No surprises

One wonders what the clergy and right-wing political parties in Pakistan would make of the custodian of the holy sites, King Salman bin Abdul Aziz, decorating the visiting ‘anti-Muslim’ Hindu Indian Prime Minister Narendra Modi with his country’s highest civilian award. But to those who have no doubts that the pursuit of national interests is the highest virtue in inter-state relations, such gestures should come as no surprise.

New Delhi and Riyadh already have solid economic and commercial relations. India is the globe’s third largest oil importer after the United States and China, and Saudi Arabia is the world’s largest oil exporter, contributing 18.5 percent of the commodity’s total international sales.

Saudi Arabia is India’s largest source of crude oil, accounting for one-fifth of the South Asian giant’s total oil imports. This also makes India a significant export market for Saudi Arabia, whose economy is almost wholly dependent on oil output and trade.

The petroleum sector makes up 92 percent of total Saudi revenue, 98 percent of its exports and half of the gross domestic product (GDP). Indians constitute the largest expatriate community in Saudi Arabia, numbering close to three million and, with remittances of nearly $11 billion a year, the diaspora is an important source of foreign exchange for the country.

In the evolving international scenario, a lot of potential exists for building on these relations. World oil prices have plummeted over the last couple of years, hitting oil exporting countries hard. Economies like Saudi Arabia, whose fortune is tied to oil prices due to a lack of economic diversification, are bearing the brunt in the form of a considerable slowdown in economic growth and a fall in exports and public revenue.

Between 2003 and 2013, the Saudi economy had an average annual growth of six percent on account of the consistently high oil prices. Oil revenue also enabled the government to run a sustained budget surplus, which reached 12 percent of the GDP in 2012. But with the slump in oil prices, economic growth went down to 3.6 percent in 2014 and fell further to 3.4 percent (estimates) the next year.

The falling oil prices also took a toll on government revenue. As per IMF estimates, in 2015, Saudi Arabia had a budget deficit of nearly 20 percent of the total output. The country’s total exports fell from $388 billion in 2012 to $375 billion in 2013 and to $349 billion in 2014, as oil exports came down from $305 billion in 2012 to $268 billion in 2014. When the oil prices, and with them the Saudi economy, will recover is anybody’s guess.

The lifting of multilateral and bilateral sanctions on Iran (one of the biggest oil producing countries) will, for sure, shore up competition amongst oil suppliers. Iran, at present, is ranked 12th in terms of oil exports. But this was because the country was allowed to sell only half of its full potential exports. The ranking is likely to go up considerably.

In the case of Saudi Arabia, the challenge posed by the oil price slump goes beyond the economy and extends to politics. The country is an absolute monarchy, where political freedom is conspicuous by its absence. More than anything else, it is the enormous oil wealth that has made a repressive regime bearable, with the House of Saud giving away a chunk of the oil revenue to the people.

But if the national pie shrinks, so will the part that reaches the fast growing urban and young population and, in the absence of civil liberties, their level of dissatisfaction will grow. The government has responded by shedding the foreign workforce so that more opportunities arise for its own citizens, but that may not be enough.

The fall in oil prices has been accompanied by escalation of tensions in the region – Syria and Yemen – in which the Saudis have been heavily involved. Such commitments come at a high cost, which becomes even higher in the face of shrinking revenue. It is in this context that Modi’s recent visit to Riyadh should be seen. The Indian market is highly important for the Saudis and they would like to retain it, particularly as a post-sanctions Iran begins to flex its muscles in the world oil market.

For its part, India would like to see that the reduction in the number of expatriate workers in Saudi Arabia has the least impact on the Indian labour force. It is likely that in a trade-off, India would continue to import its oil from the Saudis, who would lay off the minimum possible number of Indian expatriates.

When it comes to building stronger relations with Saudi Arabia, Modi has a great deal to sell to his people. For one thing, Riyadh has been a close ally of Islamabad and the Indians have always been on the look-out for ways to isolate their western neighbour. While India can’t realistically hope to dent Pakistan’s relations with Saudi Arabia, such visits can provide a lot to its leadership to play to the gallery.

By the same token, by playing host to the Indian prime minister, the Saudis can pressurise Pakistan into doing things that they think it would be reluctant to do. At times, a friend has to be reminded of the importance of the relationship by entertaining its enemy.

Modi, who has the reputation of a hardliner Hindu, is keen to rebuild his image in the eyes of the nation’s substantial Muslim population. The sojourn to the holy land can help reconcile at least a section of the Muslims to the Bharatiya Janta Party.

India sees itself as a world power, and such a power must have a global sphere of influence. The Middle East is a very important region. As Indian policymakers may see it, they can’t afford to sit as silent spectators while the region is being reshaped. At the very least, they must counter the growing Chinese influence in the Middle East.

India already enjoys good relations with three powerful countries in the region: Iran, Israel, and Saudi Arabia. All they have to do is cement these relations and thus shore up their influence in the region.

The writer is a graduate from a western European university.

Email: hussainhzaidi@gmail.com