Persian Gulf 2020: India’s Relations with the Region 9811564140, 9789811564147

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PERSIAN GULF

PERSIAN GULF 2020 India’s Relations with the Region

P. R. Kumaraswamy Md. Muddassir Quamar Sameena Hameed

Persian Gulf India’s Relations with the Region

Series Editor P. R. Kumaraswamy School of International Studies Jawaharlal Nehru University New Delhi, Delhi, India

Persian Gulf, the leading product of the Middle East Institute, New Delhi, India systematically looks at the growing relationship between India and the countries of the Persian Gulf region. Due to rising economic interactions and political engagements, the region has assumed greater importance and hence requires a methodical study. About two-thirds of India’s oil and gas imports are met by the Persian Gulf countries and the Gulf Arab countries are home to over seven million Indian expatriate labour force. The Persian Gulf is also India’s largest sub-­ regional trading partner and a potential source of trade and investments. There is however knowledge gap regarding the region and its importance to India. Persian Gulf seeks to redress this challenge by offering a systematic understanding of the region, its problems and opportunities for India in the political, economic, social, energy and strategic arenas. Since the publication of the inaugural volume in 2011, the Persian Gulf Series covers India’s bilateral relations with nine countries, namely, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, UAE and Yemen as well as the Gulf Cooperation Council (GCC). It has also examined the relations of the major players such as the US, Russia, China and Pakistan and their impact upon Indo-Gulf relations. Backed by various primary materials the series seeks to be a platform for informed discussion on this vital region towards its nuanced understanding. It is a closed series. More information about this series at http://www.palgrave.com/gp/series/15919

P. R. Kumaraswamy • Md. Muddassir Quamar Sameena Hameed

Persian Gulf 2020 India’s Relations with the Region

P. R. Kumaraswamy School of International Studies Jawaharlal Nehru University New Delhi, Delhi, India

Md. Muddassir Quamar Manohar Parrikar Institute for Defence Studies & Analyses New Delhi, Delhi, India

Sameena Hameed School of International Studies Jawaharlal Nehru University New Delhi, Delhi, India

ISSN 2523-8302     ISSN 2523-8310 (electronic) Persian Gulf ISBN 978-981-15-6414-7    ISBN 978-981-15-6415-4 (eBook) https://doi.org/10.1007/978-981-15-6415-4 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-­01/04 Gateway East, Singapore 189721, Singapore

To Professor C Raja Mohan With admiration, respect and gratitude

Contents

1 Introduction  1 2 Bahrain 31 3 Iran 57 4 Iraq 93 5 Kuwait123 6 Oman151 7 Qatar177 8 Saudi Arabia203 9 UAE249 10 Yemen295

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11 GCC311 12 Policy Options335 Index339

About the Authors

P. R. Kumaraswamy is Professor of Contemporary Middle East in Jawaharlal Nehru University (JNU), New Delhi. From 1992 to 1999 he was a research fellow at the Harry S. Truman Research Institute for the Advancement of Peace, Jerusalem. Since joining JNU in September 1999, he has been researching, teaching and writing on various aspects of the contemporary Middle East. His works include Squaring the Circle: Mahatma Gandhi and the Jewish National Home (2018), India’s Israel Policy (2010), and Historical Dictionary of the Arab Israeli Conflict (2015, second edition). In October 2009, he set up the virtual Middle East Institute, New Delhi and serves as its honorary director. He is the editor of Contemporary Review of the Middle East (Sage) and the series editor of Persian Gulf: India’s Relations with the Region (Palgrave Macmillan). Md. Muddassir Quamar is Associate Fellow in the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi, and holds a Ph.D. in Middle East studies from JNU.  He had co-authored India’s Saudi Policy: Bridging the Gap and contributed chapters to edited volumes. His research papers have appeared in Asian Affairs, Contemporary Arab Affairs, Digest of Middle East Studies, Journal of Arabian Studies and Journal of South Asian and Middle Eastern Studies. In 2014–15, he was a visiting fellow in King Faisal Center for Research and Islamic Studies, Riyadh, and is the associate editor of Contemporary Review of the Middle East. His areas of interest include politics and societies in the Gulf, Middle East strategic affairs and political Islam and regularly writes on strategic developments in the Middle East and India-Gulf relations. ix

