With energy providing the “crude binding force,” Indo-Saudi relations are poised for a major movement. Custodian of the Two Holy Mosques King Abdullah’s rare, historic visit to India underlines the fact that economics and mutual dependence will remain the core of this growing relationship.
King Abdullah’s visit is not a routine affair for it will help to formalize and lay the foundations of a special relationship based on mutual respect and inter-dependence. The visit is the result of months and years of quiet diplomacy and the ultimate realization on both sides that the two countries have much in common and can benefit from each other’s resources and experience.
While Saudi Arabia seeks more investment from Indian companies, especially in the IT sector, the visit also acknowledges the positive role of India and other developing Asian countries in the accession of the Kingdom to the World Trade Organization (WTO) last month. Riyadh also sees India as an increasingly important market for its crude oil. New Delhi also acknowledges that Riyadh has a strategic role in meeting India’s burgeoning energy requirements. Besides actively promoting the India-GCC economic partnership initiative, Riyadh has also made New Delhi realize the crucial role it could play in other spheres of global diplomacy. However, the energy sector stands out as the cornerstone of the growing Indo-Saudi cooperation.
Indian energy needs are growing rapidly and New Delhi needs to be on its toes to ensure its energy security. The Indian economy is waking up after a long slumber. It has undergone significant structural changes over the last decade and a half. As a result, the annual GDP has risen from 4.4 percent in 2000-01 to an average of almost eight percent per annum over the last few years. India is slowly growing into an industrial hub. In addition, the absolute population of India also increased by 180.6 million during the 1991-2001 decade. Consequently the numbers in the middle class have swelled significantly. The increasing number of people with a large disposable income has resulted in much higher demand for cars and other items.
The cumulative effect of a higher GDP based on higher exports and a massive increase in the population, along with a considerable disposable income, has led to a significant increase in India’s energy consumption. According to available projections, India’s crude oil demand is expected to grow at a compound rate of 4.2 percent per annum over the extended 2002-25 period. The current indigenous Indian crude production falls sharply short of this and India is expected to import some 88 percent of its total needs by 2006-07.
Spurred by sustained economic growth, a rise in income levels and increased availability of goods and services, India’s incremental energy demand for the next decade is projected to be among the highest in the world. The challenge facing Indian planners is immense. The current per capita commercial primary energy consumption in India is reported at 350 kg of oil equivalent, well below that in developed countries. However, driven by a rising population, an expanding economy and a quest for an improved quality of life, energy use in India is expected to rise to around 450 kg of oil equivalent/year by the turn of the decade.
With a population of some 1.2 billion, India is currently the world’s seventh largest oil consumer, with its consumption around 2.4 million barrels per day. By 2010, consumption is projected to be up to 3.2 million bpd, replacing South Korea from its position of the fourth largest global oil consumer, after the US, China and Japan. In India’s unceasing quest for energy security, Saudi Arabia naturally occupies a very important place. Currently Riyadh is its largest supplier of crude. India currently imports more than 450,000 bpd of Saudi crude — roughly a quarter of India’s total oil imports. Saudi Arabia is also India’s main supplier of petroleum and petrochemical products. During 2003-04, India’s imports of Saudi crude oil and petroleum products amounted to 20 million metric tons (mmt), worth approximately $4.77 billion. Thus, Saudi Arabia meets about 26 percent of India’s annual crude requirements. Public sector oil firms in India purchase about 10 mmt of crude per year, which is about 12 percent of their total annual crude imports. In addition, some private Indian companies also have term contracts with Saudi Aramco, which accounts for another 9-10 mmt per annum. This figure must have gone up considerably during the last financial year.
New Delhi today appears keen on firming up long-term arrangement with OPEC — the Organization of the Petroleum Exporting Countries — producers. Energy security is a big challenge to Indian planners, especially in an era when there are questions about the availability of oil and satisfying the global demand. When, early last year, New Delhi hosted an Asian roundtable of major oil consumers and suppliers, Indian Petroleum Minister Mani Shankar Aiyar, often referred to as the first oil diplomat of the world, proposed the idea of an Asian oil bourse in order to provide security to both suppliers and consumers. India’s engagement with Riyadh appears to be the result of a well-thought-out process, especially at a time when New Delhi’s relations with Iran hang on the way Washington perceives Tehran and Iraq remains in tatters. For a long time, India has enjoyed close commercial and political ties with Iran and Iraq which have helped it meet its energy requirements. However, in the context of Tehran’s aggressive anti-Western stance, independent nuclear program and the occupation of Iraq, India is increasingly beginning to look at Riyadh for meeting its requirements and ensuring energy security in the future.
It is apparent that India does not want to be hostage to its oil needs to Iran, which threatened to renege on some of its oil and gas supply commitments after the September 2005 vote at the International Atomic Energy Agency (IAEA). At that meeting, New Delhi aligned itself with Western powers against Tehran. The US has repeatedly emphasized the importance it attaches to India’s support concerning Iran. Washington has also expressed its opposition to the Iran-Pakistan-India gas pipeline and despite all the vows in public, there are skeptics who are not very hopeful that this project will ever become reality — as much for political considerations as anything else.
It is in this context that, if the need arises, Saudi Arabia has become one of the most important countries to ensure India’s energy security and leverage against Iran. The combination of high economic growth and dwindling domestic oil resources have considerably raised India’s reliance on imported crude. Riyadh remains the largest supplier of oil to India.
Indian Finance Minister P. Chidambaram visited Riyadh last April and Aiyar came to Saudi Arabia in March. Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi visited New Delhi in January to attend the first roundtable of Asian ministers on regional cooperation in the oil and gas. Indian Prime Minister Dr. Manmohan Singh has considerable knowledge of the workings in Riyadh, having visited Saudi Arabia as finance minister in December 1994.
The emerging energy partnership between the two countries, which both desire, appears to be laying the foundation for long-lasting, close and cordial relations between the two countries. Summing up the relationship between the two countries, Saudi Ambassador to India, Saleh Mohammed Al-Ghamdi, told this newspaper: “We are ready for greater trade in the energy sector.”
(Syed Rashid Husain writes frequently on energy affairs. He is based in Alkhobar.)
