By Manish Vaid and Tridivesh Singh Maini*
Indian Prime Minister Narendra Modi has been quite pro-active in the sphere of foreign policy and had sought to balance India’s relations with both the great powers as well as the middle powers with great acumen. His government has attempted to rework its foreign policy with new vigour. His renewed ‘Look West’ policy is a good example of that, wherein his visit to the United Arab Emirates (UAE) in August 2015 helped India inject freshness into its Middle East policy.
Following Modi’s visit to the UAE in August 2015, the visit by Sheikh Mohamed bin Zayed Al Nahyan- Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces to India from February 10-12, 2016 has set the tone to elevate their ‘civilizational’ friendly links to a ‘comprehensive strategic partnership’. To this end, these countries have come across as willing to sign the Comprehensive Strategic Partnership Agreement, besides building on existing trade and investment ties, armed with the intent to take their mutual economic agenda beyond oil and its allied products. UAE\ has also committed an investment of USD 75 billion in India during the year 2016, with infrastructure being at the top of the charts followed by the domains of technology, trading, manufacturing, telecommunication, real estate, entertainment and tourism (in no particular order).
Further, at the 9th India-Gulf Cooperation Council (GCC) Political Dialogue held on the sidelines of the 70th United Nations General Assembly (UNGA) in New York in September 2015, India’s foreign minister Sushma Swaraj reiterated both the Indian need and desire for early finalisation of the India-GCC Free Trade Agreement and operationalization of the India-GCC Framework Agreement. GCC, which is India’s largest trading partner as a region with $137.7 billion trade in 2014-2015, accounts for nearly 50 per cent of India’s oil and gas needs. India’s increased trade relationship with the GCC countries was largely the result of growth in oil imports.
However, the question remains as to whether the year 2016 will be the year of strengthening ties with the countries in the Middle East and whether this budding camaraderie would go beyond the obvious oil trade relationship.
PM Modi is expected to visit two more important countries, namely, Israel and Saudi Arabia in 2016. This will give the Modi a chance to not only bolster India’s oil and gas interests, but also look at the non-oil trade business to include civil nuclear cooperation so as to expand energy space and other trade and commerce portfolios; all of which is bound to generate benefits for both the parties involved. This is in addition to India’s expansion of its strategic interest in the region as well. But the challenge lies in India’s economic and strategic balancing of the Gulf without impacting its relationship with Iran.
A wide spectrum of domains covered under the seven agreements signed by India with the UAE during the visit of Sheikh Mohamed bin Zayed to India provides enough hints for India to shape its probable Middle East Strategy in terms of areas of logical cooperation that Modi could consider as he pays visit to Saudi Arabia and Israel.
The foremost objective during for India would be the early conclusion of India-GCC FTA, which it can push forward during Modi’s visit to Saudi Arabia. This would go a long way in both strengthening and streamlining India’s Look West policy.
All said and done about diversification of Indian economic interest in its Middle East engagements, energy would remain the core pillar to India’s Look West policy. Thus, even as it seeks to engage the countries in the Middle East in its efforts to expand the base for renewable energy resources, India’s economic hunger for oil and its allied products would continue to fuel its approach to this part of the world.
Even during the low oil price scenario, the Middle East remained India’s major oil export destination, recording 57 per cent of oil exports in 2015. Low oil prices, which fell more than 70 per cent since June 2014, however has on the other hand prompted countries of the Middle East to further diversify their economy to move beyond their obvious oil trade.
Recently, UAE’s Abu Dhabi National Oil Company (Adnoc) has agreed to store crude oil in India’s maiden Strategic Petroleum Reserve (SPR), besides offering two-third of the oil for free. India is building underground storages at Visakhapatnam in Andhra Pradesh and Mangaluru and Padur in Karnataka to store about 5.3 million tonnes of crude oil.
The low oil price regime has also strained economies of the Gulf countries and despite Saudi Arabia’s, the de facto leader of the OPEC, strategy to protect its market share, other OPEC member countries are now seem to fail in defending this strategy. This was visible in the faltering economies of the Middle East, with Saudi Arabia itself registering a record budget deficit of nearly 367 billion Saudi riyals ($98 billion), prompting them to undertake reforms. Gulf countries would do well to integrate and diversify their economies with countries like India to expand greater strategic and economic cooperation.
In order to diversify income from fossil fuel energy, UAE has already decided to boost investments in industrial and petrochemical sectors. On the sidelines of recently concluded World Economic Forum in Davos, UAE’s energy minister Suhail Bin Mohammed Al Mazrouei, stated that, UAE is diversifying its source of energy and income in a way that their non-oil economy contribution is growing, with overall development of their economy. The case in point was their cooperation with India to include renewable energy, climate change and strong support to India’s International Solar Alliance, during the visit of Crown Prince of UAE to India. Besides, both the countries also agreed to elevate their cooperation to the strategic one to include issues like counter-terrorism, maritime security, and cyber-security.
India should, therefore, go with similar such efforts to integrate with countries like Saudi Arabia and Israel and nurture a strategic partnership with each of these two. Cooperation on counter-terrorism could be one such area, where India can lay greater emphasis. India should capitalise on the outcome of 1st Ministerial Meeting of Arab-India Cooperation Forum held in Bahrain on this issue.
Low oil prices have also impacted Indian Diaspora staying in the Gulf countries due to possible layoffs. With Modi’s expected visit to Saudi Arabia in 2016, special attention should be made to figure out such impact. Notably, Saudi Arabia holds 2.8 million of overseas Indian alone, out of the total 7 million in the GCC countries. Being the largest recipient of remittances from its diaspora to the tune of $70 bn in 2015, $38 bn came from the GCC countries.
India also needs to balance out relationships, on the one hand between GCC and Iran, and on the other between Israel and Iran. Iran is important not only in the context of India’s oil needs, but also the Chabahar Port project which will provide India access to Afghanistan and Central Asia. The Chabahar Port having a strategic importance for India would be developed by India in two phases. It is also through this port; the $4.5 billion undersea gas pipeline project to pump Iranian gas to India is being envisaged.
Therefore, an attempt to ease Saudi-GCC-Iran tension, for instance could be India’s thought-out strategic objective to stabilize the Gulf region. Deft back channel diplomacy with both GCC countries and Iran would go a long way to securing its own space in renewed Look West policy. The recent attempt of Iranian Foreign Minister Mohammed Javad Zarif to bridge Iran-Saudi Arabia rivalry could offer some hope in this regard.
A lot will depend upon India’s domestic growth trajectory, and addressing concerns of foreign investors, because investors from GCC countries have in the past faced similar problems especially concerning red tape. Apart from this, India needs to closely observe the moves of the Great Powers, and tweak its policy accordingly.
*Manish Vaid and Tridivesh Singh Maini are Junior Fellow at the Observer Research Foundation (New Delhi) and Research Associate at the Jindal School of International Affairs (Sonepat) respectively. They can be contacted at: [email protected]