently signed Sino-Russia gas deal. Eager to unshackle itself from West Asia-related foreign policy dependencies, and also owing to the vulnerabilities in that region as a whole, India is actively seeking to multiply its sources of energy imports, as part of its longer term energy security policy. At the same time, the Western-Russian stand-off (triggered by the crisis is Crimea) has forced Russia to hasten its export diversification strategy — in other words, hunt for newer markets for its energy exports. The Asian markets fit the bill and can helps Russia overcome the hit that its economy has been taking due to West-imposed sanctions.
For now, India-Russia energy cooperation takes the form of cross border investments and deals. Barring the oil pipeline mentioned earlier (which is going to be the costliest ever), India continues to treat Russia as a priority market in its outward investments in mineral resources. As of 2011, Indian investment in Russia was about $6.5 billion, most of it in the energy sector. At a time when American stakes in West Asian oil is on the decline due to its home grown shale gas boom, China, with its enormous demand for energy, risks becoming the new US vis-à-vis West Asia. However, if ties are strategically built on the existing cooperative trends, intra-BRIC cooperation could spoil the Organization of the Petroleum Exporting Countries’ bargaining chip — oil.
India is still not at the heart of the shifting geo-economic terrain; China and Russia are. And this is where the huge $400 billion gas deal between China and Russia figures. By signing the biggest gas deal in a century after a decade of tough negotiations, Russia and China have managed to to put the US and the EU in a tight spot. Russia is now in a position to look right through the Western sanctions against it over Crimea, which will hardly hurt with the kind of payments Moscow is set to receive in the long term from Beijing. From the point of view of China, which still imports around half its oil from the Gulf, its dependence on the West Asia could become a thing of the past with a deal like this. What this also means is that, in the long term, China dependence on US Navy protection of Persian Gulf shipping lanes that carry Chinese oil shipments is significantly reduced.
With respect to the more robust China-Russia energy cooperation, as earlier mentioned, both investment and trade are driving ties between the two. At a time when Russia is seeking to reduce dependence on the EU as a market, China is the obvious market to tap eastward. While Sino-Russian ties are known to have been peppered with distractions and difficulties, it seems both countries are now riding on the ‘emerging Asia’ bandwagon and helping each other at a hitherto unprecedented level.
Ahead of his Shanghai visit, Russian President Vladimir Putin announced to an eager media that Sino-Russian relations were at an all time high. Then came the historic gas deal. It is beyond doubt that energy security will be at the centre of the shifting terrains of global geo-politics and the principal actors of the changed narrative will be China and Russia, with Brazil and India in supporting roles.
(The writer is a Senior Research Analyst at the Delhi-based Institute of EconomicGrowth)