While it has been assumed that the Gulf countries will find India an attractive investment destination, acquiring petrodollars is not easy.
By the end of January, India’s decision to re-engage West Asia became evident. At a meeting with Indian Ambassadors from 27 West Asian countries in Muscat, External Affairs Minister Pranab Mukherjee declared New Delhi’s intent to reinforce ties with the region.
Within the next few months, West Asia’s heavyweights — Saudi Arabia, Iran, Egypt and the economic powerhouse, the United Arab Emirates — witnessed the impact of the new approach. Mr. Mukherjee himself visited Saudi Arabia and the UAE. Iranian President Mahmoud Ahmadinejad was in New Delhi for a day, while Minister of State for Commerce and Power Jairam Ramesh dashed to Cairo for four days to inject economic dynamism into a relationship that badly needed rejuvenation. Commerce and Industry Minister Kamal Nath too visited UAE ahead of Mr. Mukherjee’s trip.
Unlike as in the past decades, the economic dimension of India’s relationship has become more pronounced in the current round. For energy-hungry India, oil and gas was a running theme in its ties with the resource-rich region in the past. However, unlike being in a buyer-seller relationship, India is now looking at making investments.
After acquiring a niche in Sudan, Indian energy companies have made forays into the Red Sea and the Mediterranean. ONGC-Videsh Limited (OVL) and its Egyptian partner, IPR Red Sea Incorporated, have drilled an exploration well in the Gulf of Suez, with a promising flow of about 4,600 barrels a day. The two are drilling two more exploratory wells in the North Ramadan Concession in the same zone. OVL is also seeking a 33 per cent stake in an offshore block in the northeast Mediterranean that is operated by Shell. The Gujarat State Petroleum Corporation and its Egyptian partners EGAS and GANOPE signed a deal in March to explore the North Hap’y offshore field in the Mediterranean. The joint venture will also drill wells in the South Diyur onshore block in Egypt’s Western Desert area.
India has ambitious plans to expand its energy partnership with Egypt in the downstream sector. The Indian Oil Corporation, Reliance Industries, the Tatas, and Essar Global have shown interest in setting up refineries, LNG terminals and petrochemical complexes, provided sufficient quantities of Egyptian gas as feedstock are made available. Reliance plans to invest around $4 billion in a plastics park, billed as the “largest single plastic processing hub in the world.”
While energy partnership was the major theme during Mr. Mukherjee’s April visit to Saudi Arabia, it was also about reinforcing political ties and removing legal impediments to a thriving economic relationship.
Despite waking up a little late to the new opportunities in West Asia, India has a good chance of emerging as a major player there. Saudi Arabia and the rest of the Gulf Cooperation Council have evolved a ‘look east’ policy. But the problems lie in the details, and New Delhi needs to quickly adopt a policy that is sensitive to the region’s new demands. Mr. Mukherjee’s visit to the UAE took place at a time the global food crisis hit West Asia hard.
During the visit, an interesting linkage — between the region’s demand for food security with India as partner and its requirement of energy security with the region as an ally — emerged. The Egyptians expressed concern over food shortage during Mr. Ramesh’s visit. While Indian food exports will play their part, the possibility of a partnership with some countries of the region for developing agriculture in third countries also emerged. Apart from stepping up imports, some regional players are looking at purchasing land in third countries for a durable solution.
According to the Financial Times, UAE’s Abraaj Capital, which manages $5 billion worth of assets across West Asia, North Africa and the Indian subcontinent, has been purchasing land in Pakistan during the past year. The daily reported that nearly 800,000 acres of farmland was already acquired. Investments in agriculture in Sudan and Somalia are also on the cards. Saudi Arabia is reportedly looking at purchasing rice fields in Thailand, and Libya is negotiating with Ukraine for growing wheat. While India can look at overseas investment in land on its own, it could emerge as a reliable supplier of quality seeds and agriculture technology to help West Asian countries.
Indian leaders visiting the region have said the country needs about $500 billion in overseas investment to develop its infrastructure. It has been assumed that the Gulf countries, flush with funds because of the soaring oil prices, will find India an attractive destination. But acquiring Gulf petrodollars for India’s infrastructure development will not be easy. For, the Gulf countries themselves are growing at a feverish pace. Consequently, their surplus funds are being absorbed internally for the development of both the oil and non-oil sectors. Mega real estate projects are also soaking huge funds.
Saudi Arabia plans to spend up to $117 billion on petroleum refining and petrochemicals over the next two years, and another $100 billion on revamping its railways, ports and airports. Demands for diverting domestic resources for the development of the region’s social infrastructure, especially education and human resource, have also been growing rapidly.
As India looks towards sustaining a high growth rate, it is likely to encounter difficulties sourcing gas supplies from the Gulf. This is on account of the growing demand for gas within the region, especially for development of the non-oil economy.
In fact, many Gulf countries are confronting the possibility of serious gas shortage. UAE, the world’s fifth-largest producer of gas, anticipates that its energy demand could grow to 40,000 MW by 2020. Its known volumes of gas can generate only 20,000-25,000 MW by that year. Oman, facing an acuter problem, is considering developing a coal-fired power plant.
Saudi Arabia is likely to absorb huge amounts of gas as it recycles its petrodollars in its non-oil economy. The kingdom plans to invest about $30 billion in developing its gas-based industry in the next five years. “Sour gas,” which is difficult to process, is not of much help in meeting the shortage. Besides, the cumulative effect of limited investment in the development of gas, compared to oil, in the past decades is adding to the shortfall. Only Qatar, at the moment, has surplus gas.
Given the domestic focus in the Gulf, it might make sense for Indian entrepreneurs to invest in the free zones mushrooming in the region rather than importing gas. The growing shortage of gas in the Gulf reinforces the importance of Iran’s plentiful reserves and the Iran-Pakistan-India gas pipeline.
As India engages the region afresh, the political scenario in West Asia has changed dramatically. The Anglo-American invasion of Iraq has profoundly destabilised the region. The confrontation between Americans and Iranians has sharpened. It is reflected in three conflict zones — Iraq, Lebanon and the Palestinian territories. Iran holds the key to a durable solution in Iraq, because of its deep influence in the Shia-dominated country. Israel, the key U.S. ally, lost face during its July-August war with the Iran-backed Hizbollah in Lebanon.
The split between the West-backed Fatah and the Hamas, supported by Syria and Iran in the Palestinian territories, is also a major source of tension. With vital stakes in West Asia’s stability, and the existence of close ties with the two adversarial camps, India is well positioned to play a moderating role to help draw the region away from conflict and prod it towards dialogue and reconciliation.
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