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Bridge the Gulf without delay

To attract investment and secure energy, India must deepen ties with Gulf countries.

india Updated: Jan 04, 2012 21:48 IST

Of all the regions of the world, India’s economic fortunes are most closely tied to the Persian Gulf. It is, collectively, the country’s single largest trading partner, the source of over 60% of the country’s oil and nearly all its imported natural gas. It has the largest Indian diaspora and is the source of over half the country’s remittances. Arguably even more than Pakistan, it is the rising geopolitical uncertainty of the Gulf that constitutes the greatest overseas risk to India’s economic growth over the coming decades. Consider the recent threat by Iran that it would close the Strait of Hormuz to shipping. While this was seen at the time as posturing, it is important to realise that if the strait is ever shutdown for any extended period of time, India would be paralysed by the disruption of energy supplies. If the Gulf were to ever go up in flames, the additional loss in trade and remittances would bring the country to its knees.

Given all this, it is surprising that India has never had a comprehensive policy regarding the Gulf. Despite the great interest that relations with Iran attracts, the truth is that India’s economic relationship is overwhelmingly about the Arab emirates. Iran supplies about 15% of the country’s oil but there is little else there. Trade relations are weak and there are few Indian residents. India, until now, has been happy to leave the security and stability of these emirates to the US. But New Delhi needs to keep in mind that the US position in the Gulf is now quite parlous. Iran will consolidate its emergence as the dominant regional power if it gains a nuclear weapon and continues to be the main external player in Iraq. Washington’s dependence on the Persian Gulf for energy supplies may be a thing of the past within a decade if present trends are anything to go by.

India now hopes to attract investment from the cash-rich Gulf states — though previous such attempts have not necessarily been successful. The point is that these countries are only marginally interested in returns. What they seek is a comprehensive relationship which works at several levels. One where security, economic and even personal linkages merge together. India until now has been only about business and visas. At a time when the power balance in the Gulf is shifting, there is an opportunity for India to become a more proactive defender of its interests in the region. For a start, it needs to resuscitate relations with Iraq. This is a country with energy resources far greater than Iran and which has been, literally, India’s oldest trading partner. New Delhi has reason to be cautious: the Gulf is politically combustible. But given how dependent the country is on that region’s stability, to sit on the sidelines and not try to influence developments would be the far greater risk.