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All about Oil

At the root of US-Iran rivalry, is the question of who will supply oil and gas to India and China.

Big Oil has the eyes, ears, mind, actions of the world's ruling elite - also in India. (Cartoon by : David Horsey of Seattle Post-Intelligencer; Cartoon courtesy - usj.com. ). Click for larger image.

Big Oil has the eyes, ears, mind, actions of the world’s ruling elite – also in India. (Cartoon by : David Horsey of Seattle Post-Intelligencer; Cartoon courtesy – usj.com. ). Click for larger image.

Big oil

Significant part of global politics in the last 10-15 years has been dictated by three developments. One – Oil reserves in Central Asia and the Caspian Sea. Two – Stagnant oil consumption by the West. Three – Rising oil consumption by India and China. For instance US oil consumption between 1973-2010 has grown from 17 mpd to 19 mpd – with some consumption peaks and demand  collapses.

US-Iran clash

Iran is a rival to Big Oil companies of the US and West, as a supplier of oil and gas to India. Iran can easily and cheaply transport oil from its own oil fields – as well as Central Asian production. Iran can thus completely cut out US and its oil companies from the future of oil business with India and China. Hence, the US-Iran rivalry. The Oil-Dollar Tango on which the US Economy is based for the last 30-40 years, also supports Big Oil.

US would like overland oil from Central Asia to come to India and China through Pakistan and Afghanistan – which are US client states. With this the US can cut out Iran – completely. Pakistan and Afghanistan become key gateways for oil to India and China. Hence, the power struggle in Pakistan between Army, Taliban, and the Pakistani politicians.

China's rising oil imports is supporting high oil prices. (Graphic source and courtesy - bbc.co.uk). Click for larger image.

China’s rising oil imports is supporting high oil prices. (Graphic source and courtesy – bbc.co.uk). Click for larger image.

India-Pakistan story

What will be US role, if India and Pakistan were to sit down and resolve their issues. India-Pakistan troubles in the recent past, must be seen in this light, too.

India is negotiating with a Central Asian-US Big Oil Consortium to bring gas via Afghanistan and Pakistan to India – dubbed as the TAPI pipeline. It is also in discussion with Iran and Pakistan to bring gas from Iran to India via Pakistan – commonly known as IPI pipeline.

India’s choice between IPI-TAPI is crucial – and will take another 5-10 years to resolve. In the meantime, Iran’ has an interesting point of view.

The Iranian diplomat reposed faith in the “rationality” of the Indian leadership (and it) would take the “best decision” to meet the energy needs of (an) economy aspiring to be the world’s second largest. He drew attention to Iranian export options of China and Europe other than India.

“India has to decide how to meet its energy needs. Use of nuclear energy has become questionable after the earthquake in Japan. The demand for fossil energy is bound to increase with long term nuclear power projects on hold in Europe,” sources explained.

Security was a major Indian concern — besides pricing — in the talks on the pipeline that would have been laid across the lawless Balochistan where Islamabad’s writ is non-existent in vast stretches controlled by local tribes.

If (security was a major Indian concern) then how was New Delhi in talks on the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, they asked. “The (security) concerns that exist about IPI exist with TAPI in which case the source of (gas) supply is also dubious,” they averred.

Bagheri attributed the spread of terrorism in the region to the presence of Nato and US troops. “Countries like US are at the root of terrorism in the region. They first created the terrorist groups and have come to the region now on the pretext of fighting them,” he said. “Terrorism has increased since their arrival.”

He cited UN figures to claim that narcotics production went up four times and was the maximum in areas under the control of British troops in Afghanistan. (via Iran gives up on India, pursues gas pipeline with Pak – Hindustan Times).

What is New Delhi’s strategy in all this. Partly, it is increasing oil production within India. Secondly, is increasing the share of nuclear energy. Third is imports.

As usual, tough choices ahead.

Oil reserves across the world. (Graphic source and courtesy - indiadaily.org). Click for larger image.

Oil reserves across the world. (Graphic source and courtesy – indiadaily.org). Click for larger image.

  1. July 4, 2011 at 4:57 pm

    One could substitute India with a country A; Pakistan with a country B; oil with another commodity C. And repeat this article with a different twist.

    Countries like India are net importers and it is not in Indian’s interest when RBI intervenes and artificially inflate/sustain the USD vs. INR rate by a factor of four.

    Perhaps M. J. Akbar’s now defunct blog article about the current Indian PM is a hint. ??

