Increasing proximity between the two countries may be attributed to three chief developments: A more definitive West Asia policy that New Delhi appears assertive about; the newfound conviction on the part of the Kingdom of Saudi Arabia that their export basket needs to be diversified — an end to which India offers a large and stable avenue; India’s decision to comply with the sanction regime levied by the US upon trade with Iran…writes Dr Cauvery Ganapathy
Bilateral relations, where the indices of energy or economic needs and strategic considerations coincide, exhibit a robustness which usually outlives the everyday flux of international politics. Indias relations with Saudi Arabia represent such an intersection. Indo-Saudi ties presently are defined by the large Indian diaspora, the attendant remittances (11.6 per cent of total inflow in 2018), the $28 billion bilateral trade and the 800,000 barrels of Saudi crude that New Delhi buys per day. The dependence on oil imports is only expected to increase with India anticipated to overtake China as the world’s largest importer of oil by 2024 – with a dependence of between 80 per cent and 83 per cent.
Increasing proximity between the two countries may be attributed to three chief developments: A more definitive West Asia policy that New Delhi appears assertive about; the newfound conviction on the part of the Kingdom of Saudi Arabia that their export basket needs to be diversified — an end to which India offers a large and stable avenue; India’s decision to comply with the sanction regime levied by the US upon trade with Iran.
Over the past month itself, New Delhi has negotiated an additional purchase of 250,000 tonnes (mt) of crude per month from the Saudis (in addition to the 5.6mt annual term contract), likely to be the first of many arrangements made to fill in for the 23.5 million tonne of crude oil presently made unavailable due to the sanctions on trading with Iran.
Two broad categories could be outlined in relation to the developing dynamic: Economically, there is an argument to be made in favour of India and Saudi Arabia exploring complementarities in the diversification of energy verticals. This would build a more solid foundation for an increasingly important bilateral dynamic – a lucrative and stable partnership in refining as well as exports, in addition to the oil trade alone.
For the Saudis, this would pre-empt the vagaries of international oil markets and the challenges posed by new entrants into the export side. India, on the other hand, would be helped tremendously by the assurance of an energy partner with the kind of market clout that the Saudis enjoy.
Accordingly, Saudi ARAMCO is looking to invest in petrochemicals and refineries to gain a permanent foothold that could transcend the buyer-seller dynamic. This is expected to manifest itself in the form of a growing Saudi stake in integrated downstream models, as well as capitalising on the potential that India’s growing need for consolidating its strategic petroleum reserves represent.
The diversification that Saudi Crown Prince Mohammed Bin Salman (MBS) seeks is not exclusive to the domain of energy alone. In addition to technology and infrastructure, it is a possible Saudi investment in India’s agrarian sector – ancillary fields of food processing – working towards fashioning a model of food security that could qualify as another crucial cornerstone in the bilateral tie.
If New Delhi can capitalise upon its present camaraderie and bring the Saudis to the table favourably on the question of price fixing, it could usher in a phase of precious economic guarantees that would benefit India’s fiscal health – given the massive sums of foreign exchange spent on the import bill. India could here use the inducement of the first-mover advantage that it can currently offer the Saudis as a leverage.
Strategically, New Delhi has begun exhibiting an appreciation of the fact that the Saudis present a strategic option in the region that has, for too long, been cultivated unsatisfactorily by India. This reorientation has also been reciprocated by diplomatic gestures on the part of MBS (like his efforts to present the visit to India in February as a standalone one) which are widely interpreted in New Delhi as indicating a sensitivity that underlies valued strategic partnerships.
Significantly, the enhanced scope of counter-terrorism exercises and an exploration of defence partnerships suggests that New Delhi has – even if belatedly – come to the realisation that it would do well to decouple its strategic defence cooperation with the Saudis from Riyadh’s other bilateral propinquities or alienations, unless there is a direct impingement on India’s national security.
Despite appearing instinctively uncomfortable to demonstrate the choice, there is compelling evidence to suggest that New Delhi may finally have made a nuanced strategic shift, which prioritises the potential of Arab wealth funds and defence cooperation such as the one Riyadh represents, over and above a legacy of symbolism.
(The author is a research analyst with subject expertise in energy security and a former research associate with the Office of Net Assessment, US Department of Defence. The article is in special arrangement with South Asia Monitor)