Remarks on Prophet threaten to fray India's energy ties with Islamic world

Decades of energy harmony between India and Islamic nations is at stake after senior Bharatiya Janata Party (BJP) functionaries passed controversial comments on Prophet Mohammed.

Kerala Governor Arif Mohammad Khan, a BJP appointee, was the latest functionary to weigh in. He dismissed Qatar’s demand for an apology from India, stating that the public remarks were “in the heat of the moment” and “not really important”.

Perhaps what seems “unimportant” to BJP functionaries or a governor may be important for Saudi Arabia, Qatar, Iraq or Indonesia, which are the big­gest suppliers of key commodities to India. It’s also important for India. Islamic nations supply much of India’s oil, gas and coal. An ongoing shortage of coal has left parts of the nation in darkness this summer, while rising prices of petrol, diesel and liquefied natural gas (LNG) makes people poorer (even electric vehicles are fired by thermal electricity.)

What also weakens is the soft power that India wields as the world’s third biggest-importing and oil-consuming nation to put pressure on a Saudi-Russia-led OPEC+ cartel to rein in oil prices. Also, Saudi Arabia and the UAE have helped India manage relations with Pakistan. India has been vocal in its criticism of OPEC’s actions of not increasing supplies, and keeping oil prices high. But the Saudi-led cartel has hardly ever responded to strident criticism of its policies. Until now, when it came to a qu­estion of religious sentiments.

A growing penchant for controversial statements by ruling party officials, with an eye on the domestic Hindu vote bank, threatens to fray India’s expanding energy and investment ties with Islamic nations. Alienating them will also delay the country of potential investments by West Asian sovereign funds that hold trillions of dollars, and seem keen to invest in Asian energy projects.

“There will be no major impact on trade ties,” said V B Kasi, a veteran commodity trader who has worked in Singapore and the US with global energy traders. “India is a major consumer and market, so beyond minor irritants in the near term we should be back to normal in a while.”

India depends on oil imports to meet 85 per cent of its needs, and foreign LPG and natural gas meet over half of the country’s transport and cooking needs. The International Energy Agency (IEA) expects India’s dependency to climb to 90 per cent by 2040, and Islamic nations will continue to supply a majority of India’s petroleum.

“West Asian oil and gas exporters need India more than we need them,” said Narendra Taneja, an independent oil expert. “India is central to their energy security strategies.”

India bought 73 million tonnes of LNG in the last three fiscals for over $29 billion, according to oil ministry statistics. That accounted for nearly half of domestic consumption. Qatar supplied 30 million tonnes of the fuel during the period under a long-term contract. In the last fiscal, Qatar accounted for 43 per cent of India’s LNG imports. If you add another four million tonnes that came from the UAE and Oman India has 61 per cent coming from three Islamic nations.

Qatar, the world’s biggest producer of LNG and the closest to India’s import facilities, will also play a key role towards meeting India’s target of using gas to meet 15 per cent of its energy needs by 2030 from 6 per cent now. State-run Petronet LNG is in talks with Qatar to renew contracts and sign new ones. It has also asked the emirate to deliver over 50 cargoes that Petronet failed to take in the past.

West Asia is also India’s biggest supplier of LPG, the fuel that is used in kitchens. India imported 48 million tonnes, or 58 per cent of the fuel used in the last three fiscals. The purchases cost $26.5 billion, with a large portion of the fuel sourced from Saudi Arabia, Qatar, Kuwait and Oman.

That’s India’s future fuel. Let’s look at the existing one, crude oil. India’s top three crude oil suppliers were from West Asia, accounting for 103.4 million tonnes or 52 per cent of the 196 million tonnes imported in the 2021-22 fiscal, according to customs data. Iraq supplied 26 per cent of India’s oil followed by Saudi Arabia at 17 per cent and UAE at 10 per cent.

India has diversified its crude purchases, importing over 8 per cent of its needs last fiscal from the US. But West Asian crude is critical to our refining operations, an official with a state-run refiner said. The Saudis and Iraqis along with Iran and the UAE have stood by us for decades, are reliable, and can ship the crude in four days, the official added, as compared to US oil taking 40-50 days to reach Indian ports.

It is also true that Russia emerged as India’s second-biggest supplier last month, shipping as much as 27 million barrels, according to London-based Vortexa. But the romance with Russia is not permanent. Russian Urals may be similar to Arab Medium grade but it is distant and expensive to ship. Opportunistic buying of Russian cargoes is contingent on discounts and once they evaporate so will Russian oil. They can never substitute Saudi or Iraqi grades, another official with a state refiner said.

And then there is coal. India’s plans to reduce imports of power plant coal over the last three years have backfired spectacularly. Low stocks coupled with a demand surge for electricity in a hot summer has caused blackouts and power cuts. Coal India has failed to meet output and supply targets, prompting a U-turn by the Modi government allowing generators to import up to 15 per cent of their needs.

Much of India’s cheap, lower quality coal comes from Indonesia. This liberal Islamic nation, which supplied 56 per cent of India’s coal imports in March, also registered its protest against the BJP functionaries’ statements.

Saudi Arabia, UAE, Kuwait and the Qatar Investment Authority together hold over $2 trillion in their sovereign funds, which is meant to be deployed in foreign assets. Saudi Arabia and the UAE had committed 50 per cent investment in a $55-billion Ratnagiri refinery-cum-chemical project, considered the purchase of 20 per cent in Reliance Industries oil and chemicals businesses for $15 billion, and spent billions of dollars for a small stake in Reliance’s telecom and retail assets.

It is true that India is too important for these countries, both as a consumer and a vast emerging market, to prolong strained ties over gratuitous remarks. But the country’s leverage and reputation have definitely taken a hit.