India-Saudi Arabia Relationship – Significance & Challenges – Explained pointwise

PM Modi recently went on State Visit to the Kingdom of Saudi Arabia before he cut short the trip after Pahalgam terror attack. The April 2025 visit of Prime Minister Narendra Modi to Saudi Arabia marked a strategic milestone, with the signing of multiple MoUs in energy, digital infrastructure, pharmaceuticals, and labour welfare.
India and Saudi Arabia enjoy a strong relationship and close people-to-people ties marked by trust and goodwill. However, there are still certain challenges & various government initiatives which we will discuss in this article.

A Brief history of India Saudi Arabia Relations

What is the significance of India Saudi Arabia relations?

India and Saudi Arabia hold a lot of importance for each other and hence India-Saudi Arabia relationship is seen as one of the most promising partnership in the 21st Century.

Geo-Political Significance:

1. Saudi Arabia’s growing geopolitical importance: Saudi Arabia has substantial geopolitical influence in the regional politics of Middle East especially on the Israeli-Palestinian peace process. Saudi Arabia has cultivated ties with major powers such as the US, Russia, China and the EU.This increasing geopolitical profile of Saudi Arabia has to led to deepening of India’s geopolitical engagement with Saudi Arabia.

2. Deepening of Chinese geopolitical relation with Saudi Arabia: China has deepened its geopolitical relation with Saudi Arabia. China has initiated the Saudi Arabia-Iran relations reconciliation. Thus it becomes important for India to engage with Saudi Arabia in the geopolitical arena to counter the growing Chinese geopolitical influence.

Geo-Strategic Significance:

1. Counter Terrorism Cooperation: Saudi Arabia has a substantial influence over Pakistan. India can use this influence to bring Pakistan to negotiating table for talks on terrorism. Saudi Arabia has shown an understanding of India’s terrorism-related concerns and has agreed to work with India in countering the global menace. For e.g. Saudi Arabia strongly condemned the Pahalgam terror attack.

2. Defence cooperation: Saudi Arabia has limited experience in countering threats from groups like Houthi militias. Both countries have conducted joint military exercises on tackling terrorism in the mountainous areas bordering Yemen. They are exploring the possibilities of joint development and production of defence equipments.

3. Fighting piracy and protection of oil routes: Piracy in the Gulf of Aden and surrounding regions remains a threat to Sea Lines of Communication. There is also an increase in naval cooperation between India and Saudi Arabia with two editions of the bilateral naval exercise-Al Mohed al Hindi conducted to protect the world’s oil artery the Strait of Hormuz.

Geo-Economic Significance:

1. Energy security: Saudi Arabia is 3rd largest source of crude oil & natural gas for India. It is a source of 17% or more of crude oil and 32% of LPG requirements of India and thus a key pillar of India’s energy security. With US sanctions on Iran, India needs to import crude oil from other sources to meet its energy need. Saudi Arabia have offered India with additional crude oil supplies to meet India’s growing needs. The partnership is expanding into renewable energy, particularly green hydrogen, supporting India’s energy transition and Saudi Arabia’s Vision 2030 diversification strategy.

2. Saudi Arabia’s Vision 2030: Vision 2030 plan of Saudi Arabia calls for diversification of the oil-dependent economy by attracting tourism and foreign investment and turning it into a global hub for business and culture. Saudi Arabia needs India’s technological assistance to execute Vision 2030.This Vision opens up immense opportunities for Indian businesses like the IT sector and the infrastructure businesses.

3. Investment: Saudi Arabia has one of the largest Sovereign Fund in the World. It is an important nation to invest fund in India particularly in National Infrastructure and Investment fund (NIIF). Saudi oil giant Aramco and the Abu Dhabi National Oil Company have acquired 50% stake in the $44 billion project in Ratnagiri, Maharashtra. Saudi Arabia has committed to investing up to USD 100 billion in India, spanning critical sectors such as energy, infrastructure, technology, and health

4. Trade: India is Saudi Arabia’s second-largest trade partner and Saudi Arabia is India’s fourth-largest trade partner. Bilateral trade between the countries in FY2022-23 was valued at $52.76 billion. Trade between the countries is going to increase in the coming decades.