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About the Authors

Sameena  Hameed is Assistant Professor of Middle Eastern Studies in JNU, New Delhi. Her areas of specialization include the Middle Eastern economy, India’s economic relations with the Middle East and energy security issues and she has contributed to monographs, journal articles and chapters of edited volumes. She has prepared research papers and study reports for the Ministry of External Affairs and other trade and commerce organizations like ASSOCHAM. She has been a member of the MEAconstituted Select Group on Gulf and West Asia. She was also a member of the Indian team for ‘India–GCC Strategic Partnership’ project and the Indo-Saudi Dialogue.

Abbreviations

AAI Aramco Asia India Pvt. Ltd. (Aramco India) ACD Asia Cooperation Dialogue ADHRB Americans for Democracy and Human Rights in Bahrain ADIA Abu Dhabi Investment Authority ADNOC Abu Dhabi National Oil Company AED Emirati Dirham AIM Atal Innovation Mission, India AQAP Al-Qaeda in the Arabian Peninsula b/d barrels per day BAPCO Bahrain Petroleum Company bbl barrels bcf/d billion cubic feet per day BCHR Bahrain Centre for Human Rights bcm billion cubic meter BD Bahraini Dinar BEDB Bahrain Economic Development Board BJP Bharatiya Janata Party, India BP British Petroleum CBSE Central Board of Secondary Education CBY Central Bank of Yemen CDSCO Central Drugs Standard Control Organization, Saudi Arabia CEIC CEIC Data (a global financial research company headquartered in Hong Kong) CENTCOM Central Command, US CNPC China National Petroleum Corporation CSB Central Statistical Bureau, Kuwait DEWA Dubai Water and Electricity Authority xi

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ABBREVIATIONS

DGFT DIFC DIMDEX DIPP DPPA DWE ECR EDC EU FAO FCSA FDI FEED FFFAI FICCI FII Fintech FNC FOB FSC FSI FTA FTO GAMI GCC GCC-STAT GDI GDP GECF GGGR GII GNA GNI GNP GoI GPC GST GW HDI HDR

Director General of Foreign Trade, India Dubai International Financial Centre Doha International Maritime Defense Exhibition and Conference Department of Industrial Policy and Promotion, India Department of Political and Peacebuilding Affairs, United Nations Dubai Women’s Establishment plan Emigration Check Required, India Ethylene Dichloride Facility, UAE European Union Food and Agricultural Organization, United Nations Federal Competitive and Statistics Authority, UAE Foreign Direct Investment Front-End Engineering Design Federation of Freight Forwarders’ Associations in India Federation of Indian Chambers of Commerce and Industry Foreign Institutional Investment financial technology Federal National Council, UAE free on board Federal Supreme Council, UAE Foreign Service Institute, India (renamed Sushma Swaraj Institute of Foreign Service in February 2020) Free Trade Agreement foreign terrorist organization (the US) General Authority of Military Industries, Saudi Arabia Gulf Cooperation of Council GCC Statistical Centre Gender Development Index Gross Domestic Product Gas Exporting Countries Forum Global Gender Gap Report Gender Inequality Index Government of National Accord, Libya Gross National Income Gross National Product Government of India General People’s Congress, Yemen Goods and Services Tax, India Giga Watt Human Development Index Human Development Reports, United Nations

 ABBREVIATIONS 

HIPL HLTFI HRW IAEA IBPC ICA ICCR ICWA IDPs IGU ILO IMF IMO INSTEX IOC IOCs IORA IPO IPP IPU IQD IRFFI IRGC IRI IRR ISA ISIS ISPRL ISRO ITC ITEC IWPP JAFZA JCDC JCM JCPOA JDCC JWGs KAPP KD KDP KIA

