DELHI – India and Russia have agreed to jointly build an oil pipeline that connects the two through Xinjiang province, China. It is expected to cost US$30 billion to build and will be completed by 2020-2022. The project was agreed to at a meeting held between Manmohan Singh and Vladimir Putin in October 2013 during the former’s trip to Moscow for the 14th India-Russia Annual Summit.
Presently, 28 percent of India’s energy comes from crude oil, 40 percent from coal and six percent form natural gas. India runs a high energy deficit and relies on imports to satisfy demand. In 2011, approximately 28 percent of the country’s energy came from imports – this number is expected to grow to 50 percent by 2030.
The new pipeline is expected to help alleviate India’s energy shortages, while also opening a new oil export market for Russia. This comes after sanctions by Western countries on Russian exports following the annexation of Crimea, which resulted in Russia’s credit rating to be downgraded to almost junk status by Standard and Poor’s.
In 2012, Russia exports to India were worth US$8 billion and Indian exports to Russian were worth US$3 billion. Oil only accounted for US$176 million of the Russian exports, despite Russia being the world’s highest producer of crude oil and India being heavily reliant on oil imports.
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This project also signals closer ties between India and China and could be a step towards India joining the Shanghai Cooperation Organization (SCO). This is a group made up of Eurasian countries (China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan) that cooperate economically, militarily and culturally. Currently, India holds observer status with the SCO.
Due to India’s energy shortage, the country actively encourages FDI in the energy sector, allowing 100 percent foreign direct investment into certain areas and also has a number of programs that incentivize investment in the energy, oil and gas sectors.
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