Strategic Energy Ties of India and Saudi Arabia

India’s fast growing economy has placed New Delhi among the top oil and gas consuming countries in the world. At present, India imports approximately 195 million tonnes of crude annually, and the Kingdom is the top supplier to New Delhi, meeting around a quarter of the total oil India imports. However, looking at the future prospects of India’s economic growth, leading to significant rise in oil and gas demand on the one hand and Saudi Arabia’s eagerness to hedge the large Indian energy market on the other. New Delhi also invited Saudi Arabia to participate in crude storage facilities and both the countries “directed the Joint Working Group on Energy to continue adopting all appropriate means to achieve the same.

The emergence of Saudi Arabia in the world as the largest energy producer and supplier on the one hand and India being one of the largest crude consumers on the other brought the two countries to deepen ties. In 2006 India and KSA (Kingdom of Saudi Arabia) signed “strategic energy partnership” agreement. In the historic Delhi Declaration, Saudi Arabia assured India to honour its energy requirements. This agreement is crucial in the sense that petroleum and oil lubrication (POL) accounts the largest share, approximately 40 per cent, of India’s total import. In 2012, New Delhi spent more than $60 billion on oil import. The Delhi Declaration acknowledged the “importance of strengthening the strategic energy partnership based on complementarity and interdependence, including meeting India’s increasing requirement of crude oil supplies, and identifying and implementing specific projects for cooperation including in the areas of new and renewable energy.

Fast growing India, particularly in the field of economy, science & technology, education, human capital resources, defence and security and counter-terrorism attracted the attention of King Abdullah and in 2006 he paid a visit to India after a gap of half a century. He described India as his “second” home and expressed satisfaction that the “Indian Muslims are in secured hands”. At the end of four-day visit, the two countries signed the historic Delhi Declaration and touched upon a range of issues both contemporary and futuristic pertianing to their mutual interests. In this document, Riyadh frankly addressed New Delhi’s concerns such as energy security, terrorism, while India also endorsed the needs of Saudi Arabia such as capacity building, diversification, cooperation in science and technology, education, manpower development, training to the medical personnel and peaceful uses of outer space, etc. Showing respect to the visit of King Abdullah, the Indian Prime Minister, Dr. Manmohan Singh, also paid an official visit Riyadh in 2010. There too, the two leaders signed Riyadh Declaration and agreed upon to complete the agenda to Delhi Declaration signed in 2006. The idea of signing strategic partnership” matured in the Riyadh Declaration. Looking at the eagerness, the Saudi watchers went to the extent of saying that Riyadh and New Delhi are exploring to establish a natural partnership and bury their past differences.

In December 1955, Abdulaziz Ibn Saud was the first Saudi King to visit independent India. He stayed in India for 16 days. During this stay the King visited several major cities of India like Banaras, Lucknow, Hyderabad, and New Delhi, etc. Even before independence King King Abdulaziz Ibn Saud had special regards for India. During the Great Bengal Famine in 1942, he made a personal donation of 10,000 pound sterling to the Bengal Relief Fund. In 1956, the Indian Prime Minister, Pt. Jawaharlal Nehru, paid a counter visit to Riyadh, where he addressed a large crowd gathered in a stadium. The cheering crowds called him Rasool-al-Salam (Messenger of Peace) for his active role in promoting peace and stability in the developing third world countries. After a gap of 27 years, in 1982 the Indian Prime Minister Ms. Indira Gandhi visited Riyadh, which further boosted the bilateral relation of the two countries. The outcomes of the three high level visits that took place over period of three decades were positive and deep. Despite the estrangements of the Cold War; India’s silence over the Russian occupations of Afghanistan; and Pakistan’s provocations to snap ties with India, Riyadh and New Delhi continued with their relations.

After India’s independence, both the countries realised the importance of each other and established formal relations in 1947. In 1948, India opened its first diplomatic Consulate in Jeddah, which was converted into Consulate General; in 1957 India opened full-fledged Embassy in Saudi Arabia and in 1985 it was shifted to Riyadh. Prime Minister, Dr. Manmohan Singh addressed at the Majlis Al Shura, in Riyadh, Saudi Arabia. Another dimension in the bilateral relationship of the two countries was added when Saudi Arabia along with other hydrocarbons rich Gulf countries witnessed the first oil boom (1973-74) and received massive oil revenue. This provoked the Saudi rulers to embark upon massive construction project. However, at that time the kingdom was neither having enough labour force nor expertise to carry forward the desired construction projects. Consequently, once again a synergy on labour issues between India and Saudi Arabia emerged and India emerged as one the largest labour sending countries to the Kingdom.

At present more than 3 million Indians are working in KSA and remitting approximately 6 to 8 billion dollar annually. Indeed, energy, economy and migration were the key components that sustained the ups and downs of the bilateral relations of Riyadh and New Delhi; and after the end of the Cold War, these components played key role in catalysing and forging a special tie between the two capitals. At the end of Cold War, both, New Delhi and Riyadh adopted new economic policies to adjust with the globalising world. Riyadh emphasised on the look east policy and aimed at targeting the emerging big and population economies of the East and India held a paramount position.

Interestingly, Saudi Arabia’s oilfields are located in the east of the country, where the Shi’a citizens are in the majority. As Saudi Arabia sees it, Iran has been under international sanctions for some time now, leaving its economy in a state of disrepair. Its oil infrastructure is collapsing and Tehran is becoming increasingly dependent upon the few countries permitted to purchase its oil. If Riyadh could, therefore, reduce the number of countries buying Iranian oil, it would effectively further undermine Iran’s economy. India is one of those countries permitted to buy oil from Iran, albeit in reduced quantities; hence Riyadh’s attempts to sell more oil to India and, concurrently, enhance its ties with New Delhi. Essentially then, Riyadh is trying to shore up its diminishing energy market, but simultaneously seeks to counter Iran’s regional influence. It is merely repeating what it did during the oil crisis of the early 1970s: using oil as a strategic weapon to achieve its goals.