Hindustan Infralog Private Limited, India India-UAE High Level Task Force on Investments Human Rights Watch International Atomic Energy Agency Indian Business and Professional Council Federal Authority for Identity and Citizenship, UAE Indian Council of Cultural Relations Indian Council of World Affairs internally displaced persons International Gas Union International Labour Organization International Monetary Fund International Maritime Organization Instrument in Support of Trade Exchanges, (EU) Indian Oil Company international oil companies Indian Ocean Rim Association initial public offering independent power producer Inter-Parliamentary Union Iraqi Dinar International Reconstruction Fund Facility for Iraq Iranian Revolutionary Guard Corps Islamic Republic of Iran Iranian Rial International Solar Alliance (India) Islamic State of Iraq and Syria Indian Strategic Petroleum Reserves Limited Indian Space Research Organisation International Trade Centre Indian Technical and Economic Cooperation Independent Water and Power plant Jebel Ali Free Zone, UAE Joint Committee on Defence Cooperation Joint Commission Meeting Joint Comprehensive Plan of Action Joint Defence Cooperation Committee Joint Working Groups Kuwait Authority for Partnership Projects Kuwaiti Dinar Kurdistan Democratic Party Kuwait Investment Authority

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ABBREVIATIONS

KRG KSA KVS LNA LNG mb/d MbS mcf/d mcm mcm/d MEA MEED MEES MFA MFNE MICE mmbtu mmcuft mmt MoD MoF MOM MoU MPNG mtpa MW NAAC NBD NCE NEC NIIF NIMA NIRF NISI NPCI NPK NRI NSE NSSA OEC

Kurdish Regional Government, Iraq Kingdom of Saudi Arabia Kendriya Vidyalaya Sangathan, India Libyan National Army Liquefied Natural Gas million barrels per day Mohammed bin Salman, Crown Prince of Kingdom of Saudi Arabia million cubic feet per day million cubic meter million cubic meter per day Ministry of External Affairs, India Middle East Economic Digest Middle East Economic Survey Ministry of Foreign Affairs Ministry of Finance and National Economy, Bahrain meetings, incentive conference and exhibition million British thermal unit million standard cubic feet million metric tonnes Ministry of Defence Ministry of Finance manage, operate and maintain Memorandum of Understanding Ministry of Petroleum and Natura Gas, India million tonnes per annum mega watt National Assessment and Accreditation Council, India National Bank of Abu Dhabi National Centre for Employment, Oman National Election Commission, UAE National Infrastructure Investment Fund, India Forex Management Integrated System National Institutional Ranking Framework, India National Information for Statistics & Information, Oman National Payments Corporation of India nitrogen, phosphorous, and potassium Non-resident Indian National Stock Exchange, India National Space Science Agency, Bahrain Observatory of Economic Complexity, MIT Media Lab, United States

 ABBREVIATIONS 

OETC OIC OIJIF OIR Omantel OMIFCO OMR ONGC OOC OPEC OPWP ORPIC PDS PIB PIC PIF PIO PMF PPP PPP PPTs PSA PTA QAR QIA RAS RBI RCC RSF RTA SABIC SAGIA SAMA SAR SDR SEP SFDA SGRF SLoCs SOMO SPC SPC

Oman Electricity Transmission Company Organization of Islamic Cooperation Oman India Joint Investment Fund Operation Inherent Resolve Oman Telecommunications Company Oman India Fertilizer Company Omani Rial Oil and Natural Gas Corporation, India Oman Oil Company Organization of the Petroleum Exporting Countries Oman Power and Water Procurement Company Oman Oil Refineries & Petroleum Public Distribution System, Iraq Press Information Bureau, India Petrochemical Industries Company, Kuwait Public Investment Fund, Saudi Arabia Persons of Indian Origin Popular Mobilization Force, Iraq Public-private partnership Purchasing Power Parity Production Plateau Targets Planning and Statistics Authority, Qatar Preferential Trade Agreement Qatari Rial Qatar Investment Authority Recirculating Aquaculture Systems, UAE Reserve Bank of India Redeployment Coordination Committee, United Nations Reporters without Borders Roads and Transport Authority, Dubai Saudi Arabian Basic Industries Corporation Saudi Arabian General Investment Authority Saudi Arabia Monetary Agency Saudi Rial Special Drawing Rights, IMF Strategic Energy Partnership Saudi Food & Drug Authority State General Reserve Fund of Oman Sea Lines of Communication State Organization for the Marketing of Oil, Iraq Supreme Petroleum Council, UAE Supreme Political Council, Yemen