Cultural Significance:

1. Cultural Connect: Saudi Arabia facilitates Hajj pilgrimage to over 1,75,000 Indians every year. This is why Saudi Arabia is culturally significant for India.

2. Indian Diaspora: The 2.7 million strong Indian community in Saudi Arabia is the ‘most preferred community’ in Saudi Arabia and act as gents of soft power diplomacy. It is the largest expatriate group in the Kingdom. They send remittances of over US $11 billion annually to India.

3. Cultural and tourism exchanges are being enhanced, including new initiatives in film, education, and tourism under Saudi Vision 2030

What are the Challenges in India Saudi Arabia Relations?

However this deepening relation between India and Saudi Arabia also face several challenges which have been enumerated below.

1. Complexity of Middle East Politics: The politics of the Middle East are complex and multidimensional. There exist several fault lines like Saudi Arabia-Iran Rivalry, Saudi Arabia-Israel animosity. India faces a complex challenge to manage its relationship with all these countries without antagonizing others. For e.g. India tries to maintain ties with Iran (especially for projects like Chabahar Port), but Saudi Arabia’s rivalry with Iran can complicate things.

2. Saudi Arabia–Pakistan Relations: Saudi Arabia has deep historical ties with Pakistan, including military and financial support, which sometimes causes friction with India. Saudi Arabia is one of the largest financial aid provider to Pakistan. Pakistan has been using these funds to breed terrorism and hatred towards India. This has also led to some discomfort in deepening of India-Saudi Arabia Relationship in the field of counterterrorism.

3. Labour and Migration Issues:

• Expatriate Welfare: The large Indian expatriate community (over 2.6 million) in Saudi Arabia sometimes faces challenges related to working conditions, wage disputes, and limited legal recourse, particularly under the erstwhile Kafala system. Although reforms are underway, ensuring the welfare and protection of these workers remains a priority.

• Nitaqat Program of Saudi Arabia: The Nitaqat program was introduced in 2011 in order to increase the employment of Saudi nationals in the private sector. Saudi policy of ’Nitaqat’ have upset the large expatriate community of Indian working in the Kingdom.

4. Asian Premium: The “Asian premium” is an extra charge that the Organization of the Petroleum Exporting Countries (OPEC) levies on oil sales to Asian countries, including India, over and above the actual selling price of the oil. This premium has been a contentious issue, with Asian countries arguing that it is unfair and calling for its elimination. Saudi Arabia, the world’s largest oil producer, has reduced the Asian premium charged on oil exports to India from around $10 per barrel to $3.5 per barrel. This move comes after India started sourcing a significant portion of its energy requirements from Russia, which is not a member of OPEC and therefore does not apply the Asian premium on its oil sales. India has been pressing oil producers to remove this premium for a long time, and has even suggested the introduction of an “Asian discount” instead.

5. Trade Deficit: India consistently faces a significant trade deficit with Saudi Arabia, primarily due to its heavy reliance on Saudi crude oil imports. In FY 2023-24, the trade deficit was nearly USD 20 billion.

6. Kashmir Issue: Occasionally, Saudi Arabia (through the OIC – Organization of Islamic Cooperation) has made statements supporting Pakistan’s stance on Kashmir, though less so recently.

7. China’s Growing Influence: Saudi Arabia is also deepening ties with China (energy deals, investment, and even security cooperation), which can dilute India’s influence.

8. Maritime Security: Ensuring the safety of maritime trade routes in the Red Sea and the Gulf, especially in light of actions by non-state actors, requires close cooperation but also presents a shared security challenge.

What are the government initiatives to boost the bilateral relations?

