(EnergyAsia, October 20 2016, Thursday) — The geopolitics of the international oil trade are about to be redrawn with a consortium led by Russia’s Rosneft PJSC making a proposed US$12.9 billion purchase of India’s privately-owned Essar Oil Ltd in the biggest corporate deal between the two countries.

In acquiring Essar’s 20-million-tonne oil refinery and port facilities in Vadinar, and nation-wide chain of 2,700 retail stations, the Russian oil and gas giant and Switzerland-based commodities trader Trafigura will gain access to one of the world’s fastest growing fuel markets while India will strengthen its search for energy security by reducing its traditional supply dependence on the Middle East and Africa. Vadinar is located in India’s northwest Gujarat state, home to the country’s oil and petrochemical industry.

The Middle East will have to contend with a new rival supplier into India’s energy market while China will face increased competition from another major Asian buyer for Russian oil and gas. The US and Europe, in a new Cold War with Russia, must factor in India’s position as New Delhi and Moscow will build on the political dimension of this new Rosneft-Essar connection.

Underlining the strengthening of their countries’ bilateral ties, the deal was announced on October 15 in the presence of Prime Minister Narendra Modi and Russia’s President Vladimir Putin at the BRICS Summit in the Indian city of Goa.

On the domestic front, the deal marks an important breakthrough for the business-minded Modi in opening up the country’s heavily protected energy sector to foreign investor. When he was elected to office in May 2014, Mr Modi made India’s inefficient energy sector a key target of his reform agenda. The sale of Essar Oil represents India’s single-largest foreign direct investment transaction, and will likely open up the country’s other energy assets to global players.

In a statement, Essar said the transaction placed a value of US$10.9 billion on its refining and retail assets, and US$2.9 billion on Vadinar port and related infrastructure.

Announcing a separate deal in Goa on the same day, Rosneft said it had sold an additional 11% share in an upstream subsidiary, Vankorneft JSC, to India’s state-owned ONGC Videsh Ltd for US$930 million.

Rosneft CEO Igor Sechin and ONGC Videsh managing director Narendra Verma signed the transaction in the presence of the country’s two leaders, boosting the Indian firm’s stake to 26%.

With the sale, Indian firms now have a total 49.3% stake in Vankorneft which was established in 2004 to develop the Vankor oil and gas condensate field in eastern Siberia. Earlier, a consortium of Indian companies comprising Oil India Ltd, Indian Oil Corp Limited and Bharat PetroResources Ltd completed its purchase of a 23.9% stake in Vankorneft.

Vankor holds 265 million tons of oil and condensate reserves and 88 billion cubic metres of natural gas.