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ABBREVIATIONS

STC STC STCW

Saudi Trading Corporation Southern Transition Council, Yemen Standards of Training, Certification and Watch-keeping Convention SWF Sovereign Wealth Fund SWIFT Society for Worldwide Interbank Financial Telecommunication TBI Trade Bank of Iraq tcf trillion cubic feet tcm trillion cubic metre TSCs technical service contracts TWH Tera Watt Hour UAV unmanned aerial vehicle UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme UNGA United Nations General Assembly UNHRC United Nations Human Rights Council UNMHA United Nations Mission to support the Hodeida Agreement UN-OCHA United Nations Office for the Coordination of Humanitarian Affairs UNSC United Nations Security Council UPR Universal periodic review (UN) USCIRF United States Commission on International Religious Freedom VAT Value added tax VLSFO Very low sulphur fuel oil WLL With Limited Liability WTI West Texas Intermediate (oil standard) YER Yemeni Rial YOY year-on-year

List of Figures

Fig. 1.1 Fig. 2.1 Fig. 5.1 Fig. 7.1 Fig. 8.1 Fig. 8.2

Monthly average spot crude oil prices, 2019 12 Bahrain: Oil and non-oil GDP growth rates, 2016–18 (per cent) 38 Kuwait: Gender and nationality in the government sector employment137 Qatar: Public finance, 2016–18 186 Saudi Arabia: Oil and Non-Oil GDP Growth Rates and Oil Prices 217 Saudi Arabia: Oil and Non-Oil Revenues, 2015–18 222

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List of Tables

Table 1.1 Table 1.2 Table 1.3 Table 1.4 Table 1.5 Table 1.6 Table 1.7 Table 1.8 Table 1.9 Table 1.10 Table 1.11 Table 1.12 Table 1.13 Table 1.14 Table 1.15 Table 1.16 Table 2.1 Table 2.2 Table 2.3 Table 2.4

Persian Gulf oil reserves, 2018 10 Persian Gulf natural gas reserves, 2018 10 Estimated and projected real GDP growth rates in 2019 and 2020 (in per cent) 11 Spot crude oil prices, 2011–18 (yearly average) (US$ per barrel) 13 India’s largest trading partners, 2018–19 (US$ million) 13 Rank of the Persian Gulf countries in top 25 trading partners, 2018–19 (US$ million) 14 India’s exports to the Persian Gulf, 2014–20 (US$ million) 15 India’s imports from the Persian Gulf, 2014–20 (US$ million) 16 Energy in India’s foreign trade, 2014–20 (US$ million) 17 Top five sources of India’s energy imports (US$ million) 18 India’s Oil and Gas Imports from the Persian Gulf 2014–20 (US$ million) 19 India’s top oil and gas suppliers (2014–20) 21 Assets under management of sovereign wealth funds (US$ billions)24 Ranking in UNCTAD B2C E-commerce Index, 2019 25 Liner shipping bilateral connectivity index 2019 25 Population of overseas Indians in the Persian Gulf, 2020 26 Bahrain: Oil and non-oil GDP, 2016–18 (US$ million) 39 Bahrain: Sectoral contribution to GDP and growth rates (per cent) 40 Bahrain: Inward and outward foreign investments, 2015–18 (US$ million) 43 Bahrain: Current account balance, 2016–18 (US$ million) 44 xix

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List of Tables

Table 2.5 Table 2.6 Table 2.7 Table 2.8 Table 2.9 Table 2.10 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 3.8 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Table 5.6 Table 5.7 Table 5.8 Table 5.9 Table 5.10 Table 5.11 Table 6.1

