India’s Approach to Oil Acquisition in Latin America

Dr. Sun Hongbo, a scholar at the Chinese Academy of Social Sciences (CASS) Institute of Latin American Studies (ILAS), and member of the Inter-American Dialogue’s China and Latin America Working Group, recently published the following article in a Chinese journal《能源》on Energy.

The article examines India’s “小步子,” or “small step” approach to oil acquisition in Latin America, and suggests that India’s approach may be preferable at times to China’s more aggressive and spontaneous energy-related engagement with the region.

Sun explains that India’s relations with Latin America have warmed over the past few years as a result of two primary factors: domestic pressure on both sides to expand trade and investment, and an interest in strengthening ties in the context of a shifting global power dynamic. Sun also points out that India’s oil-related cooperation in Latin America has, in fact, strengthened the country’s political relationships with its partners in the region.

According to Sun, India’s “small step” approach to energy acquisition in Latin America is based on its national energy security interests, as well as on the capital endowments and pace of internationalization of India’s oil companies. But India also considers several other factors when investing in the region, including countries’ resource potential, political stability, and the nature of bilateral relations with potential partners.

From 2006 to 2010, India has launched eighteen cooperative oil exploration projects in Latin America — the vast majority (75 percent) of which are in Brazil and Colombia. According to Sun, India has very few cooperative projects with the region’s leftist governments, which it may consider less reliable. India’s oil-related investments are also fairly small in comparison to China’s billion dollar deals – they very rarely exceed $10 million.

Because of its smaller footprint and very calculated approach to investment, India rarely encounters resistance on the part of host governments in the region – nor do its investments generate significant public opposition, according to Sun.

When operating in Latin America, China’s oil companies should consider not only China’s domestic energy needs and their own international operational interests, but also regional politics, specific policy changes, and other diverse factors, Sun argues. China should seek out cooperative opportunities in Latin America, but must “steadily and cautiously” avoid “blindness” when operating abroad, or a tendency toward “swarming” (蜂拥而上). China, Sun argues, can learn from India’s cautious and strategic investment, which involves successful risk assessment and responsible examination of country-specific investment opportunities.