India should beware from Saudi Aramco’s billions
The Saudi Arabian Oil Company is doing its best to make it one of the best with one of its biggest customers. With the ink is barely on the 70% takeover of the country's chemical giant Saudi Basic Industries Corp. And the introduction of its first corporate bond, Aramco wants to buy a stake in the world's largest oil refinery.
Indian billionaire Mukesh Ambani's Reliance Industries Ltd is seeking to sell as much as a quarter of its refining business for at least $10 billion and offers to entertain from Aramco and Abu Dhabi National Oil Company.
That presents a lot of prizes. Reliance's Jamnagar refinery is about twice the size of the biggest U.S. plant, Aramco-owned Port Arthur, and is so massive that maintenance work occasionally skews India’s entire trade balance.
Trade is also the reason India should be cautious of Aramco’s embrace. The country has a dangerous addiction to imported crude, and it should be wary of getting too cozy with its dealer.
India is different. The U.S. produces about 1.8 metric tons of oil a year per capita and even China manages 138 kilograms. India – at a far earlier stage of development than either country – ekes out just 30 kilograms. Production peaked all the way back in 2010 and shows no sign of recovery. Industrialization is an energy-intensive process. If India’s development is going to be powered by crude oil, it’s going to be buying a whole lot more from Aramco and its ilk.
Such a future would pose some profound risks. Balance of payments crises are a recurring danger for emerging economies, and even at its current stage of development oil typically accounts for about a quarter of India’s imports. If prices spike higher – as, inevitably, they will from time to time – that’s good news for Riyadh, but potentially devastating for New Delhi.
India is aware that its dependence on imported crude risks constraining growth. The government wants 30 per cent of new cars and two-wheelers to be electric by 2030 and is already home to more than 1.5 million electric rickshaws. It’s also adjusted tax policies to encourage that transition. In a country at grave risk from climate change, whose cities are already choking on vehicle smog, reducing the reliance on imported fossil fuels is more than just an issue for the current account.
That goal isn’t an unrealistic one given the rock-bottom local cost of wind and solar. Still, no country has managed low-carbon industrialization on this scale before, so it won’t be easy – and Saudi Arabia will be hoping it proves all but impossible. By promising to buy a chunk of Reliance and help fund a new $44 billion Jamnagar-sized refinery in western India, Aramco is counting on the country being unable to kick its self-destructive oil habit. Indians should hope that it’s wrong.