Prevailing oil politics in West Asia and concerns for India

In the unipolar world of politics and multilateral markets of today, there have often been clashes of interests and, thereby, the military has once again become an active agent of arbitration, where markets and diplomacy fails.

The current tensions in West Asia and the war clouds over the skies of Iraq due to rise of ISIS militants, however, have their roots in the economics of oil resources of the Persian Gulf and the politics of American interests to remain predominant in the region.

However, there has been an unprecedented popular upsurge against the establishments in many countries in the Arab world during the last few years, leading to regime changes in certain cases. These developments have been characterised by outside observers as the 'Arab Spring.'

The essence of the socio-political tumult sweeping the region has been such that the people at large have overcome their fear of the existing regimes and called for drastic and fundamental political transformations, including regime changes. This has led to dramatic changes in domestic political environments in most of the countries of the region. Though, the West Asian region is exposed to a completely new set of challenges, threats and an uncertain future but it is clear that the new political dispensation will not be forced to follow for long the 'Accepted Order' laid down by the West.

However, the newly formed regimes, most of them Islamists, would be quite difficult to deal with. The emerging political order in West Asia is also marked by considerable shifts within individual countries as well as at the regional level. The Islamist parties are on the rise across the region whereas the economic concerns have also risen to the forefront. These changes have implications for both regional and international stake holders including India. Despite these developments to the contrary, the West Asian region continues its struggle to establish a stable political order.

The region has a history of external influence and even interventions in the past. Among several stake holders, the US remains the most prominent one despite loss of influence in the region. Its attitude towards the Arab Spring and it policy of 'rebalancing towards 'Asia-Pacific' has drawn criticism from its regional allies.

Also, the successor Russia of the erstwhile USSR, is emerging as a major player in the region with its support for Iran, stance on Syria and on-going efforts to cultivate stronger ties with Egypt, it could emerge as an important player. Both Russia and China have continued to strengthen their economic leverages in the region.

These apart, the continuing regional instability also raises increasing concerns related to issues of energy security. The emergence of protests led to rise in international oil prices and created apprehensions regarding uninterrupted production and supply. Since the economy of many countries in the region is primarily dependent upon the hydrocarbon fuel sector, any disruption in production and supply of oil may have serious impact not only on the region but also much beyond on those countries which are dependent on oil supply from this region.

Impact of oil and gas in West Asia:

The discovery of petroleum products in West Asia greatly boosted its economy and resulted in the infrastructural developments etc. especially in the GCC states. Currently this region contains about 65% of the world's oil and it has made the countries surrounding the Persian Gulf quite wealthy. Since the world depends on petroleum as a primary source of fuel, this discovery has obviously created many trading opportunities for West Asia. However, that has changed considerably due to rise of Islamic fundamentalism in the region.

Economy and politics of oil in West Asia:

Oil nations became aware of the role they are entitled to play in the global economy as the natural owners of this essential economic resource. Earlier, the world oil prices were so low that Iran, Venezuela, and Arab oil producers banded together in 1960 to form Organization of Petroleum Producing States (OPEC), to negotiate for higher oil prices. By the early 1970s, the United States depended on the West Asia for a third of its oil requirements. Foreign oil producers were finally in a position to raise world oil prices.

The oil embargo of 1973 and 1974, during which oil prices quadrupled, and the oil crisis of 1978 and 1979, when oil prices doubled, graphically illustrated how vulnerable the needy countries had become to the foreign producers of oil. The oil crises of the 1970s had an unanticipated side-effect. As a result of increasing supplies and declining demand, oil prices fell from $35 a barrel in 1981 to $9 a barrel in 1986.

The sharp slide in world oil prices was one of the factors that led Iraq to invade neighbouring Kuwait in 1990 in a bid to gain control over 40 per cent of West Asian oil reserves. Consequently, the western industrialised nations were quick to react. In 1990, the UN Security Council approved a commercial, financial and military embargo on Iraq. The Iraqi Government responded by declaring the annexation of Kuwait as its province. On November 29, 1990, the Security Council passed a resolution authorising the use of any means necessary to free Kuwait.

