https://oilprice.com/-By Simon Watkins
While it was no surprise that China abstained when the UN Security Council voted to condemn Russia’s invasion of Ukraine, the abstentions from the UAE and India were more surprising.
- This vote highlights that Washington’s ability to counter the influence of China and Russia in the Middle East is limited.
- The fading influence of the U.S. in the Middle East is a result of its withdrawal from the Iran nuclear deal, its withdrawal from Syria, and its failure in Afghanistan.
Last week’s failure of the UAE and India – along with just China – to vote in favor of the UN Security Council’s resolution to condemn Russia’s aggression against Ukraine and to demand the immediate, complete, and unconditional withdrawal of Russian forces from the neighboring country earned all three countries the explicit thanks of Russia. It also highlights the broader shift in the once clear-cut global political alliances to the two principal power blocs in the world: the U.S. and its allies on the one hand, and China-Russia and its allies on the other.
Nowhere has this shift been more evident in recent months than in the cases of the UAE – which on 13 August 2020 became the first country to sign a U.S.-sponsored ‘relationship normalization’ deal with Israel – and of India. Saudi Arabia is on the same level, as is analyzed in-depth in my new book on the global oil markets, and reinforced this with the very recent statement that it is still committed to working alongside Russia in OPEC+. The clear and principal purpose of the U.S. in brokering these relationship normalization deals, and those that followed, was to counter the burgeoning influence of China and Russia in the Middle East. However, not only has the UAE in recent months been keen to distance itself from such a unipolar view of its global political allegiances but also now India – which had been intended by the U.S. as a replacement global bid for China in the oil market – has stepped back from fully committing the role envisaged for it by Washington.
Shortly after the concept of the relationship normalization deals between Israel and as many countries in the Middle East and North Africa as possible had been originated in the U.S., various high-level sources in Washington let it be known that its new oil and gas market world order would, as far as the Middle East was concerned, involve Gulf states selling oil and gas predominantly to U.S. allies, including India, and that India as well would be the big back-up global bid for the commodities. This meant that in times of crisis, such as is now occurring in Ukraine, energy supplies to Western powers would not be subject to the potentially devastating threats that could proceed from Russia simply cutting off its gas supplies to Europe or, as has more recently happened with widespread sanctions against Russia, leave many U.S. allies in Europe scrabbling around to find alternative energy supplies. It was thought, as also analyzed in-depth in my new book on the global oil markets, that the relationship normalization deals would allow the U.S. and its allies to, in effect, corner large elements of the oil and gas supply in the Middle East. It was also thought by Washington that, by positioning India as the global replacement buyer for oil and gas instead of China, China’s geopolitical position in its own backyard of Asia Pacific would be weakened over time.
There is every reason to expect this strategy to work, provided that the U.S. begins to ‘encourage’ the countries involved to understand that the new world order (as clearly heralded by the Russian invasion of Ukraine) is a zero-sum game, with one side ultimately winning at the other’s expense, and that all countries need to pick a side and be prepared to be judged by which side they pick. At the time that the U.S. made the decision to substitute China with India in the global oil and gas markets, military units of India and China had clashed on 15 June 2020 in the disputed territory of the Galwan Valley in the Himalayas. As also examined in my new book on the global oil markets, this clash reflected a much greater change in the core relationship between the two countries than the relatively small number of casualties might have implied. It marked a new ‘push back’ strategy from India against China’s policy of seeking to increase its economic and military alliances from Asia through the Middle East and into Southern Europe, in line with its multi-layered multi-generational project, ‘One Belt, One Road’ (OBOR). Until China dramatically upped the tempo of this OBOR-related policy – at around the same time as the U.S. signaled its lack of interest in continuing its own large-scale activities in the Middle East through its withdrawal from the Joint Comprehensive Plan of Action with Iran and its withdrawal from much of Syria – India had stuck to a policy of trying to contain China. With the announcement in August 2020 of the U.S.-brokered Israel-UAE ‘normalization deal’ it appeared that a new corridor of co-operation was being developed from the U.S. (and Israel), through the UAE (and Kuwait, Bahrain, and in part Saudi Arabia) to India, as a regional counterbalance to China’s growing sphere of influence.
Also around the same time, the International Energy Agency (IEA) released a report showing that India will make up the biggest share of energy demand growth at 25 percent over the next two decades, as it overtakes the European Union as the world’s third-biggest energy consumer by 2030. More specifically, India’s energy consumption is expected to nearly double as the nation’s GDP expands to an estimated US$8.6 trillion by 2040 under its current national policy scenario. This is underpinned by a rate of GDP growth that adds the equivalent of another Japan to the world economy by 2040, according to the IEA.
At that time, the U.S. believed that India’s then-willingness to play this role in the global oil and gas markets would allow it to retain influence over the UAE’s oil flows – set to move from around 4 million barrels per day (bpd) to 5 million bpd – given the Emirates’ already close links to India. Also around that time, the chief executive officer of the Abu Dhabi National Oil Company (ADNOC), Sultan al-Jaber, stated that he looked forward to exploring partnerships with even more Indian companies across the energy giant’s hydrocarbon value chain. He added that he wants this to include expanding the commercial scale and scope of the strategic reserves partnership, in line with ADNOC being the only overseas company to hold and store India’s vitally-important strategic petroleum reserves (SPR). In keeping with the developing scope of this relationship, India’s government approved a proposal that allows ADNOC to export oil from the SPR if there is no domestic demand for it, in the first instance from the Mangalore strategic storage facility (the other major SPR pool being at Padur). This decision marked a major shift in the policy of India in the handling of these vital energy reserves, with the country having previously completely banned all oil exports from the SPR storage facilities.
This commitment to meeting India’s increasing energy demands was reiterated by the UAE last week – as the Brent oil price broke through US$100 per barrel – with its inclusion in the Joint UAE-India Vision Statement, which follows the signing of the India-UAE Comprehensive Economic Partnership Agreement on 18 February 2022. The problem for the U.S. in this – and as has just been echoed as well in India’s unwillingness to ‘sync’ with the U.S. and its allies’ condemnation of the Russian invasion of Ukraine last week – is that Russian President Vladimir Putin used the chaotic domestic political situation in the U.S. following its withdrawal from Afghanistan and then ‘end of combat mission’ in Iraq to sneak in and do a huge, wide-ranging deal with India, effectively scuppering Washington’s own vision for India and the UAE.
As exclusively highlighted by OilPrice.com, mid-December 2021 saw Russia’s state-owned oil giant, Rosneft, sign a deal with Indian Oil to supply it with almost 15 million barrels of crude by the end of this year. The deal takes on even more significance as it was just one part of 28 investment deals between Russia and India signed during the very recent visit of Putin himself to Indian Prime Minister, Narendra Modi. These covered a broad range of subjects, including not just oil, gas, petrochemicals, steel, and shipbuilding, but also military matters. Specifically, said Modi: “We have set a target of US$30 billion in trade and US$50 billion in investment by 2025.”
A joint statement from Russia and India said: “[We have] reiterated their intention to strengthen defense cooperation, including in the joint development of production of military equipment.” Specifically, according to further official statements from one or both sides, India will produce at least 600,000 Kalashnikov assault rifles – the weapon of choice for terrorists and militias across the Middle East and elsewhere – and, even more disturbing for the U.S., India’s Foreign Secretary, Harsh Vardhan Shringla, said that a 2018 contract for Russia’s S-400 air defense missile systems is now being implemented.
By Simon Watkins for Oilprice.com