This section will study the evolution of the oil trade and investment relationship between the selected SA countries and India and its main drivers. On one hand, we will focus the interest of India in SA-5 oil and its increasing dependence on South American natural resources. On the other hand, we will consider the SA-5 incentives and potential gains from trade and investment in oil with India. We will address these issues taking into account the key role of India and Brazil as B.R.I.C.S leaders, and competition with China for South American markets and oil.
Trade
SA’s share of India’s imports on oil has increased significantly in recent decades, growing from less than 1% in 1995 to over 6% in 2011. Specifically, between 2008 and 2009, the majority of all imports by India from SA consisted of petroleum: 99.5% of all imports from Venezuela, 32.4% of all imports from Brazil, 88.6% of all imports from Colombia, and 65.3% of all imports from Ecuador (ECLAC, 2011). In addition to increased trade flows, India and SA have actively worked to institutionalize their ever-developing relationship through preferential trade agreements (PTAs). For example, India is currently a MERCOSUR partner, of which Brazil is a member and has PTAs with Colombia and Venezuela currently under negotiation (ECLAC, 2011). In addition to these agreements, the increasing interest of India in the region is reflected in the FOCUS Latina American and the Caribbean program developed by the Indian Commerce Ministry aimed at fostering bilateral economic relations with the region (Viswanathan, 2011).Investment (plus Marcel section)
Today, Indians investment in SA remains low, with less that 2% of Indian outward FDI concentrated on Brazil and Venezuela. Nevertheless, this trend is increasing. Namely, the Indian ONGC constituted a recent joint venture with the Brazilian oil conglomerate Petrobras aimed at developing exploration projects both in Brazil and India. In 2008, , the governments of Venezuela and India has also entered a joint venture agreement in order to develop oil fields in Venezuela (IDB, 2010).
Foreign direct investment of India in South American countries
There are increasing concerns that the rate of growth in India may challenge other developing countries. The considerably low wages in India and the large population of the country is a huge avenue for foreign direct investments from other nations to India especially from South American countries. On the contrary, India has comparatively made little foreign direct investment in Latin America in the past. However, this trend has significantly changed with the recent Indian interest in Latin America’s oil industry.
The level of trade between India and South America went down in 2012 as compared to the previous year of 2011and 2010 which was the best year. This marked a second time drop in trade between the two parities in the last few years of steady growth. The earlier decline in trade investments of India in the South American region was in 2009 at the helm of the global crisis. Trade related investments dropped by a margin of 15% in 2012 compared to 2011 from $ 25274 million to $ 21302 in 2012.
Trade relations between India and Latin America especially in the oil industry are still at the infant stage, and most of its trade relations are based on natural resources. Forming a partnership between Latin American firms and Indian firms is a feasible option. Such investment partnership would help satisfy India’s demand for raw material and food needs. In realizing the potential of Latin America, India is seeking to increase its investments in that region.
In the future, India is looking to enter into strategic economic associations with Latin America as the India governments gets more confident with the benefits of such agreements. The biggest challenge India has been facing when trading with Latin America is the fact that its imports from the South American region are basically natural resources e.g. oil and lack sufficient variety.
The Latin American industry in particular the mining and oil sectors, have plans of making huge investments in flood ship projects thanks to the region’s good economic climate. This is a special avenue for Indian companies to move in and make huge investments and sustainable partnership with local companies in the region. The country will be requiring machinery and other industrial inputs that India has an upper hand at supplying.
Indian firms have invested extensively in this region e.g. NRI firms have invested in different venture ranging from Oil, IT, pharmaceuticals, steel, agrochemicals, mining, agribusiness etc.
Sourcing crude oil from Brazil
Indian companies are looking at the possibilities of procurement of oil from Brazil. In this process, Indian firms that invest in Brazilian oil are bound to benefit to a large extent. Indian firm ONGC Videsh is set to play a significant role in terms of investments in Brazil by India. Sources say that it might take an average period of two years to finalize on the logistics to be involved in the oil deal. Crude oil prices are pretty volatile and the commodity is a high value good thus any discovery of oil is advantageous and tends to attract FDI from overseas. Besides oil and natural gas, the Indian firm ONGC has joint venture agreements with China Corporation to offer assistance in investing into the Brazilian oil industry. ONGC in addition has a prospect of owning a 30% stake in Portuguese company Galp Energia, the South America’s Brazil unit. Galp owns major assets in Brazil among them four deep water offshore oil blocks in the Santos basin, the site of several recently discovered oil fields in Brazil.
In the recent past, Petrobras discovered the largest oil field since the 1976 Mexican Vantarell field. This field is said to be five times the size of the existing fields. This is a great opportunity for countries like India who have already invested heavily in Brazilian oil industry. They stand to benefit a lot from this newest Brazilian discovery.
India has great interest in the Brazilian oil industry, earlier this year, another Indian oil firm Baharat Petroleum in a joint venture with Brazil’s Videocon Industries, has struck oil off the Brazilian coast. IBV Basil Petrleo, the other joint company of this partnership owns a 30% stake in ES-M-661 oil block in the Santos basin offshore Brazil. This block is controlled by Petrbras that owns a 40% stake.
Exploration efforts revealed that this field can be drilled up to a depth of over 2961 meters under the sea bed which is an indication of how vast the natural resource in this block is. The consortium said it will continue with the exploration of the block and will at the end submit a report to the petroleum and natural gas agency, Videocon is also set to release its own findings about the exploration.
Reliance industries oil supply deal with Venezuelan firm
Reliance industries limited, an Indian company, recently signed a 15 years deal for the supply of heavy crude oil to India from Venezuela. In return, the Indian Company became privy to a memorandum of understanding with Petroleous, to further develop the oil fields in Venezuela.
Reliance Industry is set to use around $ 8 billion to develop the said oilfields in Venezuela. The Indian company is also planning to invest $ 20 billion in the future in various oil sectors among them: petrochemicals and refining industries. According to the contract, Petroleous would supply Reliance industries with 300,000 to 400,000 barrels a day to its two refineries located in Jamnagar.
As for the MOU, Reliance Industry limited is to seek upstream options for partnership in crude oil projects of the Orinoco Oil Belts. Reliance Limited is also to liaise with Petroleous through the provision of technical assistance in upstream oil refining plus other downstream projects.
In his speech, Rafael Ramirez, the petroleum and Mining minister and the president of Petroleous said that the government signed an MOU that permits Reliance industries to take part in crude oil exploration and production in Ayacucho and Boyaca. (Bureau)
Works Cited
Bureau. "Reliance signs crude oil supply deal with Venezuelan firm." The Hindu Business Line. (2013).
Chilkoti, Avantika. "Mahindra Satyam buys into Brazil." beyondbrics (2013).
R.Viswanathan. "India's trade with Latin America in 2012 - some surprises ." Business With Latin America (2013).
Viswanathan*. "Opportunities in Latin America for." THE EXTRAORDINARY AND PLENIPOTENTIARY DIPLOMATIST-PLUS (2011): 16.
Lederman, Daniel, M Olarreaga, and Guillermo Perry. China's and India's Challenge to Latin America: Opportunity or Threat?Washington, D.C: World Bank, 2009. Internet resource.
Facchini, Giovanni. Substitutability and Protectionism: Latin America's Trade Policy and Imports from China and India. Washington, D.C.: World Bank, Development Research Group, Trade Team, 2007. Print.
