Don’t mistake UAE's OPEC exit for an Indian win

The emerging scenario does not look good for India. Once he consolidates his hold on global energy, Donald Trump’s natural inclination will be to squeeze India, China, and the rest of the world as he did with trade tariffs

The decision of the United Arab Emirates (UAE) to leave the Organization of the Petroleum Exporting Countries (OPEC) effective May 1 is not something for India to smile about.

There is insufficient understanding in New Delhi that the UAE did not leave the oil cartel to suit India, notwithstanding the deep energy ties between the two countries. These ties range from Abu Dhabi’s participation in the Indian Strategic Petroleum Reserve (ISPR), oil concessions granted by the emirate to ONGC Videsh to drill in the Lower Zakum oilfield, and long-term contracts by India’s oil companies to buy Abu Dhabi’s crude.

The Iran war has triggered changes in the global energy map, which will become wholesale during the remainder of United States President Donald Trump’s administration. But its contours are now only beginning to form. Abu Dhabi’s action in leaving OPEC — which it joined in 1967, even before the birth of the UAE — is in anticipation of these comprehensive changes, which its crop of hard-nosed energy strategists wants to take advantage of.

As the world’s third-highest energy consumer in the last three years, according to the US government’s Energy Information Administration, India’s potential clout to influence these changes is considerable. But this clout comes with a lot of caveats. India’s energy demand is expected to double by 2040, according to the International Energy Agency (IEA). The IEA forecasts that during the next decade and a half, the largest absolute growth in oil consumption will be in India. It gives New Delhi enormous power to shape a new order in global energy that is being created: the UAE’s exit from OPEC is part of that emerging order.

The political leadership of India’s Ministry of Petroleum and Natural Gas, which presides over the country’s overarching energy infrastructure, is acutely aware that a new order which will affect this infrastructure is in the making. But to make this awareness trickle down and pervade all of the country’s petroleum map, the minister in charge, Hardeep Singh Puri, must confront entrenched and vested interests, which have held back for decades what is best for India in the petroleum and natural gas sector. New vested interests are emerging with the latest war in the Gulf.

What is the likely shape of the new global energy order in the making, for which the UAE’s break with OPEC could be a catalyst? Until the Ukraine war started, Europe’s post-Cold War prosperity was owed to natural gas supplies from Russia and a huge market for European goods and investment in China. In turn, China’s prosperity was underwritten by crude oil supplies from Venezuela and Iran, paid for with yuan. Qatar was a Colossus supplying one-fifth of the globe’s need for liquefied natural gas. Iran was selling all its oil, refusing to transact in US dollars. While much of the world was transfixed by the optics of Venezuelan President Nicolas Maduro’s abduction and the shock and awe of Tehran’s destruction, changes in oil supply chains were taking place. What is often overlooked is that when the UAE announced its decision to leave the oil producers’ cartel at the end of last month, nearly 45% of the world’s crude oil output was already outside OPEC because of the disruptions outlined above.

Soon after Trump assumed office last year, he attacked OPEC (and OPEC+, which includes Russia) for ripping off the US and the entire world with cartelisation of energy sales. A year-and-a-half later, Trump has effectively managed to undermine OPEC, mainly by taking control of Venezuela, which has the world’s largest proven oil reserves, and drastically cutting Iran’s oil production. The UAE shrewdly recognised this before it said goodbye to OPEC. In India, however, there is an overemphasis on the UAE’s rift with Saudi Arabia.

What comes next? The US will compete with Russia for the same energy markets — including India and China — and try to corner giant Russia, which had acquired massive power hitherto via OPEC+. The US has already taken Russia’s place on Europe’s energy map and now supplies nearly 60% of the continent’s LNG requirements. Having assailed OPEC from the first month of his second tenure, Trump is unlikely to create a cartel to rival OPEC with itself, Venezuela and the UAE at its core. But these three countries will together try to do to the world what OPEC has been doing for many decades. Smaller oil producers, which have been chafing against Russian and Saudi Arabian domination of OPEC, may not leave the organisation, but will try to have one foot in both camps.

The emerging scenario does not look good for India. Once he consolidates his hold on global energy, Trump’s natural inclination will be to squeeze India, China, and the rest of the world as he did on trade tariffs last year. Dealers and fixers greedy to amass greenbacks are already roaming in five-star hotels in Mumbai and New Delhi, showing off warrants for sales from oil potentates in the Gulf in a variation of the corrupt ‘Oil-for-food’ programme created for Iraq, which thrived from 1995 to 2003. The programme is best known in India for having felled External Affairs Minister Natwar Singh for having been allegedly complicit in the corruption. Now is the time for vision and deep insights in India beyond superficialities.

K P Nayar has extensively covered West Asia and reported from Washington as a foreign correspondent for 15 years.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH).