China, India Sets Up Buyer’s Bloc That Favors Importers

China - India
Chinese State Councilor and Foreign Minister Wang Yi, right, and Indian Foreign secretary Vijay Keshav Gokhale, left, attend a meeting at Zhongnanhai Leadership compound in Beijing, China April 22, 2019. (Photo: Kenzaburo Fukuhara/Pool via REUTERS)

China and India plan to shift the old power structure of world oil as they form a deal to set up a buyer's bloc that could dramatically tilt the bargaining power towards the importers. Last week, a high-level Chinese representative from its National Energy Administration visited India to negotiate the deal.

According to the report of the Mint newspaper, the proposed buyer's bloc will bargain collectively on oil supplies. The joint venture is expected to surpass the influence of OPEC in the oil industry. The partnership of the world's second and third largest importers of oil is likely to bode well for other Asian oil importers. Reports said that the buyer's bloc will force OPEC to "reduce premiums placed on oil sold to Asian countries.

Nations in Asia are mostly dependent on West Asian producers for their demand for oil. The dependence causes an imbalance in scales that are in favor of the producers who force buyers to purchase a premium.

The United States and the European Union is not given extra weight when purchasing West Asia's oil. India demands to end the charges but negotiations failed.

In the last two decades, India's demand for oil significantly increased creating a bigger share of imports. It means that the risks from price fluctuations also increase for the country. The production cut imposed by OPEC and the tightening of United States sanctions against Iran and Venezuela is seen by India as signs of oil trouble. This year oil reached $75 per barrel for the first time.

The United States implemented a conditional waiver applicable to eight nations to continue their purchase of Oil from Iran. The deadline for the waiver is scheduled to end on May 2. The oil equation is expected to complicate more after the waiver for the top importers of oil from Iran like China and India.

Analysts believe that the partnership between India and the United States might alter the inner workings of global energy markets where OPEC have a 40 percent share of total global production.

India struggled a lot in reducing supply risks caused by the backdrop of rising geopolitical risks. The country seeks alternatives to ensure that the blacklisting of Iran leaves no gap in its oil basket. Analysts believe that suppliers will not sell oil at the same rate as Iran's after the May 2 deadline. The buyer's bloc will ensure that uncertainties in oil will not matter to importers like India.

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