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    South Asia
     Jan 13, 2012


India seeks Saudi trade
By Siddharth Srivastava

NEW DELHI - India and Saudi Arabia are seeking to deepen business ties that span several sectors including the most crucial of oil and gas.

Saudi Commerce and Industry Minister Tawfiq al-Rabiah held discussions early in January with Indian Prime Minister Manmohan Singh, Finance Minister Pranab Mukherjee, Oil Minister Jaipal Reddy, Commerce Minister Anand Sharma and Foreign Minister S M Krishna.

Mukherjee said that India was keen to invest in the petroleum and gas sectors in Saudi Arabia, which in turn could look at

 
participating in Indian petroleum and gas-based industrial estates, fertilizer businesses, petrochemical plants and refineries.

In an address to the Saudi Arabia-India Joint Economic Commission, Mukherjee said, "We hope that the Kingdom of Saudi Arabia will be able to assist India in meeting its energy security needs in the years to come."

India-Saudi bilateral trade exceeded US$25 billion last year. India imports almost a quarter of its crude oil needs from Saudi Arabia. Mukherjee emphasized that that the trade basket could easily include more non-oil products. A 30-member high-level Indian trade delegation is scheduled to follow up the ministerial meetings with a visit Riyadh later this month.

Mukherjee said a proposed US$750 million joint fund should be used for infrastructure development and joint exploration and production of hydrocarbons.

Speaking to this writer following his meeting with Rabiah, Commerce Minister Sharma said new initiatives were being undertaken to identify areas of mutual benefit to both the countries in the hydrocarbons sector.

"The idea is to amalgamate our expertise in both downstream and upstream areas with Saudi Arabia. That is why we are looking at more joint ventures and tie-ups that will span refineries, petrochemical projects, oil and gas exploration," said Sharma, adding that a joint working group on hydrocarbons would explore further possibilities.

Sharma said Saudi Arabia was looking to tap into India's significant expertise in science and technology, software and telecoms.

India, Saudi Arabia and Iran
Some of the recent efforts by India to seek out Saudi and other Gulf nations are to do with the difficulties arising out of oil and gas trading with Iran, including the chore of routing back payments to Tehran due to sanctions by America and the European Union.

"There have been some practical issues about dealing with Iran," Sharma said. "The international clampdown on Iran makes it difficult to do business with the country. While we are looking at all the options to make business transactions smooth, the going has not been easy."

Indian refiners MRPL, Bharat Petroleum, Hindustan Petroleum, IOC and Essar are dealing with Saudi Aramco and Kuwait. Saudi Arabia wants to boost global oil supply, which Iran is not happy about. Iran supplies about 18% of India's oil imports.

"We do not want to be caught in a difficult situation as our energy consumption needs to be fulfilled via imports of oil and LNG, at least in the short and medium term. That is the reason we are looking to diversify our hydrocarbon import base to Australia, Africa, Middle East and Saudi Arabia," Sharma said.

India has been under pressure from Washington to abide by its efforts to squeeze Iran financially, unlike European nations that continue to deal with Tehran for oil. While there is no ban against buying Iranian crude, sanctions make financing the deals difficult.

That is creating uncertainty over proposed US$8 billion in investments by India's state-owned oil firms ONGC, IOC and OIL to develop Iran's gas-rich Farsi block. The US can impose sanctions if investments by any firm exceed $20 million in a year in Iran's energy sector.

India's private sector major Reliance Industries Ltd (RIL), which operates refineries that sell fuel to Iran, has already substantially curtailed such exports. RIL has invested $3.6 billion in US shale assets and is wary of US political actions.

Indicating a more flexible stance in its foreign trade policies as concerns mount that sanctions on Iran will disrupt shipments of petroleum-related products, India on December 30 lifted an anti-dumping duty on Saudi Arabian polypropylene. India imposed a 6.5% duty in November 2010. Polypropylene is a plastic polymer used in products such as carpets, food containers and car parts.

Saudi Arabia, meanwhile, has been more than willing to occupy any trading and business space that may arise due to Iran losing out.

Riyadh has said that it could more than double the current supplies of oil to India and sign a 30-year supply agreement, as it has done with other nations. Saudi Arabia is India's largest crude supplier followed by Iran and then Iraq.

Yet, some observers point out that squeezing out Iran as an oil supplier to India could pose additional problems. In the absence of more choice and existence of demand from multiple markets, Saudi Arabia would be in a position to dictate oil and gas prices. This would also further buttress its dominant position in the crude market.

It will also introduce a further element of uncertainty in oil supplies to India, as Riyadh could call the shots in any negotiations. Given the tenuous relations between Saudi Arabia and Iran, the former will only be happy to make matters difficult for the latter.

Given such equations, India will need to calibrate its relations with Iran, Saudi Arabia and the Gulf countries carefully.

Siddharth Srivastava is a New Delhi-based journalist. He can be reached at sidsri@yahoo.com

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)


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