1. POLITICAL COOPERATION:

• India’s LOOK WEST ASIA POLICY (2005): India’s Look West Policy is a strategy adopted by India to strengthen its relations with Arab nations, Iran, and Israel. It aims to promote economic, political, and cultural ties with these countries. It also aims to enhance cooperation in various fields such as trade, energy, security, and technology.
• Est of STRATEGIC PARTNERSHIP COUNCIL: Established in 2019, the SPC is a high-level mechanism to steer bilateral cooperation in various sectors. It is co-chaired by the Prime Ministers of both countries. Strategic Partnership Council has been expanded to include four ministerial committees, covering areas such as defense cooperation, tourism, and culture. 
• Joint Statements and Declarations: The Delhi Declaration (2006) and the Riyadh Declaration (2010) elevated the relationship to a strategic partnership. The recent Joint Statement during PM Modi’s April 2025 visit outlines the future direction of the partnership.
• High-Level Visits: Regular ministerial-level interactions to ensure implementation of agreements.
• Both countries cooperate in multilateral forums like the G20, BRICS+, and the UN on various global issues

2. ENERGY & INFRASTRUCTURE INITIATIVES:

• Joint Refinery and Petrochemical Projects: Both nations are collaborating on establishing two refineries and petrochemical projects in India, aiming to enhance energy cooperation and infrastructure integration. ​
• Electricity Grid Interconnectivity: Feasibility studies are underway to establish electricity grid interconnectivity between India, Saudi Arabia, and the broader region, reflecting efforts to strengthen energy cooperation.
• Both the countries are collaborating in the sector of renewable energy as well especially in Green Hydrogen & various initiatives under International Solar Alliance. For e.g. $12 Billion Saudi Investment dedicated to India’s green hydrogen, solar, and wind energy sectors

3. ECONOMIC COOPERATION:

• High-Level Task Force on Investment (HLTF): Established to facilitate Saudi Arabia’s announced investment of USD 100 billion in India across sectors like energy, infrastructure, technology, and health.
• Fintech and Digital Infrastructure Cooperation: Collaboration on cross-border fintech, digital payments, and the development of digital public platforms like UPI
• Skill Verification Program: An agreement on a Skill Verification Program was signed between India’s Ministry of Skill Development and Entrepreneurship and Saudi Arabia’s Ministry of Human Resources, aiming to streamline the employment process for Indian workers in Saudi Arabia. ​

4. DEFENCE AND SECURITY COOPERATION:

• Joint Military Exercises: The first-ever joint land exercise, EX-SADA TANSEEQ, was held in India in 2024, and the naval exercise ‘Al Mohed Al Hindi’ is conducted regularly.
• Counter-Terrorism Cooperation: Intelligence-sharing mechanisms and joint condemnation of attacks like Pahalgam (April 2025).

5. CULTURAL AND PEOPLE-TO-PEOPLE TIES:

• Bilateral Haj Agreement: The annual agreement facilitates the pilgrimage of a large number of Indian Muslims to Saudi Arabia, with a quota of around 1.75 lakh in 2024. The agreement also supports women pilgrims without a Mehram (male guardian).
• Yoga Diplomacy: Recognition of Yoga as a sport in Saudi Arabia in 2017 and the popularity of Yoga in the Kingdom signify growing cultural exchange.
• Cultural Exchange Programs: Initiatives to promote literature, performing arts, tourism, and educational ties are being explored under Saudi Vision 2030.

6. COOPERATION IN SCIENCE AND TECHNOLOGY:

• Space Cooperation: An MoU has been signed between the Saudi Space Agency and the Indian Department of Space for cooperation in peaceful uses of space.
• Technology and Innovation: Collaboration in emerging technologies like AI, blockchain, and other advanced fields, including the potential development of a “Digital Silk Road.”
• Healthcare Cooperation: MoUs on cooperation in health, including antimicrobial resistance and medical product regulation

7. CONNECTIVITY INITIATIVE = India-Middle East-Europe Corridor: Announced during the G20 summit, this ambitious project aims to build a rail and shipping corridor connecting India with the Middle East and Europe, enhancing economic growth and political cooperation.

What Should be the way forward for India-Saudi Relations?

