RoydadNaft –   Two weeks ago, U.S. oil and gas giant, Exxon Mobil Corp. (NYSE:XOM) announced it had reached 500M barrels of oil produced from Guyana’s offshore Stabroek block, just five years after it kicked off production at the location. According to Exxon, the first three projects–Liza Phase 1, Liza Phase 2 and Payara–are already pumping more than 650K bbl/day. The Exxon-led consortium which includes Hess Corp. (NYSE:HES) and China’s Cnooc (OTCPK:CEOHF) have set a target to reach production of at least 1.3M bbl/day of oil by year-end 2027, a feat it hopes to achieve when six approved offshore projects come online.

And now one of the world’s biggest oil consumers is eyeing the light and sweet crude produced by the tiny South American country. Indian Prime Minister Narendra Modi said Thursday during a visit to Guyana that his government views Guyana as key to India’s energy security. Modi told a special sitting of Parliament that he views Guyana as an important energy source and that he will encourage large Indian businesses to invest in the country.

Guyana did not immediately grant Modi’s wish, with India’s External Affairs Minister Jaideep Mazumdar saying talks will continue and that such a deal would ensure “greater predictability.” Guyanese Natural Resources Minister Vickram Bharrat told reporters that Guyana is willing to supply India with a large amount of crude, if Exxon Mobil, the main operator in Guyana’s offshore oil production, agrees to such an arrangement.

“We know Exxon has to do some amount of changes to their lifting schedule and logistics because their preference is for the very large vessels that can accommodate two million barrels mainly because of distance and cost,” Bharrat said.

According to Bharrat, Guyana prefers that Indian companies bid for oil blocks and negotiations can proceed once a bid is submitted.

Enhancing Energy Security

With India recently becoming the biggest buyer of discounted Russian oil ahead of China, it appears counterintuitive that it would be so eager to buy crude from a country located nearly three times farther away than its much larger neighbor. Russian crude exports to India in July reached a record 2.07 million barrels per day (bpd) compared with 1.76 million bpd to China. However, energy security has become a critical issue for India due to its surging energy demand and limited domestic resources.

Previously, we reported that India’s energy security has been severely compromised by the ongoing Middle East conflict. Whereas a lot of focus lately has been on India’s surging imports of Russian oil, the country actually buys the lion’s share of its oil from the Middle East. In August, the Middle East accounted for 44.6% of India’s crude imports, up from 40.3% in July. Iraq, Saudi Arabia, the UAE and Kuwait are the main Middle Eastern suppliers of oil to India. In contrast, the share of Russian crude fell to 36% after five straight months of increases. Meanwhile, India imports nearly half of its liquefied natural gas (LNG) from Qatar. Back in February, India’s Petronet LNG (PLL) and QatarEnergy inked a long-term LNG Sale & Purchase Agreement (SPA) for the supply of around 7.5 million metric tons per annum (MMTPA) of LNG to India over the next 20 years. The deal involves LNG imports of $78 billion by the PLL during the contract period.

India’s geostrategic positioning and access to two of the world’s most critical maritime chokepoints–the Malacca and Hormuz Straits–make it a critical player in the global oil trade. Hormuz is the world’s most important oil transit choke point. Chokepoints are narrow channels along widely used global sea routes that are critical to global energy security. Even temporary disruptions that occur along these critical routes can lead to substantial increases in shipping costs, increasing world energy prices. Located between Oman and Iran, Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.

The Strait of Hormuz is the only maritime link to the rest of the world for Iraq, Kuwait, Bahrain, and Qatar, with their economies highly dependent on imports for basic necessities. Over 85% of India’s oil is imported via the Strait of Hormuz while key trade routes pass through the Malacca Strait. Together, these straits see over 60% of the world’s oil flow and a third of global trade, underscoring their strategic importance for not only India’s but the world’s energy security and economic continuity.

Oil prices fell more $2 per barrel on Monday after reports emerged that Israel and Lebanon have agreed to the terms of a deal to end the Israel-Hezbollah conflict. Reuters reported on Monday that a senior Israeli official said the country’s cabinet would meet on Tuesday to approve a ceasefire deal with Hezbollah, while a Lebanese official said Beirut had been told by Washington that an accord could be announced “within hours”.

“It seems the news of a ceasefire between Israel and Lebanon is behind the price drop, though no supply has been disrupted due to the conflict between the two countries and the risk premium in oil has been low already before the latest price decline,” said Giovanni Staunovo of UBS.

It’s possible that these developments mark the beginning of de-escalation of tensions in the region. However, U.S. officials have warned that negotiations are not complete after previous hopes for Israel-Hezbollah ceasefire were dashed. Further, the fact that Israel has dramatically ramped up its campaign of air strikes in Beirut and other parts of Lebanon just hours after news of a potential deal came out does not inspire a lot of confidence.