India’s relations with the Kingdom of Saudi Arabia are significant from two main angles: First, bilateral; and second, regional and global role of Riyadh and its wider implications. At bilateral level, India and Saudi Arabia enjoy a wide array of engagements, including energy, trade, migration, defence and security, culture and religious interactions. Besides bilateral, Riyadh and New Delhi now also share regional and global concerns. The relations between the two countries span millennia. Both the countries were engaged in active maritime trade; because of the knowledge of monsoon the Arab traders were mediating between the Indian and the European traders; they had monopolised the spice trade, supplying peppers, cinnamon, turmeric, ginger, cardamom, etc from India to the outside market; their early settlements in India were at the Malabar Coast, which still exist with many vestiges of Arab culture. During the medieval period, the relations between the two countries were very close and intimate; the contemporary Indian rulers supported the Sheriff of Mecca in many ways, besides assisting large number of Indians to perform annual Haj and Urma and added considerable income to the people of Hejaz.

The region was peaceful under the US security umbrella. But now it is one of the most volatile and unstable in the world, whereas India’s stakes in the region has grown over the period. India needs to be a partner in the region. For this, its relations with Saudi Arabia accounts great significance. New Delhi should increase its engagement with Riyadh, particularly in stabilising the region. India needs an active Gulf policy and Riyadh can play a key role; Riyadh and New Delhi should focus on promoting cultural diplomacy and bring the people of the two countries closer; MoU’s between ICWA and major Saudi Think tank should be signed and research work should be streamlined between the two countries.

India can cooperate with Saudi Arabia in its diversification programme. New Delhi can assist Riyadh to develop its knowledge-based economy, which is one of the priority focuses of King Abdullah. Manpower agreement with Saudi Arabia should be signed. Saudi Arabia is the only country in the GCC, which has not signed any manpower agreement with India. However, in the meantime labour issues such as their security, particularly during the emergency period; concept of minimum wage or living wage and protection against the pitfalls of Kafala system should be discussed; Saudi Arabia’s help in speeding up the signing of Free trade Agreement (FTA) between India and GCC should be sought; Possibility of getting observer status in GCC should also be discussed with Saudi Arabia and what role Riyadh can play in getting that position; New Delhi should also realise that the situation in the region has changed.

Saudi Arabia has long held a position of eminence as the guarantor of oil supplies to the world, due to its enormous proven reserves. Thus, for instance, when international oil supplies were reduced during the war against Iraq, Saudi Arabia had no problems in increasing production and limiting negative international impact. This position, however, has been eroded in more recent times. The US has made rapid advances in recovering oil and gas from shale deposits on the US mainland, previously seen as commercially unviable. Consequently, it has overtaken Saudi Arabia to become the world’s largest producer of oil. Simultaneously, Russia has faced an increasingly antagonistic European gas market, so it has engineered the sale of US$400 billion worth of gas to China over the next thirty years. While not overly disturbing to Saudi Arabia, it is the potential sale of Russian oil to China on an equal scale that has Riyadh worried. Saudi Arabia’s economy depends entirely on its energy sales. With reduced markets, Riyadh will have reduced means and influence to maintain its economy, which could have major ramifications for the continued rule of the House of Saud. Saudi Arabia undoubtedly sees India’s growing economic strength as a means of shoring up its flagging oil sales.

India requires large quantities of oil and gas. It needs to re-start and then maintain its economic growth, and must also comply with growing international demands to use cleaner fuels. Cleaner oil and gas will help India move towards those goals. It is more than likely, however, that Saudi Arabia wishes to expand its relationship with India to diminish Indo-Iranian ties. Riyadh and Tehran share a mutual distrust, brought about by competition between the two based on both the Sunni-Shia divide and differences in political ideology: Iran is a nominal democracy, while Saudi Arabia remains a monarchy. The House of Saud sees the latter reason as an existential threat; by extension, Iran becomes a threat and, therefore, an enemy to be countered. For Iran, Sunni-majority Saudi Arabia is seen as guilty of suppressing its Shi’a minority, effectively making them second-class citizens.

The wide arrays that exist between India and Saudi Arabia some of the following areas need attention of New Delhi and Riyadh to be addressed by both the countries on priority basis. There are: Core issues such as security, including maritime, defence, terrorism and the menace posed by the non-state actors should be openly and regularly discussed and solution-oriented works should be promoted and published by both the sides; Annual dialogue between academia, knowledge community and experts should be regularly organised; regular exchange of scholars, experts and researchers between the two counties should also be promoted. This will help in expanding and exploring new areas of mutual interest in both the countries. Bilateral trade should be balanced. Presently, trade is heavily in favour of Saudi Arabia.

Energy is the prime cause of creating imbalances. Therefore, energy trade should be compensated by promoting non-energy trade between Riyadh and New Delhi. Since both are the members of WTO, they can promote non-energy trade under the MFN status. Project for oil should also be considered. Investment can also be used to balance the trade; Finance is another unexplored area where both the countries can promote cooperation and tap the surplus capital for productive purposes. Saudi Arabia, sitting on a huge pile of cash, can invest in Indian market, particularly in mutual fund, which promises 20 per cent profit return. Investments in mutual funds are Shaira compliance. So there would no moral and religious objections for the Saudis. Islamic finance and Islamic banking can also be promoted. Interest-free fund can be utilised by the Indian government in targeting priority areas like poverty reduction, while return to these fund can be ensured from real estate.


1. Lindsay Hughes:



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