India’s oil strategy in the Trump era

During his visit to Guyana in South America (20-21 November), Prime Minister Modi signed a number of MOUs, including one for cooperation in the hydrocarbon (petroleum) sector.[1] The agreement included sourcing of crude oil, cooperation in natural gas and development of infrastructure.[2] Guyana has become an important oil producer in the past five years – from its astounding oil discovery in 2015 and first oil production in 2019, Guyana now produces 645,000 barrels/day of oil. A consortium led by U.S. oil major ExxonMobil, which includes China’s state-owned CNOOC, is producing this oil.

To the north, the U.S. seems set to witness a further boost to its oil industry. Incoming President Donald Trump has announced Chris Wright[3], an oil industry executive with extensive experience in shale oil, as his energy secretary. The expectation is that under a Trump administration, there will be fewer curbs on America’s extensive oil industry. The U.S. is already the world’s largest producer of petroleum, well ahead of Saudi Arabia and Russia. Under an industry-friendly Trump administration, described as “drill, baby, drill.,” U.S. oil production is set to rise further.

These production increases will address the growing global demand for oil. OPEC, the group of oil-producing states, projects that the world’s oil demand will increase to 120 million barrels/day by 2050, up from 102 million barrels/day in 2023. India alone is projected to account for an additional 8 million barrels/day, or 45% of this rise.[4] Clearly, the petroleum industry is far from spent, and still has a long way to go and to grow. The recently concluded COP29, whose outcomes have been described as unsatisfactory, also shows that the world is not yet financially or technologically capable of moving away from traditional fuels.

These projections also highlight an uncomfortable fact – that India is lagging in the race for oil. India relies on imports for over 85% of its oil requirement and import dependence will go past 90% given the projected growth in demand. Higher prices of imported oil, as seen in the weeks after the start of the Ukraine war, hurt India’s economy. India has continued to buy Russian oil during the conflict, at the risk of incurring U.S. sanctions, to keep its economy going. With Trump set to deescalate the Russia-Ukraine war, this is one risk that will recede.

One way to get around this problem, as China has done, is to invest in oil and gas fields overseas. While India made a promising start in the early 2000s, this initiative has faltered in the past decade. ONGC Videsh Limited (OVL), the national oil company tasked with acquiring foreign assets, has slowed down. In the past five years, OVL has made just two acquisitions – a 14% stake in a Senegalese oil field in 2020[5], and a purchase of 0.615% in an oil field in Azerbaijan, where it already held a 2.31% stake. The financial return from an oil field partly mitigates the impact of higher oil prices. OVL’s own oil and gas production is falling – from a peak of 15 million tons per year in 2019-20, it was down to 10.5 million tons in 2023-24.

Much of India’s efforts to secure energy in the past few years have been directed at encouraging electric vehicles and blending ethanol with petrol. Electric vehicle penetration in India remains low, and there are no worthy electric options on the horizon for heavy trucks – which account for over 40% of India’s total oil consumption. In the case of two-wheelers and cars, EVs are just 4.4% and 1.9% of present sales. The share of EVs as a percentage of vehicles on the road is minuscule, as is their impact on India’s oil demand. In the case of ethanol blending, India has substituted 18.1 million tons of crude oil imports over the past decade – less than 1% of total consumption[6]. Ethanol is produced from sugarcane, a notoriously water-thirsty crop which requires farmland that will be otherwise used for food production. While these strategies may offer other benefits, energy security is not one of them.

India needs to get back in the game of investing in overseas oil and take a broader view on how to make smart investments. For instance, OVL owns a stake in the Zakum oil block, 84 km northwest of Abu Dhabi Islands, acquired in 2018, but is not the operator of the oil field.[7] This is no different from a financial investment. Instead of buying minority stakes in individual oil projects, India can consider acquiring small stakes in listed oil companies such as Saudi Aramco, ExxonMobil, and Chevron from friendly countries which sit on some of the best and the most diverse portfolios of assets globally and offer attractive stock investment opportunities. In case of the U.S., India should also be open to investing through that country’s deep secondary market in smaller oil companies – which the U.S. has by the thousands.

There are three major benefits of this approach.

