Oil & Gas Editorial: Hibernation Cancelled - The Bear Moves East

Tim Haïdar

As the 8th BRICS Summit came to a close in Benaulim, Goa, India, a multi-billion dollar oil deal piqued the attention of the commodities world.

In the presence of political bigwigs from the five member states, a formal announcement was made of the sale of Indian company Essar Oil to Russia's Rosneft. A major player in the petroleum refining sector, Rosneft will purchase a 98 per cent stake in the Mumbai-based organisation for a sum of $10.9 billion.

The transaction will add some 145 million barrels per annum of refining capacity to Rosneft's portfolio, and the key asset of the 405,000 barrel per day (bpd) refinery at Vadinar in Gujurat. Access to Vadinar's deep sea port and 2,700 retail outlets across the nation will give the Russian petrogiant access to a wide-ranging extant sales base, and the potential for intranational and international expansion.

The timing and media exposure accorded the deal is far from coincidental: Russia is announcing a further pivot to the East.

Crippled by two years of sub-$80 oil, the Kremlin is looking at India as a strategic growth opportunity. In June of this year, India surpassed Japan as the world's third largest oil consumer, guzzling 4.1 million barrels of the Black Gold every day. By 2040, that daily demand is set to grow to 10 million bpd.

Tainted by the stigma of actions in Ukraine and recent events in Syria's half-decade-long exercise in self-immolation, borscht and blinis are far from flavour of the month in the bistros and brasseries of the Western World.

Teetering on the precipice of pariahdom, Russia's latest eastward glance comes months after Moscow and Beijing signed a raft of energy deals in an ever-tightening Russo-Chinese economic pact. This calculated move East is also a statement of intent with regards to loosening the stranglehold of the Organisation of Petroleum Exporting Countries (OPEC) on Asian oil demand. The actions of the cartel have been paramount in the ruin of a Russian state exchequer dependent on hydrocarbons for 40 per cent of government revenue.

A chill wind is blowing in from Siberia, and the world may yet feel the icy talons of an enraged bear before the year is out....