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Here’s why India is wooing the Middle East

Indian Prime Minister Narendra Modi has traveled far and wide in his two years in office in a bid to raise India’s global profile and make it an attractive option for international investors. It was, then, inevitable he would turn his attention to the Middle East – a region rife with conflict but rich in cash and natural resources.

As Prime Minister, Modi’s first visit to the region was in 2015, when he visited the United Arab Emirates (UAE). Subsequently in April 2016, Modi met Saudi Arabia’s King Salman in Riyadh. Modi has also met several leaders in the region at the sidelines of global conferences.

On Sunday, May 22, the Indian Prime Minister will embark on a two-day visit to long-time partner Iran, while local media reports suggested a visit to Qatar was also on the cards in the next few months.

Securing India’s energy needs:

Most experts point to oil as a key reason for India’s continued engagement with the region. “The Middle East is of vital importance for India’s energy security, providing around 60 percent of India’s oil imports and liquefied natural gas (LNG) imports,” Rajiv Biswas, chief economist for Asia Pacific at IHS told CNBC.

Countries in the Middle East accounted for 50 percent of India’s top 10 import sources of crude oil between April 2015 and January 2016, according to data from India’s ministry of commerce.

Nearly 20 percent of India’s total import of crude oil in this period came from Saudi Arabia, closely followed by Iraq. Iran was the sixth highest supplier for the period.

Biswas added that Iran’s large reserves of natural gas will also make it an important source for India’s LNG imports in the future. Currently, Qatar, Nigeria and Australia are the largest LNG suppliers to India, according to government data.

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Attracting infrastructure investment:

India also sees the Middle East, already a key trading partner, as an important source of investment in infrastructure development, manufacturing and services sectors.

“A big focus of this government is to attract long-term infrastructure financing that India cannot provide on its own, given the non-performing asset problems affecting local banks,” according to Sasha Riser-Kositsky, an analyst with Eurasia Group.

Following the visit to Riyadh in April, Modi encouraged the state-owned oil giant Saudi Aramco, SABIC and other Saudi companies to investment in India’s infrastructure sector, and participate in projects creating mega industrial manufacturing corridors and smart cities.

But it’s a two-way street, with Middle Eastern countries also “shopping around for economic and security opportunities and partners,” Sumitha Narayanan Kutty, an associate research fellow with the S. Rajaratnam School of International Studies at the Nanyang Technological University, told CNBC.

In late April, Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman announced the creation of a new sovereign wealth fund that could top $3 trillion and would be linked to the country’s vast revenues from oil.

“India is in a very strategic position to be that partner,” she said.

India is also carving out key investments in the region. Under previous governments, India signed agreements with Iran to develop the strategic Iranian port of Chabahar, which lies in the Gulf of Oman. The current government is working to finalize a trilateral cooperation between India, Iran and Afghanistan to facilitate better regional connectivity and flow of goods, services and people in the region. Experts say the port will allow India to develop a sea-land access route to Central Asia, bypassing neighboring Pakistan.

“It is possible that Modi would travel to Iran in the coming weeks to sign this agreement on the strategic port,” Nicolas Blarel, an assistant professor of international relations at Leiden University, told CNBC.

Fighting terrorism and defense security

During the visit to Saudi Arabia, the two countries agreed to improve cooperation in counter-terrorism operations, intelligence sharing and cracking down on terror financing. But the timing of Modi’s visit to Riyadh had some wondering if India was trying to turn the relative cooling of Saudi Arabia’s otherwise cordial relation with Pakistan in its favor. India has long accused Pakistan of supporting terrorism against the country.

In a report from Reuters in early April, India’s ruling Bharatiya Janata Party’s national secretary, Ram Madhav, was quoted as saying India will do everything to win the hearts of Islamabad’s allies as a way of dealing with Pakistan.

Blarel said Pakistan sent mixed signals about its unconditional military support to Saudi Arabia by neither joining to the Yemen coalition against the Houthis nor by contributing troops to quell dissent in Bahrain. He said Modi likely saw this as a window of opportunity to further engage the Gulf states, especially in the area of counter terrorism. But he acknowledged Pakistan’s ties to Saudi Arabia are old and strong.

Riser-Kositsky told CNBC a strategy to win over Pakistan’s allies would not bear any substantial fruit for India, as it won’t be able to compete with the attractions and advantages between Pakistan and the other gulf countries. He also said India will likely steer clear of any regional politics in order to avoid seeing the ugly side of polarization between Sunnis and Shias, currently gripping the Middle East, rear its head in the country’s large Muslim minority population.

Another country important to India’s defense interest is Israel, which according to Blarel is the third most important weapons supplier to the country, behind Russia and the United States. Data from the Stockholm International Peace Research Institute showed in 2015, India was the biggest defense spender in South Asia, spending approximately $51.25 billion in military expenditure.

Though the Indian government has yet to announce any scheduled state visit for Modi to Israel, both the Indian president and the external affairs minister have previously visited the country.

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Engaging the diaspora

A crucial aspect point of the current government’s foreign policy has been the outreach to the Indian diaspora. Modi has filled out stadiums in New York and London, receiving a welcome more befitting of a pop star.

The Middle East has a large Indian expat population, amounting to approximately 7 million workers, according to IHS’ Biswas. The region is also an importance source of remittances, contributing to “half of the total USD 72 billion in worker remittances sent to India in 2015,” he added.

World Bank data showed in 2015, estimated remittances India received from Saudi Arabia were $10.51 billion, USD 12.57 billion from the UAE, and between $3 billion and $4.5 billion from Kuwait, Oman and Qatar.
However, reports have indicated many Indian migrant workers face tough employment conditions in the region and face the dangers of political instability in the region.
For example, in April 2015, Reuters reported India evacuated nearly 4,000 Indian nationals from Yemen, after Saudi Arabia launched air strikes against Iran-allied Houthi rebels in the country.

It is something experts say the government is trying to address by establishing better bilateral ties with the host countries. “The government recognizes the [Middle East as a] critical source of remittances for India,” said Riser-Kositsky. “This government wants to emphasize its current national credentials by pointing out it’s there, behind Indians wherever they are in the world.”

Given the complex dynamic of the Middle East, experts agree that maintaining friendly ties with the likes of Saudi Arabia, Iran and Israel will require strategic thinking and would include as little interference in the regional politics of the Middle East as possible.

Blarel said he expects the Modi government to continue openly engaging Israel, while simultaneously reinforcing ties with the Gulf states and Iran.