Securing India’s energy interests in West Asia

The commodity price crash means New Delhi currently holds the advantage

Crown Prince of Abu Dhabi Sheikh Mohamed bin Zayed Al Nahyan’s just-concluded trip to India has served as a reminder of two facts. The first is the criticality of the Arab states to Indian interests. The second is the oddity of New Delhi nevertheless lacking a coherent policy towards West Asia—something it has begun to rectify of late, albeit in patchwork fashion—similar to its Look East policy.

Energy security, of course, is a key ingredient of India’s interest in West Asia. It is dependent on imports for 80% of its oil needs, of which roughly 55% is sourced from the Persian Gulf region. The ratio could decline slowly as New Delhi diversifies with an increased focus on African producers. But the rate at which India’s energy demand is growing—it is currently the world’s fourth biggest oil consumer with import dependence projected to increase to 90% by 2031—offsets this in absolute terms.

The current glut in the oil market and plunge in prices means it is, for the time being, a buyer’s market. That gives New Delhi an opportunity to dictate terms as it shops around. Indian refiners have already begun to take advantage of the price drop to switch long-term contracts with West Asian suppliers for African oil spot purchases. And some of the former like Saudi Arabia—looking to enhance its share of the growing Indian energy market as it drives a supplier price war to shake loose more marginal producers—have responded. For instance, Riyadh has reportedly been in talks to ship crude to India on its own tankers, saving on shipping costs and passing on the benefits to Indian refiners.

New Delhi must drive home its advantage. This goes beyond a buyer-seller paradigm. By some estimates, India’s own reserves remain 60-70% under-explored. Various competing demands on the public exchequer mean that the required investment to make headway here cannot—and should not—come entirely from the government. West Asian oil companies have typically steered away from upstream investments globally, but this is by no means uniform. Abu Dhabi, for one, has entered into a strategic partnership in energy with New Delhi, including upstream and downstream investments. Qatar is pivoting towards investing internationally as well.

Given the relationship New Delhi has forged with countries in the region over the past few years—India entered into an extraordinary defence agreement with Qatar in 2008, committing to protect its assets and interests from external threats, has a security understanding and growing economic ties with Saudi Arabia and strong links with Bahrain—they could be viable sources of investment in India’s energy sector. But for this, New Delhi’s oil and gas exploration policy is important. Its shift towards a revenue-sharing model from a production-sharing one—the latter has admittedly had its share of problems—could disincentivize private investment if not calibrated carefully.

India’s increasingly multidimensional relations with Gulf Cooperation Council (GCC) states buttress these energy security efforts. The Indian diaspora in the Arab states is seven million strong—a valuable connection and responsible for some $40 billion in remittances annually. And the possibilities for investment go beyond the energy sector. The UAE has agreed to invest $75 billion in Indian infrastructure, Bahrain is looking to invest in financial services and high value-added manufacturing among other areas, and countries like Kuwait have sovereign funds ripe for targeting.

Security and geopolitical considerations are, naturally, threaded through these economic engagements. Since Atal Bihari Vajpayee revitalized ties with GCC states, New Delhi has shown an admirable pragmatism, juggling its relationships with competing power centres like Riyadh and Tehran—even in light of the witches’ cauldron of proxy struggles and sectarian conflicts that is currently West Asia. This is the hallmark of mature diplomacy. The pay-off has been visible, from Saudi Arabia extraditing terror suspects to India to Qatari aid when Indian nationals have been endangered by the Islamic State and in Afghanistan.

Factor in India’s potential role as a maritime net security provider for the Gulf states, reliant as they are on energy shipping through the Indian Ocean Region. According to the Indian Navy’s Maritime Security Strategy released last year, the Persian Gulf is a primary area of interest. The possibilities for cooperation are significant.

In the period to 2040, India will overtake China as the largest source of rising demand for oil. The time to begin securing its interests in West Asia is now when it holds the advantage.

Should India pursue closer relations with the Arab states?