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International relations

India leads regional charge to end OPEC's 'Asian premium'

New Delhi looks to form buyers’ alliance with China, Japan and South Korea

A storage tank at an Oil and Natural Gas Corp. facility on the outskirts of Ahmedabad, India. The country imports more than 80% of its oil.   © Reuters

NEW DELHI -- Contending with soaring crude prices, India is seeking to form an alliance of leading Asian oil importers to pressure OPEC into dropping the premium it charges countries in the region.

India, which imports more than 80% of its oil, is holding discussions with China, Japan and South Korea on the possibility of creating a buyers' forum that would negotiate better terms -- an "Asian dividend" -- with the Organization of the Petroleum Exporting Countries. New Delhi says the cartel gives preferential terms to the U.S. and European nations.

"We are asking for abolition of the Asian premium," India's Oil Minister Dharmendra Pradhan said at a recent news conference. "I think India has been successful in this initiative. There is an emerging consensus [as to] why should [we] have to give more premium."

Indian Oil executive director Sukhendu Majumdar said in June that OPEC charges India an additional $2 to $3 per barrel. "This is not at all a small sum when multiplied by billions of barrels that the country imports, which in turn affects the petrol prices," he was quoted as saying by local media.

India's total crude oil imports, according to OPEC, increased to nearly 4.3 million barrels per day in 2017 from around 1.5 million in 2000. About 83% comes from the 15-member cartel.

The four countries all rank among the world's top five crude importers. China is the world's biggest, followed by the U.S., India, Japan and South Korea.

Pradhan said he raised the Asian premium issue with two key members of OPEC -- Saudi Energy Minister Khalid al-Falih and Sultan Ahmed Al Jaber, a UAE minister and chief executive of Abu Dhabi National Oil Company -- at the India Energy Forum in New Delhi last week.

The meeting took place with U.S. sanctions on Iranian oil imports set to kick in on Nov. 4. Despite the U.S. curbs, India has indicated it will continue to buy crude from Tehran, a key OPEC member.

From left, Indian Oil Minister Dharmendra Pradhan, UAE minister and Abu Dhabi National Oil Company CEO Sultan Ahmed Al Jaber, and BP chief executive Robert Dudley attend the India Energy Forum in New Delhi on Oct. 15.   © Reuters

Pradhan said that Asian buyers wanted to be treated on a par with the West, and called OPEC's practice discriminatory. "If 70% of [OPEC's] consumers belong to the Asian countries why [do these buyers] pay more in comparison to their [other] 30%?" he asked.

Analysts, however, are skeptical as to whether the alliance can make an impact.

Saudi Arabia "does not have any source of revenue other than oil," said Shamshad Ahmad Khan, of the University of Delhi's department of East Asian studies. "Same is the case with the UAE and to some extent Qatar. Thus, they [the buyers' group] may not get the kind of concession that they desire."

He added that there is a chance "the four countries will come together at the initiative of India, but they may not achieve success overnight."

In comments to China's state-run Global Times, Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, said it would be difficult to make the buyers' alliance effective as New Delhi and Beijing "disagree on many things, both politically and economically."

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