Directions of trade, 2019 45 Bahrain: Oil and gas production and trade, 2014–18 (thousand barrels) 46 India-Bahrain bilateral trade, 2014–19 (US$ million) 50 India-Bahrain oil trade, 2016–19 (US$ million) 51 Composition of India’s exports to Bahrain, 2018–19 52 Composition of India’s imports from Bahrain, 2018–19 52 Iran: Economic indicators, 2014–19 68 Iran: Sectoral contribution to GDP and average growth rate, 2014–18 (per cent) 69 Iran: Balance of payments 2014–18 (US$ millions) 74 Iran’s direction of trade, 2018 (per cent) 74 India-Iran bilateral trade, 2014–20 (US$ millions) 83 India-Iran oil trade 2014–19 (US$ millions) 84 Composition of India’s exports to Iran, 2018–19 (in US$ millions)86 Composition of India’s imports from Iran, 2018–19 (in US$ millions)87 Iraq: GDP and growth rate, 2014–18 (US$ million) 102 Iraq: Trade and current account, 2014–18 (US$ million) 102 Iraq: Oil and gas production and trade, 2014–18 107 India-Iraq bilateral trade, 2014–20 (US$ million) 116 India-Iraq oil trade, 2016–20 (US$ million) 117 Kuwait: National accounts and economic growth rates, 2016–18 (US$ million) 130 Kuwait: Sector-wise contribution to GDP and growth rates, 2018130 Kuwait: Cumulative foreign investments, 2014–17 (US$ million)133 Kuwait: Government sector employment by gender and nationality, 2018 136 Kuwait: External trade balance, 2016–18 (US$ million) 139 Kuwait: Direction of trade, 2018 140 Kuwait: Energy reserves production, exports and imports, 2018141 India-Kuwait bilateral trade, 2014–19 (US$ million) 145 Composition of India’s exports to Kuwait, 2018–19 (US$ million)146 Composition of India’s imports from Kuwait, 2018–19 (US$ million) 146 India-Kuwait Oil Trade, 2016–19 (US$ million) 147 Oman: Oil and non-oil GDP, 2016–18 (US$ million) 157

  List of Tables 

Table 6.2 Table 6.3 Table 6.4 Table 6.5 Table 6.6 Table 6.7 Table 6.8 Table 6.9 Table 6.10 Table 6.11 Table 6.12 Table 6.13 Table 7.1 Table 7.2 Table 7.3 Table 7.4 Table 7.5 Table 7.6 Table 7.7 Table 7.8 Table 7.9 Table 7.10 Table 8.1 Table 8.2 Table 8.3 Table 8.4 Table 8.5 Table 8.6 Table 8.7 Table 8.8 Table 8.9 Table 8.10

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Oman: Sector-wise contribution to the GDP and growth rates, 2018 157 Oman: Public finance, 2018–19 (US$ million) 160 Oman: Employment structure in the government and private sector, 2016–18 162 Oman: External trade, 2016–19 (US$ million) 163 Oman: Direction of trade, 2019 164 Oman: Energy production and trade, 2016–19 165 India-Oman bilateral trade, 2014–20 (US$ million) 170 India-Oman oil trade, 2016–19 (US$ million) 171 India’s LNG imports from Oman, 2014–19 (US$ million) 172 Composition of India’s exports to Oman, 2018–19 (US$ million)172 Composition of India’s imports from Oman, 2018–19 (US$ million)173 FDI from Oman into India, 2017–19 (US$ million) 174 Qatar: GDP and growth rates, 2016–18 (US$ million) 184 Qatar: Sectoral contribution to GDP and average growth rates (per cent) 185 Qatar: Balance of payments, 2016–19 (US$ million) 187 Qatar: Direction of trade, 2018 188 Qatar: Production and trade of natural gas, 2011–2018 (bcm) 190 India–Qatar bilateral trade, 2014–20 (US$ million) 195 India–Qatar energy trade, 2016–19 (US$ million) 196 India’s LNG imports from Qatar, 2014–19 196 Composition of India’s exports to Qatar, 2018–19 (US$ million)198 Composition of India’s imports from Qatar, 2018–19 (US$ million)199 Saudi Council of Ministers as of 31 December 2019 208 Saudi Arabia: Oil and Non-oil GDP, 2017–19 (US$ million) 215 Saudi Arabia: Sectoral Contribution to GDP and Growth Rates, 2019 (per cent) 216 Saudi Arabia: Inward and Outward Foreign Investments (US$ million) 219 Saudi Arabia: Employment and Labour Market, 2016–18 223 Saudi Arabia: Balance of Payment, 2016–19 (US$ million) 224 Saudi Arabia: Direction of Trade, 2019 225 Saudi Arabia: Composition of Exports, 2018 (US$ million) 226 Saudi Arabia: Composition of Imports, 2018 226 Saudi Arabia Foreign Exchange Reserves, 2016–2019 (US$ million)227

