India and the Middle East: energy at the heart of new strategic partnerships

India has elevated many of its relationships with countries in the Middle East to “strategic partnerships.” But how much substance is there to that moniker? Energy is the driving force behind the phenomenon: Indian demand for fossil fuels is rising sharply, while Middle Eastern countries want to shore up their positions in a crucial market.

India crude oil and LNG imports by country
Middle Eastern countries provide the bulk of India’s oil and gas, and New Delhi hopes new strategic partnership deals will ensure long-term energy security. © macpixxel for GIS

In a nutshell

  • India has concluded “strategic partnership” deals with several Middle Eastern states
  • Aside from the oil and gas trade, India shares few common interests with these countries
  • Tensions over prices could scupper these relationships

The world’s increasing multipolarity and fundamental changes in global energy markets are pushing countries to forge new alliances. A prime example is the changing relationships between India and countries in the Middle East, which are being elevated from ties based on commercial interests to “strategic partnerships.” The question is to what extent these new partnerships involve substantial change, or whether they are merely an exercise in rebranding, with energy continuing to define – and limit – the relationships.

New partnerships

The bonds between India and the Middle East are nothing new. Economic ties have existed for centuries, and trade relations are well established. Today, the United Arab Emirates, for instance, is India’s second-biggest export destination (after the United States) and third-biggest source of imports, after the U.S. and China (Saudi Arabia is fourth). As of December 2016, 28 percent of the nearly 31 million Indians living overseas were based in the Middle East. In the UAE, they are the largest group of foreigners, representing more than 30 percent of the population, while in Bahrain, Kuwait and Qatar they account for nearly 24 percent each.

Over the past 15 years, however, a new trend has emerged: India has elevated its bilateral relationships with Middle Eastern countries to “strategic partnerships.” It has done this even with countries whose belief systems, political agendas and strategic interests diverge sharply.

The process started with Iran. In January 2003, India and Iran signed the New Delhi Declaration, which postulates a “strategic partnership” between the two countries, during former Iranian President Mohammad Khatami’s visit to India. The declaration focuses on energy, trade, and counterterrorism. In 2006, The Delhi Declaration was announced by India and Saudi Arabia, following the late King Abdullah’s visit to India that year. The declaration entails “strategic” cooperation on several aspects such as terrorism, security, trade, investment and double taxation. However, energy, and especially oil, take a prominent role in the agreement. The countries agreed to develop a “strategic energy partnership” under which stable supplies of crude oil will be ensured through long-term contracts.

India has strategic partnerships even with countries whose interests diverge sharply from its own.

When former Indian Prime Minister Manmohan Singh visited Muscat in 2008, Oman and India agreed to enter into a “strategic partnership” as well, with oil, gas and electricity being the focus areas. Ahead of his visit to Qatar, also in 2008, Prime Minister Singh stated that India attaches great importance to its ties with the Gulf nation, adding that he was confident the countries could build a “mutually beneficial strategic partnership in this energy sector.” However, no official declaration was made.

In 2013, India and Iraq decided to upgrade their relationship to a strategic partnership, seeking to actively invest in each other’s economy, again with a heavy concentration on energy, with major projects in refineries and petrochemicals. This year, the UAE joined the growing club of India’s nearly 30 “strategic partners,” in this case elevating the relationship between the two nations even to a “comprehensive strategic partnership.” Together, Iraq and the UAE sit on 42 percent and 40 percent of world proven oil and gas reserves, respectively.


Facts & figures

India – economic and energy facts

• India’s economy is the seventh-largest in the world after the U.S., China, Japan, Germany, the UK and France (IMF, 2017)

• India is the world’s third-largest primary energy consumer and carbon emissions emitter after China and the U.S.

• Fossil fuels dominate India’s primary energy mix, accounting for 93%

• India is the fourth-largest coal producer in the world

• Following Indian Prime Minister Narendra Modi’s visit to Israel in 2017, the two countries announced they would elevate bilateral relations to a strategic partnership

Rebranding relations

The elevation of the relationships between India and countries in the Middle East, especially members of the Gulf Cooperation Council (GCC), to strategic partnership status is in line with India’s broader foreign policy agenda. However, the extent to which the India-Middle East relationship is simply driven by commercial interests and therefore merely rebrands bilateral trade remains unclear. The concept of “strategic partnership” has not been precisely defined by any of the parties involved, nor is there a universally agreed definition.

The concept of ‘strategic partnership’ has not been precisely defined by any of the parties involved.

It may be useful to consider the Chinese interpretation of what a strategic partnership entails. In his famous speech at the China-European Union Investment and Trade Forum in 2004, former Chinese Prime Minister Wen Jiabao explained that the term “strategic” means that “the cooperation should be long-term and stable,” and “partnership” that “the cooperation should be equal-footed, mutually beneficial and win-win.” He also added that “comprehensive” – as in the UAE and India’s strategic partnership – means that “the cooperation should be all-dimensional, wide-ranging and multilayered. It covers economic, scientific, technological, political and cultural fields, contains both bilateral and multilateral levels, and is conducted by both governments and nongovernmental groups.”