A military force led by the US attacked Iraq to free Kuwait. The war led to a clash in the oil market between the owners of the resources and the users in the industrialised world, paving the way for the fresh emergence of the oil politics in the world. The world oil markets, however, gained a global political dimension. On April 23, 2002, the Iraqi President again called upon the Arab states to cut their oil exports by half and ban sales to the US, a retaliatory measure for Washington's support to Tel Aviv against Palestine. As part of a broader embargo against the US and Israel, Iraq unilaterally declared the suspension of its oil exports for the next 30 days. The oil market, drained of two-million barrels of Iraqi oil a day, might not have significantly affected prices, but it did create the political tension that was significant in an already vitiated atmosphere.

Oil as a political weapon

When oil was used as a weapon for the first time in 1973, it had a dramatic and lasting effect on the global economy and on the economies of the Western states. As a weapon of economic embargo, no one could deny its success, quadrupling the price of the world's major commodity in a short period of just few days. Today in the West Asian region, it is widely accepted that "Economics has taken priority over politics… co-operation has replaced confrontation".

Concerns for India

Indeed, India has important political, economic and security stakes in the peace and stability of West Asia. In fact, India is heavily dependent on energy supplies from the Gulf region. Energy imports from the region constituted around 63 per cent of India's total oil imports in 2012-13. The region is the leading trading partner for India with a total trade of around US$ 200 billion in the same year. Around seven million Indian passport holders live in the region and they form another important symbiotic link between India and the region.

The absence of a robust security bulwark and deep rooted intra-regional conflicts raises concerns about the viability of regional security in West Asia. There is a realisation that India should start getting involved in the regional security of West Asia by helping create a regional security bulwark which may deter the outside interference in the region. Further, India forms a part of India's extended neighbourhood.

The present political transformation in the region as well as the realisation of India's rise in stature as an emerging regional power has necessitated a fresh look at this geo-strategically important region. Already, this region accounts for the largest trade volumes for India overtaking India's trade with China. The six Gulf Cooperation Council (GCC) countries for instance constitute India's largest socio-economic partner, as manifested by the following facts. Over 50 per cent of flight connections between India and the world are between India and the GCC countries.

It is also significant that the remittances from the region are just about equal to what India pays for its oil purchases from the Gulf. Though the economic leg of India-Gulf relationship remains strong the political leg is not as strong and promising as it ought to be. There are number of concerns that demand rethinking and fresh approach by India towards this region.

For the small Gulf States, their security is their Number One priority. In exchange for the oil, they shop for their security. These smaller states live in a tense zone next to "tough and expansionist neighbours." India is making a mistake like the Western countries of viewing the region through the prism of only "oil" and "gas" while ignoring its rich cultural, diverse and historical relations which has been reduced to mere economic business and remittances issues. The Arab Gulf states view Iran as a destabilising force which India does not consider. Also they do not like India's growing strategic relations with Israel.

Obviously, the Arab Gulf is seeking India's larger and greater role in the region. Politically, relations were strong with Egypt, Syria and Algeria, thanks to the policy of non-alignment and pro-Palestine stand that India adopted right after Independence in 1947. Given India's historical and cultural ties, expectations from India are high. Despite India's increasing dependence on West Asian oil, its approach towards this region has to transcend beyond the energy focused policy maintained so far.

Given its close historical proximity and acceptability in the region, India will have to come up with a more holistic approach. Once again, India needs to adopt a more Idealistic and principled approach as propagated by Late Pt. Nehru and Indira Gandhi, and cooperate with regional actors to help establish peace, security and stability of the region. As the project of creating second Kuwait City has already commenced with the building of an expressway to be followed by a super railway link in 2015, this opens a great opportunity for India to invest and participate in this project.

With respect to India-GCC economic ties, the trade with the region is dominated by the UAE (50 per cent) and Saudi Arabia (25 per cent). Therefore, portfolios need to be diversified to build trade volumes with other countries as well. It is also important that India leverages its expertise in the knowledge services sector. Also, the potential for creation of a regional supply chain with reference to the convergence in food economy between India and the Gulf states need to be explored. A collective Asian approach towards GCC countries was suggested which could include China, Japan, South Korea, Malaysia and Indonesia, for sustainable security architecture for this region.

Conclusion

India is perceived by the regional countries of West Asia as an emerging global power with rising stature. That the countries of the region regard India quite well for overall peace and security is clearly indicated from a paper published by the UAE's Emirates Centre for Strategic Studies and Research (ECSSR) describing India as "a non-aggressive power." Hence, in an attempt to address the new challenges which are still unfolding, India needs to revisit its policy towards the strategically important region. The new approach could explore the possibility of looking at the region beyond its energy needs. This can be done by developing stronger bilateral engagements followed by cooperation at regional level.