What oils the wheels of GCC-Indian cooperation?

by N. Janardhan

The foundation of relations between the Gulf Cooperation Council (GCC) countries and India is very strong given their historic links, the presence of about 4 mm Indians in the region, leading to about $ 5 bn in annual remittances, and the potential for a trade bill of more than $ 15 bn in 2005. Though both sides are beginning to see eye-to-eye politically as well, trade will remain the bedrock of bilateral ties.
As part of a new "look East" policy, the GCC chambers of commerce and industry have called for prioritising economic cooperation with Asian countries. Reciprocally, India and others have unveiled a multifaceted economic dialogue, including "energy diplomacy" to power economic growth.

Already ranking sixth in global petroleum demand, India meets 70 % 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 at the end of 2004. The oil import bill rose 58 % to $ 14 bn during the first six months of the current financial year ending March 2005.

While it is unclear if the robust policies are a product of India's proactive Petroleum and Natural Gas Minister Mani Shankar Aiyar or a strategic change in the outlook of the government, there is no denying India's newfound desire to address its energy security needs. This includes plans to build strategic oil reserves of 5 mm 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 mm crude oil requirements, about 26 %, or 24 mm tons, is being met by Saudi Arabia, at an estimated rate of about 430,000 bpd, which translated into $ 4.7 bn in 2003. This made India the fourth-largest consumer of Saudi oil in Asia and will, according to Mani Shankar Aiyar, soon be doubled.

The crux of the new oil diplomacy rests on promoting cooperation between oil importers and exporters. According to the Indian petroleum and natural gas 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."
To give teeth to the plan, India is inviting Saudi investment in oil refining and fuel retailing and is exploring opportunities to invest in developing gas fields in the kingdom. Two Indian oil companies are in discussions with Saudi Aramco for possible investment in India, which is associated with possible investment by Indian companies in the Yanbu refinery.

It is also the minister's long-term vision to make the 21st century "the Asian century," with New Delhi-Riyadh as its axis. A beginning was made withIndia hosting the first-ever Asian conference on regional cooperation in oil economy last 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 petroleum products, interlock investments in the hydrocarbon sector between Asian producers and consumers, establish an intellectual network to strengthen Asian institutions involved in hydrocarbon research and development, and cooperate on environmental protection and conservation of energy resources.

Further, India's willingness to invest up to $ 25 bn to acquire 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 % in the last fiscal year, and is forecasted to expand by about 7 % during the current one. To realize that expectation, India has also revealed plans to buy up to 1 mm tons of crude annually from Qatar and encourage higher imports of liquefied natural gas (LNG). India started importing LNG from Qatar last year and plans to import 5 mm tons this year, which could increase to 20 mm 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-bn deal to buy 5 mm tons of LNG annually from Iran over 25 years, starting in 2009, will also contribute toward developing clean fuel. The quantity of imports could go up to 7.5 mm tons in 2011.
The gas is required to meet industrial and vehicular demand, and for domestic cooking, estimated at 170 mm cmpd and it is projected to increase to 400 mm cmpd over the next 20 years.Domestic gas supply is estimated at about 85 mm cmpd, with imports expected to cover the bulk of future demand.

The number of vehicles sold in India in the year ending March 2005 rose 16 % to 7.9 mm, in addition to the 50 mm already plying 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 % annually.
Aiding in meeting that requirement are talks between India and Pakistan over building a $ 4 bn, 2,775-km pipeline to bring Iranian natural gas to India through Pakistan -- a plan that Iran proposed in 1996, but which had been stalled due to Indian concerns about its neighbour. However, with a thaw in Indian-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 as well.

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 American policies aimed at discouraging countries from developing nuclear weapons. Once approved by the US 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 will intensify concern among some countries. But its behaviour seems a natural result of its consolidating its place in the global economy.

N. Janardhan is an editor at the Gulf Research Centre in Dubai.