  2. July 4, 2011 at 5:36 pm

    This is like Free Markets argument … if markets are not free … are they be markets at all … If you send a Steroid-pumped up professional to compete with an equally competent amateur, what will happen? Most possibly …

    All Central Banks are manipulating currency exchange rates. With a free float, fiat currency, can there be anything but artificial rates?

    Are you suggesting that the INR is undervalued? Based on any historical trend, India has followed a strong rupee policy – which makes our imports cheaper, and exports costlier.If you are saying rupee is undervalued, what is your thesis?

  3. July 4, 2011 at 7:18 pm

    There are NO free markets. NONE. Period.

    The strongest contender of an ideally free exchange rate is “Purchasing Power Parity”.

    With an average US middle class household needing $3K to $5K per month to survive, an ideal, real exchange rate would hover at 10 INR/USD.

    If household or office labor is added to PPP calculations, the rate would hover around 2 or 3 INR/USD. Like many rules of the game, the basket of goods for PPP do not include labor. As it stands now, the exchange rate desired to necessitate RBI intervention does not seem to follow any published or discussed rule or model.

    Indians (like many other nationals), are toiling for others.

    At around 25% cost of living, India is an excellent, hidden gem for US expatriates. The wealth multiplication is an added bonus. 🙂

  4. July 4, 2011 at 7:53 pm

    Alkesh –

    You have not given any logic for this calculation. All I can say is that I have seen INR:US$ at 10:1 ratio. Our exports will be nil. India will be exorbitantly costly. All other countries (ceterus paribus) will be really cheap. There will be a huge black-market for foreign currency. No one will want to hold Indian currency. Offshore accounts will multiply like flies.

  5. July 5, 2011 at 7:51 pm

    We all are cognizant that the competition amongst countries for artificially depressing their currency is strong, in servitude of foreign exchange. Except for this mental block, no logic or formula is visible in the policy of exchange rates.

    Since India is a net importer, the detrimental effect of reduction in exports by India is more than compensated by the reduction in foreign currency needed to buy nation’s imports. Besides, for energy, which takes away a big chunk of India’s foreign exchange, India could barter.

    It was a very different world when the INR:USD ratio was in single digits. India has extraordinary negotiating power these days.

    PPP’s role in (justifying) exchange rates is a fact. Many have noted the anomaly.

    http://www.oanda.com/currency/big-mac-index (Guess which countries have large negatives in the far right column?)

    Household spending patterns in the USA (which quoted above were low balled, for frugal life style) are easily available :


    RBI is shifting the equilibrium and sustaining the shift at great loss to the nation. To prevent FOREX turmoil and shocks, RBI should announce it’s preference to predetermined and published rate each year for a duration of, say five years. Indian exporters will find ways to serve their nation in those five years. 🙂

    Hope this helps.

  6. July 5, 2011 at 8:00 pm

    Mike Moffatt explains the situation with a simple example here :

    Replace footballs with a pool of commodities and services required for living, to arrive at the true exchange rate between two currencies.

    Kind Regards.

  7. July 26, 2011 at 3:32 pm

    Alkesh – You are asking me to respond to Mike Moffat, et al and various other people. None of them have an issue with with what I am saying?

    You have an issue.

    Please tell me what you think. I will be happy to expand, clarify on what I am saying.

  8. August 7, 2011 at 5:16 pm

    Hi Anuraag, I do not have an issue with what you are saying. We probably concur much more than diverge on complex issues that others may not be cognizant of.

    I was alluding to areas unexplored by many; on issues that have far greater implications than the lacs or 1000s of crores of scams being discussed; on the systematic looting of nations by brainwashing and by leveraging assets placed very high up in positions that control or influence executive, banking, foreign policy, defense, etc.

    All this largely unknown to simple minded folks that are largely led by Dharma, folks that toil hard to provide luxuries to strangers far, far away.

    It’s an interesting aspect of human nature how interpretation is different across individuals. One could expand and explain the two sentences above in greater detail; it would become an essay or a book; into economics, foreign policy, psychology, history, espionage, culture, dharma, etc.

  9. June 18, 2012 at 1:22 pm

  10. June 18, 2012 at 5:02 pm

    Rajiv Dixit tries to simplify the issue in laymen’s terms here : http://www.youtube.com/watch?v=LCYoq8lVkzA – “How Devaluation of RUPEE Against Dollar leads to collapse BHARAT’s Economy By Rajiv Dixit”

  1. July 3, 2011 at 4:21 pm

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