One, it is easier to invest in a listed company than an individual oil project. Each oil field is unique in terms of geology, technical challenges, location, and geopolitics. For instance, Indian companies have large significant investments in Russia (heavily sanctioned), Venezuela (economic meltdown, sanctions) and Myanmar (civil war, sanctions). Companies such as Aramco or ExxonMobil offer a way to invest in oil fields located in stable, friendly regimes.

Two, these companies typically pay out a large chunk of their profits as dividends – like Indian PSUs do. For instance, Saudi Aramco has paid out a total dividend of $0.51 per share in 2024[8] – a dividend yield of 7%. Every $100 invested in Aramco will generate a dividend income of $7 per year. ExxonMobil has a dividend yield of 3.3%. These will increase in times of high oil prices – partly offsetting India’s import bill.

Three, investments in the U.S. and Saudi Arabia will help improve ties with two of India’s closest partners. India is partnering with Saudi Arabia for IMEC (India-Middle East Economic Corridor). An Indian investment that helps support high-paying blue-collar jobs in the oil industry is a sure way to build ties with the new U.S. government, which is more inclined to the traditional energy sector.

To activate this effort, India will need to create a new entity – a pure fund. Resource acquisitions by foreign state-owned enterprises often raise hackles in the home country, as happened with CNOOC’s (China) proposed investment of U.S. oil firm Unocal in 2005. CNOOC dropped the deal, which was also discussed in the U.S. Congress. Chinese firms have faced a similar pushback in Australia and Canada. A purely financial investment by a dedicated fund will not raise such concerns.

Oil-rich countries such as Norway, Abu Dhabi and Kuwait have long channelled part of their oil wealth into a ‘rainy day’ fund, to offset low oil prices. As an oil importer, India must prepare for the opposite – times when oil prices are high – and can use a similar approach. The past decade has been one of moderate oil prices. There is no assurance that prices will continue to be moderate – a concern as India revs up its manufacturing plans. India should therefore channel some gains from low oil prices into a wealth fund which will mitigate the pain of high oil prices.

Amit Bhandari is Senior Fellow for Energy, Investment and Connectivity, Gateway House.

Aditya Shinde is Research Assistant, Gateway House.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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References

[1] Prime Minister’s Office, “Prime Minister holds official talks with the President of Guyana”, PIB Delhi, November 22, 2024. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2075709

[2] Prime Minister’s Office, “List of Outcomes: State Visit of Prime Minister to Guyana (November 19-21, 2024)”, PIB Delhi, November 20, 2024. https://pib.gov.in/PressReleasePage.aspx?PRID=2075270

[3] Domonoske, Camila, “Trump announces oil executive Chris Wright as his pick for energy secretary”, Texas Public Radio, November 16, 2024. https://www.tpr.org/environment/2024-11-16/trump-announces-oil-executive-chris-wright-as-his-pick-for-energy-secretary

[4] OPEC World Oil Outlook, “Chapter 3 – Oil Demand”, World Oil Outlook 2050, 2024. https://publications.opec.org/woo/chapter/129/2356

[5] Oil and Natural Gas Cooperation Limited, “ONGC Videsh to acquire 13.6667% Participating Interest in Exploitation Area and 15% Participating Interest in Exploration Area under RSSD Production Sharing Contract, Offshore Senegal”. https://ongcindia.com/web/eng/detail?assetEntry=2053538&assetClassPK=2053534

[6] https://pib.gov.in/PressNoteDetails.aspx?NoteId=153363&ModuleId=3&reg=3&lang=1

[7] ONGC Videsh Limited, “ONGC Videsh led Indian Consortium comprising of ONGC Videsh, Indian Oil Corporation Limited and Bharat Petro Resources Limited to acquire 10% Stake in Lower Zakum Concession, Offshore Abu Dhabi” February 10, 2018. https://ongcvidesh.com/ongc-videsh-led-indian-consortium-comprising-of-ongc-videsh-indian-oil-corporation-limited-and-bharat-petro-resources-limited-to-acquire-10-stake-in-lower-zakum-concession-offshore-abu-dhabi/#:~:text=We%20are%20hopeful%20that%20this,to%20its%20existing%20E&P%20portfolio.

[8] Aramco, “Dividends schedule”, Shareholder information. https://www.aramco.com/en/investors/shareholder-information/dividends-schedule