The Middle East is a pivotal region for Indian diplomacy because of India’s dependency on petroleum, huge commercial ties and a large diaspora in the region. The Middle East’s share of India’s overall trade was 21% and accounted for 62% of its crude-oil imports during January-August 2019. Non-resident Indians in the Middle East contributed 55% of the overall inflow of US$69 billion in personnel remittances to their home country in 2017.
Amid the growing conflicts and tussles among the global – US and Russia – and regional – Saudi Arabia, Iran, Turkey and Israel – powerhouses in the Middle East, conserving equal diplomatic relations with individual countries becomes a major challenge. Maintaining the import of oil from main suppliers such as Iraq, Saudi Arabia and Kuwait, the safety of its expatriates in the Persian Gulf region, and the trade of arms with Israel are the major concerns for India. New Delhi has so far managed the diplomatic equilibrium without unwarranted inclination toward or isolation from the individual countries in the region.
However, India’s foreign policy is entering a transnational stage that is leaning toward Saudi Arabia and its allies in the region. This was reflected by the second visit of Prime Minister Narendra Modi to Saudi Arabia within one year and the inking of agreements in several important areas, including energy, civil aviation, security cooperation, defense and finance. At the same time, India’s relations with some other players in the region have not been able to expand beyond certain limitations. India-Turkey relations are strained over Kashmir while its commercial ties with Iran were downsized after cutting off the import of oil. Israel remains a longtime natural ally and the second-largest supplier of arms after Russia, a country that exported $1.6 billion worth of arms to India during the years 2016-2018, but Israel does not have ample scope for business collaboration in other sectors.
As Saudi Arabia is a major source of petroleum – its share was 20% of total imports last year – New Delhi is cozying up with Riyadh. To minimize the risk of an oil shortage, India is also mulling encouraging foreign investment from Saudi Arabia in Indian refineries instead of relying on the crude-oil trade only. Two major investment deals have been struck in the petroleum sector between Saudi Arabia and India, one among state-owned companies and the other between Reliance and Saudi Aramco.
Last year the Abu Dhabi National Oil Company (ADNOC) and Saudi Aramco signed an agreement with a consortium of Indian national oil companies to invest jointly in a refinery on the west coast of India. This refinery project has been delayed by land-acquisition hurdles. Initially it was set for a village in Ratnagiri district of Maharashtra state at an estimated cost of $44 billion, but now it is proposed to relocate to Raigad district with an increase in construction cost to $60 billion. Another deal was between Saudi Aramco and Reliance in August 2019 regarding a proposed investment with an estimated value of $75 billion that would be one of the largest foreign investments ever made in India. The forthcoming Aramco initial public offering could also attract the Indian stock market.
As India deepened its commercial ties with Saudi Arabia, the size of bilateral trade reached $33.8 billion, and investment was $238 million for the year 2018. The overall balance of trade is unfavorable ($22.7 billion) to India because of the large import of crude oil. During the year 2017, around 2.27 million expatriates in Saudi Arabia sent $11.23 billion in remittances into India.
Amid the warming ties, Saudi Arabia has announced the investment of $100 billion in India under different sectors while India can also potentially contribute to achieving the kingdom’s “Vision 2030” quest to become a major non-oil economy through large investment by Indian firms, technological expertise, and a professional workforce.
Despite the aforementioned commercial and energy advantages, New Delhi’s increasingly one-sided policy toward Riyadh while keeping aside other key players in the region cannot be wisely sustained to secure long-term benefits. The Middle East is a region rife with geopolitical risks with numerous uncertainties, where loyalties of governments and the public can deviate over minor political or sectarian differences. India should pursue a strategy of inclusive diplomacy with diversified relations across the region.