Growing India-Saudi Arabia Ties

For the first time in almost 30 years, the Prime Minister of India visited Saudi Arabia from Feb. 27 to March 1. Prime Minister Manmohan Singh spoke at length with King Abdullah bin Abdul Aziz about security, economic, energy and defense issues. By the end of the visit, they had signed 10 different agreements. This is the result of negotiations that began with the king’s visit to India in 2006, where he spoke about creating comprehensive ties between the two countries and was honored as the chief guest at the Republic Day parade in New Delhi. With Prime Minister Singh’s visit, the ties are realized. As an added bonus, Manmohan Singh received an honorary doctorate from King Saud University. “As a result of our interaction, we have agreed to upgrade the quality of our relationship to that of a strategic partnership,” Singh said when he returned to India.

The strategic partnership between the two countries covers economic, trade and investment issues. Also, the agreement covers energy security, research & development investment in renewable energy resources and mutual investment in the upstream and downstream energy activities of both nations. The agreement also includes a pledge for both countries to use space for only peaceful purposes. Finally, the agreement addresses cooperation in dealing with security and terrorism issues. The fact that the agreement was completed at all is a signifier of a new era in South Asian politics.

The prime minister was accompanied by a delegation of ministers, officials and businessmen, who were also busy. There were reports of two private sector agreements reached during the three-day event.

Energy Needs, Again

Saudi Arabia supplies a full 30 percent of India’s crude oil each year. India’s steady growth will no doubt require more energy in the future. India is voraciously reaching out for all forms of energy from nuclear to solar, and will maintain a healthy diet of oil as its economy expands. Securing a steady supply from Saudi Arabia is essential for India’s future growth.

The joint declaration signed by both parties, being called the Riyadh Declaration, speaks a lot about complementary needs and interdependence, which means both countries should invest in each other’s energy infrastructure. There are also some vague references to developing alternative sources of renewable energy.

New Political Era

Despite the two countries’ ancient historical ties, India and Saudi Arabia have found themselves separated by the 20th century’s political climate. Now, however, as circumstances change in the 21st century, both countries find themselves with similar interests and goals. And, as always, one of the most important goals is bilateral trade. India’s post-liberalization, bilateral trade sharply shot up, especially after 2000, and stood at US $25 billion in 2008-09.

India is now the fourth largest investor in Saudi Arabia, ahead of Japan. Indian investments are booming, amounting to $2 billion in 2009. Indian companies have also established more than 500 joint ventures in Saudi Arabia. From management and consultancy services, information technology, construction and telecommunications, to pharmaceuticals, there are many new businesses popping up in the kingdom. There are also joint ventures between companies in design, consultancy, financial services and software development. Even before the agreement was signed, Indian companies saw major opportunities in almost all sectors of the Saudi economy, including higher education and technical education. Indian IT companies have already been involved with a growing number of Saudi companies that are outsourcing their IT requirements.

Prime Minister Singh addressed the Council of Saudi Chambers of Commerce and Industry, inviting Saudi entrepreneurs and investors to return the favor and invest in “construction, manufacturing, pharmaceuticals, health, agriculture, energy, telecommunications, biotechnology, tourism and other service sectors.”

Security and Terrorism

Both India and Saudi Arabia find themselves the targets of terrorism. The attacks against Mumbai last year and continuing violence vaguely associated with Pakistan worries Indian leaders, while Saudi Arabia is still a target of Al Qaeda for its ties to Western powers.

Prime Minister Singh said that he spoke with King Abdullah about Pakistani terrorism, mentioning that he asked the King to try to influence Pakistan to tone it down a bit. This has sparked some controversy in India itself, because the government’s policy so far has been to not resort to third parties on this issue. However, it remains to be seen what will develop on that front.

Another security-related issue is an extradition treaty signed by both parties. The two countries agreed to cooperate in stopping criminal activities like money laundering, narcotics, arms trafficking and human trafficking. India is one of the first countries outside of the Middle East region with which Saudi Arabia has signed an extradition treaty.

Scientific Cooperation

The exchange of scientific personnel and technology is one of the more overlooked aspects of this new agreement, but it has great potential. Dignitaries from scientific organizations of both countries signed their own agreements during the visit. The result of one of those agreements is to set up an India-Saudi Arabia Center of Excellence in ICT in Saudi Arabia, at the King Abdulaziz City for Science and Technology (KA CST ). There will be three major activities at the center: R&D, IT consultation and training on the use of information technology. This center will be used to help Saudi Arabia take a greater advantage of IT , from the individual to the organizational level. There is talk of building five more national institutes of science in Saudi Arabia with Indian cooperation.

