Author : Kabir Taneja

Expert Speak Raisina Debates
Published on Apr 01, 2017
With King Salman expected to visit India later this year, New Delhi should be prepared to offer a smooth transition for Saudi investment into the Indian economy, and vice versa.
Saudi Arabia looks towards an Asian rehab for its oil addiction, and India should capitalise

Saudi Arabia's King Salman bin Abdulaziz Al Saud's much touted tour of Asia over the past few weeks made it big in the news mostly for the size of his entourage, a 1,500 people strong cabal of advisors, investors, attaches and support staff to Malaysia, Indonesia, Brunei, China and Japan. The tour originally also included Maldives, however, the stopover at Male was cancelled at the last minute owing to a conspicuous reason of a flu outbreak on the island nation.

Saudi Arabia, over the past few years, has started to make moves to allow the economy some relief from its historic addiction to revenues from oil, a commodity that helped the House of Saud to become, with additional assistance from the West, the most powerful entity in the Middle East. However, the crash in the prices of oil coupled with global economic cues, Saudi Arabia's growing population and rising domestic energy demands is forcing the kingdom to take a leaf from Dubai's book, and start delinking from petro-dollars by attracting investments in other sectors such as manufacturing, services, infrastructure and so on.

King Salman's Asia outreach is in tune with global economic indicators, as the core of international trade and finance shifts from the traditional centers of the West to avenues of new money, markets and political weight in the East. Nonetheless, this tour is not just about the economy, but also a continuation of outreach to largely Sunni Muslim countries in South East Asia, which remains a core Saudi foreign policy principle. Despite its efficient yet controversial religious outreach around the world, Riyadh's core interests are now set to be economic, as it prepares for survival in an environment where just petro-dollars will not be able to guarantee sustainability. For Saudi Arabia, this sustainability is critical, as it will need to find avenues to continue funding its vast network of domestic social schemes for its population, which till some extent has maintained stability in the country and dominance of the House of Saud without any internal turmoil.

The Saudis are entering the global market with many opportunities that India can exploit, including in oil and gas.

During this Asia visit, Saudi Arabia signed oil-refining deals worth $16 billion with Kuala Lumpur and Jakarta. With Japan, which is now Riyadh’s biggest buyer of oil, overtaking China, the Saudi sovereign fund, worth nearly $750 billion, is preparing to join hands with Tokyo based SoftBank for a $100 billion technology investment fund. Across the sea, Japan's archrival China also maintains good ties with Riyadh, and both the countries during the King's visit committed to the "possibilities" of deals worth $65 billion.

India should look upon King Salman's Asia sojourn as a policy of what Saudi Arabia intends to do with both its own economy and how it plans to invest in Asia. New Delhi still imports about a fifth of its annual oil supplies from Saudi Arabia, and as per reports, Saudi Aramco, the state oil company on the cusp of floating the world’s largest IPO, is also interested in heavy investments in India's downstream sector. Prime Minister Narendra Modi's visit to Saudi Arabia in 2016, and his engagement with the former ruler, King Abdullah Bin Abdul Aziz, on sidelines of the 2014 G20 summit in Brisbane, Australia, helped open up his leadership to the Gulf. This was a critical moment as many Gulf capitals had initially been distant in even congratulating him on winning the 2014 general elections due to Modi's past as the Chief Minister of Gujarat and the 2002 Godhra riots incident, which unfolded under his ambit. Egypt and Qatar were the only two countries from the region who had congratulated Modi on his victory without any delay. The change in the above dynamic reflected after the Uttar Pradesh elections, as the Crown Prince of Abu Dhabi became the first foreign leader to congratulate Modi on the victory, followed by others including the Emir of Qatar.

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The Modi government since has made all the right moves to court the Gulf states. In 2015, King Abdullah passed away aged 90, India, as per tradition, joined the world by declaring a full day of mourning, an honor also bestowed on King Abdullah's predecessor, King Fahd, on his passing in 2005. Last year, Modi visited Riyadh, to push forward the two pivotal diplomatic events that had already taken place between the two countries, the Delhi declaration in 2006 and the Riyadh declaration in 2010. King Abdullah's visit in 2006 under the Congress government in New Delhi paved way for greater diplomatic discourse between the two countries as he became the first head of the House of Saud to visit India in 51 years. Since then, the ties have moved ahead significantly, and political engagements such as cooperation on counterterrorism policies have been the highlights. To illustrate the trajectory of the bilateral engagements further, the fact that an Indian Air Force contingent of Sukhoi 30MKI fighter jets, support aircraft and 110 airmen on their way for war exercises in the United Kingdom made a 'staging visit' in the kingdom is specifically noteworthy. Although underplayed, this was perhaps the most significant moment since the signing of the bilateral defense partnership between the two nations in 2014.

In a speech prior to Modi's visit, Foreign Secretary S. Jaishankar pushed for the 'Think West' narrative on India's outreach towards West Asia, a diplomatic area languishing in the shadows of relationships built by the Nehruvian machine in the 1950s and 1960s, and now in dire need of upgrades. "If the eastern front is building upon longstanding policy, the western one is relatively more recent conceptually, even if India has had a historical presence in the Gulf. The Indian footprint there has resulted in a community of 7 million that is an impressive source of investment and remittances. But it was an evolutionary happening that was relatively autonomous of strategic calculations. Our energy dependence on the region was also dictated more by markets than by policy," Jaishankar said. “The interplay among these (Gulf) nations actually offers us new avenues of cooperation. I can confidently predict that 'Act East' would be matched with 'Think West.'"

Diplomacy does not come without caveats, and an aggressive Indian approach on strong bilateral relationship with Saudi Arabia will have to also keep in consideration ties with Israel and Iran.

Before King Salman's slated visit to India later this year, New Delhi will orchestrate a host of diplomatic maneuvers to maintain its balance in the region's politics. While this will include the much awaited trip by Modi to Israel, prior to that the Indian Prime Minister will also host Mahmoud Abbas, the President of Palestine, maintaining India’s balance on its stance on the Palestinian cause despite New Delhi's increasing apprehensions in dealing with the likes of FATAH. It is also imperative to remember here that West Asian politics are not absolute in their stands, as the Iran — P5+1 nuclear agreement saw the much unlikely pairing of Riyadh and Tel Aviv united in one corner against the concessions being granted to Tehran.

The Saudis have already shown interest in a variety of projects in India, including setting up large oil refineries in states such as Maharashtra and Andhra Pradesh. With King Salman expected to visit India later this year, New Delhi should be prepared to offer a smooth transition for Saudi investment into the Indian economy, and vice versa, by offering to help build industries such as IT, services and auto-manufacturing in the Gulf. One way to iron out the narrative for a robust Indo–Saudi economic engagement is to delink economic projects from the 'strategic' narrative that every bilateral relationship that New Delhi conducts seem to be filed under. Economic projects need to be treated with more urgency, policy clarity and pro-market approach than areas such as defense cooperation, an outlook rich sovereign funds such as the one Riyadh is armed with would appreciate.

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Kabir Taneja

Kabir Taneja

Kabir Taneja is a Fellow with Strategic Studies programme. His research focuses on Indias relations with West Asia specifically looking at the domestic political dynamics ...

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Jonathan Phillips

Jonathan Phillips

Jonathan Phillips James E. Rogers Energy Access Project Duke University

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