>Tightening ties: Asian oil demand and pragmatism at crux of Saudi-Indian relations

■ Saudi exports to India rise seven-fold, imports jump six-fold between 2000 and 2008, with trade balance consistently favouring the kingdom

■ India’s geographic dependence on Saudi oil likely to grow in coming years as it seeks energy security to support economic growth plans

■ Prime Minister Manmohan Singh set to make first official visit by an Indian PM to Saudi Arabia in 28 years as two states strive to deepen economic and diplomatic ties

The trading relationship between Saudi Arabia and India is among the most-strategic bilateral

bonds for either country. As India’s largest supplier of crude oil, Saudi Arabia is favourably

positioned to benefit from burgeoning demand for energy in Asia’s third-largest economy, set

to experience annual economic growth rates of 7-8% for the foreseeable future. The balance

of trade between the two states has consistently swung in favour of kingdom, its trade surplus

standing at SR67.3 billion in 2008, up almost seven-fold from 2000 levels.

For India, Saudi Arabia comes fourth after China, the United States and the United Arab Emirates as its most-important trading partner. Saudi imports of Indian goods stood at SR18 billion in 2008, marking an almost six-fold rise from 2000, according to data of the Saudi Arabian Monetary Agency (SAMA). That positioned India as the sixth-largest source of Saudi imports, accounting for 12.4% of the kingdom’s total imports from Asia in 2008.

India’s geographic dependence on Gulf oil is likely to become amplified in the coming years due to limited prospects for enhancing domestic energy production. Common interests in supporting peace and promoting security in the region, as well as building counter-terrorism measures, form a pivotal part of the bilateral relationship, which has become strengthened in the recent past due to Iran’s nuclear ambitions. Indian interests in the Gulf Arab region are perceived as more important than its interests with Iran.

Aside from trade, Saudi Arabia is a major source of income for India as a result of workers remittances. Foreign workers accounted for 27% of Saudi Arabia’s population of 25 million in 2008 – and Indians form the kingdom’s largest expatriate workforce, working in fields from information technology to construction, with most employed as blue-collar workers. Given this varied web of economic and diplomatic interests, we regard Indian Prime Minister Manmohan Singh’s historic visit to Saudi Arabia this month as decisive to deepening ties between two countries poised to take a greater role in the world economy.

Revived relations

The importance of long-standing trading ties between Saudi Arabia and India has become pronounced this decade, with India’s share of total Saudi exports and imports gaining ground since 1990. In 2008, India accounted for 7.3% of total Saudi exports, compared with 2.5% in 1990, SAMA data show. Over the same period, the ratio of Saudi imports from India rose to 4.2% from 1.1%.

The two countries have worked to improve bilateral ties since the 1990s, prior to which time their relationship was constrained by Cold War politics and Saudi Arabia’s support for Pakistan. Saudi Arabia and India had established diplomatic ties shortly after the latter’s independence in 1947. But during the Cold War period, Indian-Saudi relations were confined to energy and labour as a result of India’s proximate ties with the Soviet Union and Saudi Arabia’s close links with the United States. Meanwhile, Saudi Arabia supported Pakistan during the Kashmir conflict and the

Indo-Pakistani War of 1971, further denting its relations with India.

To read the full report: TIGHTENING TIES