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A double whammy for India-Gulf economic ties
Context: India and Gulf relations amid COVID-19.
The Gulf region is at the epicentre of a perfect storm with the COVID-19 pandemic and an oil price meltdown. Given India’s vital relations with the eight Gulf countries, the situation’s impact on bilateral economic ties needs to be anticipated and managed.
This brings us to the questions of India and Gulf countries economic ties. In this article, we will explain the below:
What is the impact on global oil sector amid COVID-19?
What is the response from OPEC countries?
What is Organization of the Petroleum Exporting Countries (OPEC)?
What is OPEC+?
What does IEA has to say about the COVID-19 crisis?
What are important aspects of India-Gulf relations?
What can be the impacts of COVID-19 on India’s expatriate community in gulf?
What is way forward?
What is the impact on global oil sector amid COVID-19?
According to a Goldman Sachs report published on March 30, COVID-19 had lowered the world crude consumption by 28 million bpd (Barrels per Day)
Oil prices fell sharply Monday morning, as the outbreak continues to crush global demand for crude.
International benchmark Brent crude traded at $22.68 a barrel, down more than 9%, while U.S. West Texas Intermediate (WTI) stood at $20.01, almost 7% lower.
Brent futures fell by 55% during March to their lowest level in 18 years on March 30.
Goldman Sachs noted that, “If pipelines get clogged up as refineries shut down, inventories cannot build, reducing the cushion and creating a very quick risk reversal towards oil shortages.”
This would in turn cause an oil shortage, pushing prices above the Wall Street bank’s $55 a barrel target for 2021.
What is the response from OPEC countries?
The Organization of the Petroleum Exporting Countries and other crude producers (OPEC+), however, failed to reach a production-curtailing strategy since Saudi Arabia and Russia holds different viewoints. Saudi Arabia and Russia are only beginning to ramp up their oil output in a fight over market share.
What is Organization of the Petroleum Exporting Countries (OPEC)?
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference in 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
OPEC had its headquarters in Geneva, Switzerland, in the first five years of its existence. This was moved to Vienna, Austria in 1965.
OPEC’s objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.
What is OPEC+?
OPEC+ refers to the alliance of crude producers, who have been undertaking corrections in supply in the oil markets since 2017.
OPEC plus countries include OPEC Countries plus Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
The OPEC and non-OPEC producers first formed the alliance at a historic meeting in Algiers in 2016.
The aim was to undertake production restrictions to help resuscitate a flailing market.
What does IEA has to say about the COVID-19 crisis?
In a joint statement, both OPEC and IEA expressed deep concerns about the coronavirus (COVID-19), which is already a grave and unprecedented global health crisis with potentially far-reaching economic and social consequences.
It has been noted that if current market conditions continue, developing countries income from oil and gas will fall by 50% to 85% in 2020, reaching the lowest levels in more than two decades.
The economic outlook for the Gulf has indeed deteriorated, with Saudi Arabia’s fiscal deficit expected to cross 8% in 2020.
COVID-19 will induce ression this year and even if starts improving in 2021, it would be slow and less energy intensive.
What are important aspects of India-Gulf relations?
The important aspects of India’s economic ties with the Gulf states are economic symbiosis and India’s expatriate community.
Economic Symbiosis:
India is dependent on the six Gulf Cooperation Council (GCC) states for 42 per cent of its overall oil imports; three of the top five oil suppliers to India are Gulf states, with Saudi Arabia, the largest, providing 20 per cent of India’s total oil imports.
Qatar is also India’s dominant supplier of Liquefied Natural Gas (LNG). Any disruption in energy imports from the Gulf will have serious implications for India’s economic growth.
The GCC is India’s largest regional-bloc trading partner, which accounted for $164 billion of trade in 2018–19. This is higher than both India–ASEAN trade ($97 billion) and India–EU trade ($115 billion) in 2017-18.
Two of India’s top five trading partners, the UAE and Saudi Arabia, are from the Gulf.
India’s expatriate community:
Indian nationals make up the Gulf states’ largest expatriate community, with an estimated 7.6 million Indian nationals living and working in the region; especially in Saudi Arabia (2.8 million) and the UAE (2.6 million).
Indians number more than the local population in the UAE and Qatar.
The GCC also provided nearly $40 billion in foreign-exchange remittances from Indian expatriates, accounting for over 54 per cent of India’s total.
What can be the impacts of COVID-19 on India’s expatriate community in gulf?
Oil is a cyclic commodity and the Gulf producers have long evolved a pattern to handle its periodic lows. Gulf countries usually transfer the burden on to the last person in line, i.e, the Asian expatriate.
The fresh recruitment stops, salaries are either lowered or stalled, taxes raised and localisation drives launched. The net result is that a large number of expatriates return to their homes.
In case the pandemic worsens in the lower Gulf, panic-stricken, wage-deprived Indians may prefer to come back. This may result into another exodus, with a lot more complications as a result of pandemic.
Apart from creating a logistical nightmare of transporting millions of expatriates back, they would need to be resettled and re-employed.
What is way forward?
The traditional relations with Gulf countries are currently diversifying into security and defence cooperation and India today has a strong and growing stake in Gulf stability. This includes ‘strategic partnerships’ with Gulf countries on issues such as counter-terrorism, money laundering, cyber security, organised crime, human trafficking and anti-piracy.
All the Gulf states are members of the Indian Navy-conceived Indian Ocean Naval Symposium (IONS), which was established in 2008 as a biennial forum for navy chiefs of the Indian Ocean littoral.
India’s most notable defence cooperation has been with Oman.
India has also played an active role in enhancing the stability and security of the Gulf’s sea lanes through its participation in anti-piracy patrols off the coast of Somalia.
In the times of pandemic, India needs to make some contingency plans in consultation with the individual countries to contain the virus and oil shocks.
It should do whatever it takes to enhance their capacity to handle COVID-19 cases among the Indian expatriates.
In longer run, both sides could begin with cooperation in healthcare and gradually extend outward towards pharmaceutical research and production, petrochemical complexes, building infrastructure in India and in third countries, agriculture, education and skilling.
As well as concentrating on the economic activities in bilateral free zones created along our Arabian Sea coast which may eventually lead to an India-Gulf Cooperation Council Free Trade Area.
