Saudi-India Relations: Bilateral Dynamics

AMIR HANDJANI – To understand Riyadh’s new strategy in New Delhi, look no further than the state-run oil company Saudi Aramco’s recent bid to purchase up to 25 percent of India’s largest refinery—in fact, the largest refinery in the world—from Reliance Industries. For the better part of a decade, both India and Saudi Arabia have been trying to turn the page on the issues that divide them, including Saudi Arabia’s historic support for Pakistan in Afghanistan and Kashmir, and forge a new tactical partnership to effectively manage growing bilateral trade and investment between the Gulf Cooperation Council heavyweight and what may soon be the world’s third largest economy.

Bilateral trade between Riyadh and New Delhi currently stands at $28 billion, the linchpin of which is the roughly 800,000 barrels of crude India imports from Saudi Arabia every day. That number is sure to increase as the U.S. administration under President Donald Trump puts the squeeze on importers of Iranian oil. India is Iran’s second-largest customer, and Saudi Arabia would like nothing more than to eat into its foe’s market share.

It thus makes sense that Saudi Aramco is contemplating large-scale investments in India’s refining and petrochemical industries to establish a permanent foothold there. After all, in the coming years, India’s energy needs will only grow—as will its capacity to have the industrial-size projects to meet those demands.

Saudi Aramco’s moves in India show that it is no longer confined to its traditional role of simply meeting Saudi Arabia’s energy needs.
Rather, it aims to become a leader in refining and exports, too. To that end, it already controls the largest refinery in the United States in Port Arthur, Texas. And in February, it signed a $10 billion joint venture with the Chinese defense conglomerate Norinco to develop a petrochemical and refining complex in northeastern China. Its investment in the Indian energy sector fits nicely in a growing Asian portfolio.

From New Delhi’s perspective, meanwhile, bringing in Saudi Aramco as an energy partner is just one piece of the larger puzzle with Riyadh. Indian nationals make up the largest expatriate community in Saudi Arabia. Primarily blue-collar workers, who form the backbone of the construction industry, they send roughly $11 billion back home a year. In 2014, in a sign of the relationship maturing, New Delhi and Riyadh signed an agreement to manage the recruitment and social needs of the more than 2 million Indian workers in the kingdom.

For decades, as Saudi Arabia favored Pakistan in its geopolitical struggles on the subcontinent, its relationship with India often seemed transactional and not rooted in any set of shared values. Although Riyadh is by no means turning its back on its longtime ally—it recently pledged to build a $10 billion refinery in the Pakistani port of Gwadar—it is clear that it will balance those ties with strong relations with India. The Indian economy is seven times larger than Pakistan’s, and the opportunities there are that much more lucrative. Riyadh clearly believes there is no contradiction in having strong economic ties to both New Delhi and Islamabad.

And for India, with its estimated Muslim population of 200 million (the third-largest in the world), a friendship with Saudi Arabia brings certain legitimacy as well. To be sure, India has its own balancing act: It has historically been much closer to Iran, with which it is developing the Chabahar port in southeastern Iran. However, as pressure from Washington pushes New Delhi away from Tehran, it will have to look elsewhere for energy and investment.

Should Iran’s fortunes change with a different U.S. administration after the 2020 election, India may well rebalance its relationship. Nevertheless, it is difficult to imagine Iran now or in the foreseeable future having the financial wherewithal to make the kind of investments in India’s energy infrastructure that Riyadh will be able to. By the time Iran is out of the sanctions penalty box, Saudi Arabia will have a substantial first-mover advantage on the subcontinent and will have embedded itself in the energy ecosystem of South Asia.

In the coming years, Saudi Aramco will face stiff competition in markets that it once dominated as the United States and Russia expand their great power competition to include energy. The oil company will need to leverage its existing customers and offer more than just crude. And its forays into the lucrative Indian market are a sign that it is already starting to do so. The great power competition that is shaping the 21st century works to India’s advantage. Its economic heft and growing middle class make it an invaluable energy consumer to not only strategic rivals Saudi Arabia and Iran, but also the United States and Russia. This bodes well for New Delhi’s future.

(Foreign Policy)