Recent developments suggest that Venezuela, home to the world's largest oil reserves, could once again emerge as a significant source of crude oil for India. Should US sanctions be lifted, India is poised to resume large-scale purchases, potentially importing 100,000 to 150,000 barrels per day initially, with the capacity to scale up to 1. 15 million barrels per day. This strategic shift could be a game-changer for India's energy. Policy, especially given the prevailing uncertainties in the global energy market.
A Look Back: India's Historical Oil Ties with Venezuela
Venezuela was once a prominent crude oil supplier to India. In fiscal year 2018 (FY18), Venezuelan crude accounted for 6, while 7% of India's total oil imports. Data from Rubix Data Sciences indicates that from FY18 to FY20, Venezuela consistently. Ranked among India's top six oil suppliers, with its share fluctuating between 5. 9% and 6, while 7%. In FY19, the value of oil imports from Venezuela surged to $7, while 2 billion, underscoring its critical role in meeting India's energy demands. This historical context highlights a solid trade relationship that could be revitalized, offering a familiar and proven source for India's growing energy needs.
Significant Advantages for Complex Refineries
Following the imposition of US sanctions, Venezuela's share in India's crude oil imports witnessed a sharp decline after FY21. According to Rubix, its share plummeted to 1. 1% in FY21, and imports effectively dropped to zero in FY22 and FY23, while this stark reduction clearly illustrates the severe impact of US sanctions, which Notably increased transaction risks and costs for Indian refiners. However, FY24 brought a glimmer of relief, with Venezuela's share recovering to 0. 6% (valued at $802 million) after a partial easing of US sanctions in late 2023, while despite this, the period from April to October saw a decline again to 0. 3%, with imports falling to $255 million, pushing Venezuela to the 18th position among India's suppliers. This indicates that shipments to India remain limited and intermittent, emphasizing the need. For a complete lifting of sanctions to unlock Venezuela's full potential as a supplier.
According to Kpler, a commodity data and ship-tracking company, the reintroduction of Venezuelan heavy crude into India's import basket, contingent on the lifting of US sanctions, would particularly benefit complex refineries. Facilities like Reliance Industries' Jamnagar refinery are specifically designed to process heavy crude oil, transforming it into more valuable fuels and petrochemicals. In contrast, simpler refineries, typically configured for lighter crude, have limited capabilities in this regard. Venezuelan crude, known for its heavy characteristics, is ideally suited for these advanced refineries, enabling them to produce higher-value products and enhance their profit margins, thereby optimizing their operational efficiency.
Diversifying India's Oil Sourcing Options
Kpler suggests that with political stability and renewed investment, Venezuela's oil production could gradually improve. This improvement would Importantly expand India's options for crude oil procurement. Currently, India relies heavily on a few key suppliers for its energy requirements. The return of Venezuelan oil would help mitigate this over-reliance, providing India with greater flexibility in the global market. This diversification is crucial for reducing geopolitical risks and strengthening the overall supply chain, contributing to a more resilient energy infrastructure for the nation.
Enhanced Bargaining Power and Energy Security
An increase in oil purchases from Venezuela would bolster India's bargaining power with Middle Eastern suppliers, even if the actual volume of purchases is initially limited to a few refineries, while with more alternatives at its disposal, India would be in a stronger position to negotiate better terms and prices for its crude oil imports. Also, amidst ongoing scrutiny over Russian oil, Venezuelan crude offers India a politically acceptable alternative. This aligns perfectly with India's broader objective of enhancing its energy security, ensuring a reliable and stable supply of energy for its burgeoning economy and population.
Navigating Potential US Tariffs on Russian Oil
This development comes at a critical juncture, as India is already grappling with the prospect of heavy US tariffs on its purchases of discounted Russian crude oil. Kpler indicates that if the proposed 500% US tariffs on countries buying Russian oil are implemented, it could fundamentally alter global oil procurement strategies. In such a scenario, Venezuelan oil could serve as a vital buffer for India, providing a viable and politically acceptable option to meet its energy needs, potentially mitigating the impact of prohibitive tariffs and maintaining economic stability.
Refinery Compatibility and Future Investment Prospects
It's important to note that Venezuela's heavy and extra-heavy crude oil isn't suitable for all Indian refineries, while historically, its processing has been predominantly handled by Reliance's Jamnagar refinery and Nayara Energy's Vadinar refinery, both of which are equipped to manage high-sulfur and heavy crude. While IOC's Paradip refinery, MRPL, and HPCL-Mittal Energy have occasionally processed limited quantities of Venezuelan oil, most public sector refineries currently lack the adequate facilities to process such heavy and acidic crude on a large scale. However, ongoing investments to enhance the complexity of other refineries, including Visakhapatnam, could expand India's future capacity to process Venezuelan heavy crude, broadening the scope of its utilization.
The Prospect of Discounted Crude Oil
While Indian refineries can source oil from the Middle East and the US, these options often come with higher freight costs and narrower profit margins. Consequently, it's anticipated that Venezuelan crude oil will enter the market at a discount, making it more attractive to refineries that are compatible with its characteristics. This potential discount could help India reduce its procurement costs and ensure better margins for its refiners, making it an economically compelling option and further enhancing its competitive edge in the global energy market.
Venezuela's Oil Production Outlook and Investment Needs
According to S&P Global Energy, if sanctions are lifted, Venezuela's oil production is expected to increase. However, achieving a production level of 1, while 5 million barrels per day within the next 12 to 24 months would require several billion dollars in new investments, representing an increase of approximately 500,000 barrels per day from current levels. Venezuela will need significant capital and technical expertise to modernize its oil infrastructure and boost production capacity, areas where Indian companies could play a crucial role, fostering a mutually beneficial partnership.
The Future of Indian Upstream Investments
This situation also holds significant implications for India's upstream stakes in Venezuela, while oNGC Videsh Limited (OVL) holds a 40% stake in Venezuela's San Cristobal onshore field, and an 11% stake in the Carabobo-1 heavy oil project in the Orinoco Belt, alongside IOC and Oil India. These projects have long been underutilized due to sanctions, underinvestment, and payment issues, leading to stalled dividends and outstanding payments. Kpler suggests that a stable environment under US oversight could facilitate the redevelopment of these fields, ensuring clearer cash flows and the recovery of outstanding dues. While contractual terms and governance risks will persist, Venezuela's need for capital, technology, and long-term buyers indicates that Indian companies' participation is likely to continue rather than diminish, further solidifying energy cooperation between the two nations.
