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Gulf-India relations given a new lease of life

Dr N Janardhan
Filed on September 3, 2005

THE foundation of relations between the Gulf Cooperation Council countries and India are strong enough given the historic links, presence of about four million Indians in the region, about $5 billion in annual remittance and a potential $15-billion-plus trade bill in 2005. Though both are beginning to see eye-to-eye politically as well, trade will remain the bedrock of their bilateral ties.

As part of a new ‘look East’ policy, the GCC chambers of commerce and industry called for prioritising economic cooperation with Asian countries. Reciprocally, countries like India have unveiled a multifaceted economic dialogue, including ‘energy diplomacy’ to power its economic growth.

Already ranking sixth in global petroleum demand, India meets 70 per cent of its needs through crude oil imports. By 2010, India is projected to replace South Korea and emerge as the fourth-largest consumer of energy, after the United States, China, and Japan. The bulk of supplies in the past have come from the Gulf and this can change only marginally.

New Delhi was jolted into action after the hike in global oil prices fuelled inflation to three-and-a-half year highs by 2004-end. The oil import bill rose 58 per cent to $14 billion during the first six months of the current financial year ending March 2005.

While it is unclear if the robust policies are a result of proactive approach of Energy Minister Mani Shankar Aiyar or a strategic change in the outlook of the government, there is no denying India’s newfound desire to address the energy security needs of the country, which includes plans to build strategic oil reserves of five million tons by 2008 to cover 15 days’ domestic demand for oil products. To achieve its mission, New Delhi is searching for new reserves, augmenting supplies from its traditional suppliers and sealing acquisition deals abroad.

Of its 90 million tonnes crude oil requirements, about 26 per cent or 24 million tons are met by Saudi Arabia, at an estimated rate of about 430,000 barrels per day, which translated into $4.7 billion in 2003, and making it the fourth-largest consumer of Saudi oil in Asia. That according to the Indian minister "will double soon".

The crux of the new oil diplomacy rests on promoting cooperation between importers and exporters of oil. According to the minister: "Rather than refining the crude petroleum in our land, we can import refined petroleum...Any agreement based on trade relations of buying and selling leads to unstable equilibrium." Giving teeth to the plan, India is inviting Saudi investment in oil refining and fuel retailing and exploring opportunities to invest in developing gas fields in the kingdom. Two Indian oil companies are in discussions with Saudi Aramco for possible Saudi investment, which is in turn associated with possible investment by Indian companies in Yanbu refinery.

It is also the minister’s long-term vision to make 21st century "the Asian century", with New Delhi-Riyadh as its axis. A beginning in this direction was made with India hosting the first ever Asian conference on regional cooperation in oil economy in January, and Saudi Arabia due to host the next. The two countries will cooperate to secure funding and manpower for the International Energy Forum Secretariat in Riyadh to undertake four major studies on Asian petroleum and petro products market, interlock investments in the hydrocarbon sector between Asian producers and consumers, establish an intellectual network to strengthen Asian institutions involved in research and development in the hydrocarbon sector, and cooperate on environmental protection and conservation of energy resources.

Further, India’s willingness to invest up to $25 billion for acquiring oil and gas fields overseas means its state-owned oil firms have stakes in a dozen countries —Russia, Sudan, Iran, Iraq, Libya, Egypt, Qatar, Ivory Coast, Australia, Vietnam, Bangladesh and Myanmar. It is also exploring possibilities in Kazakhstan, Turkmenistan, Kuwait, Oman, Yemen, Ecuador and Venezuela. India’s economy grew by 8.2 per cent in the last fiscal year, and is forecasted to expand about seven per cent during the current fiscal. To realise that expectation, India has also revealed plans to buy up to one million tons of crude annually from Qatar and encourage higher imports of liquefied natural gas.

India started importing LNG from Qatar last year and plans to import five million tons this year, which could increase to 20 million tons by 2015. This vision would make Qatar India’s most valued gas supplier, like Saudi Arabia is with crude oil.

It is important for the GCC countries to safeguard their business interests with India with regard to the ‘fuel of the future’. A $22-billion deal to buy five million tons of LNG annually from Iran over 25 years, starting 2009, will also contribute towards developing clean fuel. The quantity of imports could go up to 7.5 million tons in 2011.

The gas is required to meet industrial and vehicular demand, and for domestic cooking, estimated at 170 million cubic meters per day (mcmpd) and projected to increase to 400 mcmpd over the next 20 years. Domestic gas supply is about 85 mcmpd, with imports expected to cover bulk of the future demand.

The number of vehicles sold in India in the year ending March 2005 rose 16 per cent to 7.9 million, in addition to the 50 million already plying on the roads. The thirst for fuel is bound to grow with the increase in internal business and leisure travel, which has triggered a budget airline race and the likelihood of India’s aviation market growing by 20 per cent annually.

Aiding in meeting that requirement are talks between India and Pakistan over building a $4-billion, 2,775-kilometer pipeline to bring Iranian natural gas to India through Pakistan —a plan that Iran proposed in 1996, but had been stalled due to India’s concerns about Pakistan. However, with a thaw in India-Pakistan relations, pumping gas overland from Iran could be possible by 2012. Simultaneously, India is also negotiating importing natural gas through pipelines from Myanmar via Bangladesh, and Turkmenistan too.

India’s expansion of its energy supply basket has even touched nuclear frontiers. As part of the US-India Energy Dialogue, Washington has agreed to share civilian nuclear technology with India, reversing decades of US policies aimed at discouraging countries from developing nuclear weapons. Once approved by the Congress, India could buy nuclear fuel and shop for at least six nuclear power reactors.

It is likely that the Indian drive to secure energy supplies is likely to intensify raising concern among some countries. For those who sense a threat, the Indian petroleum minister says: "We are merely consolidating our position in the global oil economy, just as the West in its time consolidated its position. I hope this initiative will be seen as the rise of an equal partner whose only interest is global cooperation for everyone’s benefit."

Dr N Janardhan is the Editor of the Gulf in the Media at the Gulf Research Center in Dubai





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