Will oil save the day for Indo-US trade relations

While India is looking to diversify its import basket after the sanctions imposed by the US came into full effect from November last year. At the same time, the US is also trying to sell its shale gas and LNG to energy-hungry countries like India.

Ahmedabad:US President Donald Trump’s candid acknowledgement that Prime Minister Modi was a tough negotiator and a possible trade deal with India was only at an early stage of discussion was strong evidence that despite the personal bonhomie between the two leaders, bilateral trade remains a complex issue.

The biggest challenge for the US leader is to bridge the trade deficit with India that has been pegged at more than $25 billion in 2018 as per the official US data. In 2018, the two-way trade between the two countries was more than $142 billion, while India exported goods and services worth $84 billion, its import from the US has been estimated at $58.7 billion.

It prompted US President Trump to raise the issue of high tariffs with India, saying that it has hit America hard for several years. Experts suggest that there are certain things that India can import from the US and narrow down the trade deficit.

US President Donald Trump's visit to India

Trade specialists say that India cannot open its farm and dairy markets for the US exporters as the country will have to give same concession to all other countries that have been accorded the status of most favoured nation (MFN) by India under the General Agreement on Trade and Tariffs (GATT).

“There are two things that India can buy from the US to bridge the trade deficit, one is of course defence equipment and another one is energy,” said SC Tripathi, former petroleum secretary.

In fact, in his speech at Motera stadium, President Trump talked at length about the defence equipment to be sold to India. But trade experts suggest that oil could be a game changer in boosting trade ties.

Earlier India was not buying energy products from the US as it was not an energy surplus country and the cost of transportation was also high but the situation has changed over the years.

PM Modi and President Trump at Motera stadium

“The US index of crude oil is working out to be $3-4 cheaper than Brent index that India buys, therefore the US crude can also be bought in some reasonable quantities,” former petroleum secretary SC Tripathi told ETV Bharat.

“And, the US gas prices are very cheap at this point so there is a possibility of buying LNG from the USA,” he said.

He says that the difference of $3-4 per barrel can compensate the high transportation cost to some extent as modern crude oil tankers are extremely big and buying large quantities of gas and oil will make commercial sense.

India’s massive energy needs may be beneficial for the US

India is an extremely energy deficient country, it imports more than 80% of its crude oil and natural gas requirement from abroad. In 2018-19, India imported 229 million tonnes of crude oil at a cost of $120 billion (Rs 8.81 lakh crore).

While India is looking to diversify its import basket after the sanctions imposed by the US came into full effect from November last year. At the same time, the US is also trying to sell its shale gas and LNG to energy hungry countries like India.

PM Modi, Donald Trump and Melania Trump at Sabarmati Ashram

In the past, India has bought crude oil from Latin American country Venezuela, which is almost at the same distance as the USA.

However, Venezuelan crude was available to India at a discount as it falls in the category of heavy crude, difficult to process but it was available to India at a discount which covered the higher transportation cost.

“If the US crude is of good quality, similar to Brent crude and since it is cheaper by 3-4 dollar then it can also work out. There is certainly a case for looking at it,” said SC Tripathi.

It also makes sense for oil surplus countries like the US to explore a market like India as European nations have been moving away from fossil fuels to renewable such as wind and solar and oil demand in China is stagnant.

On the other hand, India provides a stable and large market for oil exporters and India's crude and natural gas requirements are expected to continue to grow for the next two decades.

Any decision by India to import crude oil and LNG from the US in future may also be politically beneficial for President Trump as the US oil and steel companies have been staunch supporters of him.

“I don’t know about Mr. Obama, but both Bush Senior (George HW Bush) and Bush Junior (George W Bush) were highly connected to the oil industry,” observed the former bureaucrat who spearheaded the policy making for India’s petroleum sector during Prime Minister Manmohan Singh’s tenure.

“Particularly, Republicans are quite closely connected with big businesses and oil industry is quite big in America.”

(Article by Senior Journalist Krishnanand Tripathi)