It Just Makes Sense

Similar to the CEPA between India and Korea that went into effect at the beginning of this year, India’s agreements with Saudi Arabia just makes sense. The CEPA with Korea is about technological trade, economics and energy. The agreement with Saudi Arabia is very similar, with an extra emphasis on security. India is growing, India’s economy is hungry, and India is reaching out to those countries around it that are able to feed its growth.

Nobody has been able to ignore the fact that the global financial crisis pretty much passed India by. While the rest of the world was moaning in pain and talking of bailouts, India had steady 8 percent economic growth and plenty of investment money to spread around. Indian companies specifically have a lot of investment already in Saudi Arabia, and the prime minister gave a speech inviting more Saudi investment into its own economy. The extremely large size of India makes them nearly infinite in term of opportunities for investment, and the country’s steady growth means that those opportunities will become greater in the future.

Saudi Arabia is the latest payoff of what is rapidly becoming a signature move on India’s part – the Republic Day Diplomacy Move. Invite a foreign leader over for Republic Day, give him the spot of honor, and in a few months or years you have increased relations. The past few years of Republic Day celebration, the list of guests have read like a shopping list of countries that India is interested in. And that’s not a bad thing, since there is no better way to attract business than by throwing lots of parties.

India is not only reaching out to the Southeast Asian nations and East Asian nations like Korea and Japan, but it is also reaching west to the Middle East. All of the countries surrounding India are becoming more deeply involved in its economy. This is actually reminiscent of the United States at the beginning of the 20th century – coming out of a long, introspective time and looking for more trade relations with countries far and wide. However, the United States chose to exercise gunboat diplomacy in the early 1900s, whereas India is practicing Republic Day Diplomacy. Let us hope that India is not interrupted in this move in the same way that two world wars interrupted the U.S.

This is also the latest chapter in India’s whirlpool, which I have spoken about in previous articles. India is beginning to draw more resources to itself, possibly diverting them from other end users. With increased ties with Saudi Arabia, what Saudi oil will be sent to India and diverted away from other markets? Will this increase the cost of the country’s oil with good consequences for its competition and bad for its customers? Saudi Arabia has a long history of close cooperation with the United States – will the new thrill of India’s attentions draw the country away from its old lover to the new? The implications could be world altering.

For a student of history, this move by both countries is significant by the fact that it happened at all. For the past 50-odd years, India and Saudi Arabia found themselves on different sides of a global divide. Saudi Arabia had been very close to the United States, while India, with its geographical location, found itself giving at least appeasement to Russia and China. While neither side were directly involved in the Cold War, they found that political necessity kept them apart. Their increased ties in 2010 show that there is now no obstacle left for their cooperation, and that the Cold War is truly dead. India is able to shift the global balance of power to more heavily rely on itself rather than being influenced by one sphere or another. It is a new developing paradigm in international power.

Another significant aspect of this event is the comments made by the prime minister that King Abdullah might help speak to Pakistan on India’s behalf. This is a controversial issue in India, because apparently some politicians believe that India and Pakistan should take care of their differences without outside interference. But despite this political opposition, the prime minister is reaching out to other countries for political aid. This is a sign that India is once again looking outwards more than it ever has since its independence.

There is one major difference between the India- Korea agreement tone and the India-Saudi agreement tone, which is the talk of technology. Korea and India both have strong IT industries that complement each other – India has a strong software sector and Korea has a strong hardware sector. Saudi Arabia is not known for either a strong hardware or software sector, and therefore is looking to import both of those. With ample energy resources the country should have no problem funding such knowledge imports and, in fact, it has extensive plans to build new technology institutes around the country. South Korea has shown some interest in being involved in this project as well. So it is possible that South Korea, India and Saudi Arabia could create a technological alliance to further shift the global balance of power, given enough time.

Basically, there should be no big surprise over the new cooperation between India and Saudi Arabia, just like there is no real big surprise for India’s CEPA with South Korea. In all cases, the parties just have what the other needs, and the governments are simply following popular trends set up by private business already. India is a rising star, and Saudi Arabia simply recognizes it. Conversely, Saudi Arabia is a wealthy, energy-rich country, and India wants both the finances and the energy to continue to fuel its growth. Once again, it seems to be a simple match, founded on solid principles, with almost limitless potential. It is also something to look forward to seeing developed.