However, while this definition provides valuable insight, the interpretation of the term “strategic partnership” varies significantly across governments.

Demand growth

India has elevated its relationships with several countries, both inside and outside the Middle East. However, the motives for strengthening such cooperation vary. It is difficult to identify any singular direction or purpose.

On the surface, energy interests, particularly concerning oil and gas, are clearly the most powerful and fundamental motive driving the evolution of relations with Middle Eastern countries. India is one of the world’s biggest consumers of these fuels, while the Middle East is the world’s largest oil- and gas-producing region.


Facts & figures

India oil production and consumption


India oil production and consumption, 1980-2016
India’s oil production has not kept up with consumption, making it more dependent on suppliers in the Middle East to keep its economy chugging along. © macpixxel for GIS

India has all the ingredients of an attractive market for any oil and gas producer, especially when the prospects for demand growth elsewhere are increasingly threatened by climate change policies. The combination of a rapidly expanding economy and population translates into a sharp rise in demand for energy. According to the World Bank, India remains the fastest growing economy in the world. Its economy ranks seventh-largest, after the U.S., China, Japan, Germany, the United Kingdom and France, and has grown at an average of 7.5 percent per year between 2006 and 2016. India is also set to overtake China as the world’s most populous country by 2030: it has nearly 1.3 billion inhabitants and its population is increasing at 1.3-1.6 percent annually.

Between 2006 and 2016, India’s energy demand increased at a yearly average of 7.5 percent, compared to the world average of 1.8 percent. The trend shows no sign of abating. According to the BP Energy Outlook, India’s energy consumption is expected to outpace all major economies in the world, increasing the country’s share of global demand from the current 5.5 percent to 9 percent in 2035. India is projected to surpass China as the largest growth market for energy in volume terms in 2030. It also lies in Asia, probably the only future growth center for oil demand in the world.

Oil is the country’s main import commodity, accounting for more than 18 percent of total commodity imports (oil and gas together account for more than 21 percent). India is the third-largest net crude oil importer in the world and the fourth-largest importer of liquefied natural gas (LNG). Domestic oil and gas production has not been able to keep up with growing consumption. Some 64 percent of India’s crude oil needs are met by imports from the Middle East, with Saudi Arabia the biggest supplier. India also imports around 68 percent of its LNG from the Middle East, primarily from Qatar.

What peak?

While talk of “peak oil demand” is increasingly popular among the rich countries in the Organisation for Economic Co-operation and Development (OECD), India’s oil consumption increased by almost 8 percent in 2016. Demand for gas grew at a staggering 9.5 percent. By 2035, according to BP, India’s demand for gas will grow by 162 percent, followed by oil at 120 percent. Given such expectations, it is therefore unsurprising to see India and Middle Eastern countries strengthening ties: the former wants to secure long-term energy supplies and the latter a large, long-term market for its primary resource.

Middle Eastern companies have scaled up energy investments in India, driven by the desire to get closer to their main market.

Middle Eastern companies have scaled up energy-related investments in India, driven by the desire to get closer to their main market. In October 2017, for instance, Saudi Aramco announced it would invest in a major refinery project in India. In doing so, it was following in the footsteps of the Oman Oil Company, which made a similar investment in 2011, though Saudi Aramco’s was 10 times larger. Also, in 2017, Indian Strategic Petroleum Reserves Limited and Abu Dhabi National Oil Company (ADNOC) signed an agreement on storage and management of oil at strategic facilities in India.

In the search for profitable non-oil investments to convert oil wealth into future financial wealth, several Gulf countries have also redirected investment funds to India. The Kuwait Investment Authority (KIA), Kuwait’s sovereign wealth fund, for example, invested more than $3 billion by 2016 (compared to $1.027 million in 2002), in various infrastructure projects, including power plants.


India and the Middle East share long-term mutual interests, mostly of a commercial nature. Despite calls for cooperation in areas such as defense, security and education, energy remains the main force behind the current “strategic” realignment. This matters, because rebranding alone will not transform commercial links into deeper, longer-lasting relationships. A strategic partnership genuinely builds on ideology, security concerns and/or long-term political goals.

Consumers and producers will always have opposing views on pricing, which is affected by market conditions and each party’s bargaining power. Taking advantage of global downward pressure on prices, India renegotiated its long-term LNG purchase price from Qatar in 2015, reportedly managing to cut it in half.

From an energy security perspective, reducing import dependence is one of India’s main goals. In its India Energy Security Scenarios 2047, the government identifies four main pathways for its energy future with a wide variation in terms of impact on import dependence. Under the “Least Effort” scenario, that dependence more than doubles to reach 84.5 percent (oil 95 percent and gas 69 percent) by 2047. However, under the ambitious “Heroic Effort” scenario, import dependence is reduced to 35 percent (oil 55 percent, gas 16 percent).

Energy security is a true strategic goal – but India’s targets are not necessarily aligned with the interests of its energy trading partners. It will be interesting to see how the strategic relationship between India and the Middle East evolves as these contrasts move center stage.

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