1. ENHANCING ECONOMIC AND INVESTMENT TIES:

• Diversify Trade Basket: Move beyond the traditional focus on crude oil. Promote trade in non-oil sectors such as technology, pharmaceuticals, food processing, textiles, and engineering goods. Explore joint ventures and manufacturing partnerships. 
• Greater Integration of economies: Some labour-intensive establishments from Saudi Arabia can be shifted to India which would reduce Kingdom’s expatriate population. This would also eliminate the need to bring Nitaqat Policies.
• Finalize Bilateral Investment Treaty and FTA with GCC: Expedite negotiations for a Bilateral Investment Treaty to provide greater security and confidence to investors from both sides. Simultaneously, push for the early conclusion of a Free Trade Agreement between India and the Gulf Cooperation Council (GCC), which would significantly boost economic engagement.
• Explore Local Currency Trade: Investigate the feasibility of trading in local currencies (Rupee and Riyal) to reduce dependence on the US dollar and lower transaction costs. 
• Focus on New-Age Technologies: Encourage collaboration in fintech, digital infrastructure (including UPI integration), AI, blockchain, space technology, and renewable energy. Establish joint research and development centers and facilitate technology transfer. 
• Leverage Synergies with Vision 2030 and Viksit Bharat 2047: Actively align Indian capabilities with Saudi Arabia’s ambitious Vision 2030 projects (like NEOM, Qiddiya) in sectors like construction, IT, tourism, and entertainment. Similarly, explore how Saudi investments can contribute to India’s Viksit Bharat 2047 goals in infrastructure, manufacturing, and technology.

2. STRENGTHENING ENERGY PARTNERSHIP:

• Move Towards Comprehensive Energy Cooperation: Expand the energy partnership beyond a buyer-seller relationship in crude oil. Explore joint ventures in refineries, petrochemical complexes, and strategic petroleum reserves.
• Solar and Green Hydrogen: Leverage Saudi Arabia’s desert landscapes and India’s solar expertise to create a global green energy hub under the International Solar Alliance, focusing on grid interconnectivity and joint R&D. 

3. DEEPENING DEFENCE AND SECURITY COOPERATION:

• Institutionalize Defence Collaboration: Formalize and expand defence cooperation through regular joint military exercises (across all domains – land, sea, air), personnel exchanges, and joint training programs. 
• Promote Defence Industry Cooperation: Encourage collaboration in defence research and development, technology transfer, and joint manufacturing of defence equipment, aligning with India’s focus on “Make in India” in defence. 
• Enhance Cybersecurity Cooperation: Given the increasing importance of cybersecurity, establish robust mechanisms for information sharing, joint training, and cooperation in addressing cyber threats. 
• Strengthen Counter-Terrorism and Intelligence Sharing: Continue and enhance cooperation in intelligence sharing, combating terrorism, extremism, and terror financing.
• Maritime Security: Conduct regular naval patrols in the Arabian Sea and Indian Ocean to secure critical shipping lanes.

4. ENHANCING MULTILATERAL AND REGIONAL COOPERATION:

• Coordinate on Global Issues: Continue close coordination on global issues in multilateral forums like the G20, BRICS+, and the UN, working towards a multipolar and rules-based global order.
• Promote Regional Stability: Engage in joint efforts to promote peace and stability in the Middle East and South Asia through dialogue and diplomatic initiatives. 
• Strengthen Cooperation within GCC+ Frameworks: Utilize Saudi Arabia’s GCC leadership to advance India’s interests in West Asia, including countering regional instability.

5. PRIORITIZE DIASPORA WELFARE:

• Labour Reforms: Advocate for Kafala system reforms to ensure wage protection, faster dispute resolution, and skill recognition for Indian workers.
• Hajj Facilitation: Secure an expanded Hajj quota and streamline pilgrimage processes for Indian Muslims.

6. IMEC Implementation: Accelerate the India-Middle East-Europe Economic Corridor to enhance shipping routes, port connectivity, and logistics hubs, positioning both nations as global trade intermediaries.

7. Increased Cooperation in Space: With India’s growing space prowess , space becomes an important domain of cooperation between the two countries. Newly established Saudi Space Agency can engage with ISRO.

Conclusion

In the fast-changing geopolitical profile of the Middle East ,India and Saudi Arabia both need each other to balance their relationships for a peaceful and stable West Asia where more than 8 million people of Indian origin reside and contribute for the betterment of the economy of the region. By aligning India’s “Think West” policy with Saudi Vision 2030, both nations can transform their relationship into a global strategic alliance, addressing mutual economic, security, and technological aspirations while ensuring regional stability.