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List of Tables

Table 8.11 Table 8.12 Table 8.13 Table 8.14 Table 8.15 Table 9.1 Table 9.2 Table 9.3 Table 9.4 Table 9.5 Table 9.6 Table 9.7 Table 9.8 Table 9.9 Table 10.1 Table 11.1 Table 11.2 Table 11.3 Table 11.4 Table 11.5 Table 11.6 Table 11.7 Table 11.8 Table 11.9

Saudi Arabia: Energy Production and Trade, 2016–18 India–Saudi Bilateral Trade, 2014–20 (US$ million) Composition of India’s Exports to Saudi Arabia, 2018 Composition of India’s Imports from Saudi Arabia, 2018 India–Saudi Oil Trade, 2016–19 (US$ million) UAE: GDP and growth rates, 2014–2018 (US$ million; per cent) UAE: Sector-wise contribution to GDP and growth rates, 2018 (in per cent) UAE: Select balance of payments indicators, 2016–2018 (US$ million) UAE: Direction of trade, 2018 UAE: Energy production, exports and imports, 2018 India–UAE bilateral trade, 2014–20 (US$ million) Composition of India’s exports to UAE, 2018–2019 Composition of India’s imports from UAE, 2018–2019 India–UAE oil and gas trade, 2014–20 (US$ million) India-Yemen Bilateral Trade, 2014–19 (US$ million) GCC in world ranking GCC: Direction of Trade, 2018 (US$ billion) GCC: List of important GCC committee meetings, 2019 India–GCC trade (US$ million) India’s export composition to the GCC, 2018–19 India’s market share in the GCC for high-value items, 2018 India–GCC oil and gas trade, 2016–19 (US$ million) FDI from GCC to India, 2000–2019 (US$ million) Ease of doing business in India and the GCC, 2020

228 239 240 241 242 260 260 271 271 274 284 286 286 287 308 315 317 320 324 325 326 327 329 330

CHAPTER 1

Introduction

The requisites of government are that there be sufficiency of food, sufficiency of military equipment and the confidence of the people in their ruler. —Confucius

Regional crises and tensions with sporadic escalations continued to undermine the stability of the Persian Gulf during 2019. There was no end in sight for the conflict in Yemen and the GCC (Gulf Cooperation of Council) crisis. Tensions between the US and Iran heightened, raising speculations of a military confrontation. The year witnessed India holding the 17th Lok Sabha elections, which slowed the pace of political engagements between India and the Persian Gulf, but later part of the year saw a spate of meetings,  especially with three high-level meetings between Prime Minister Narendra Modi and Saudi  Crown Prince Mohammed bin-­ Salman. In February, Riyadh emerged as a possible go-between India and Pakistan as tension increased following the Pakistan-backed terror attack in Pulwama

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_1

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on 14 February1 and India’s retaliation on Balakot on 26 February.2 Iran’s heightened tension with the US adversely affected the Indo-Iranian relations and brought India’s energy imports from that country to a stop.3 In May, Prime Minister Modi was re-elected with a larger mandate than 2014 and this signalled the continuity of India’s Gulf policy. At the same time, some of India’s domestic policy choices evoked negative feelings in the region and underscored the domestic-foreign policy linkages. Moreover, the goodwill that India managed to generate in the region, especially among the Gulf Arab countries, since 2014 has not yet  been converted into tangible gains. Capitalizing on the positive vibes through political exchanges for tangible economic and strategic gains would be India’s most critical challenge in the coming years.

Regional Developments Tensions and tussles continued to keep the Persian Gulf region on the boil during 2019. Acrimony and blame-trading exacerbated many of the prevailing tensions and crises. Neither the regional players nor the great powers have exhibited any sagacity in addressing some of the burning issues of the region. To a large extent, the Trump administration continues to be a spoiler in regional politics. US-Iran Tensions The US policy of “maximum pressure”4 formally outlined on 8 May 2019 has undone the years of diplomacy that sought to bring Iran into the

1  Peerzada Ashiq. ‘37 CRPF men killed in J&K suicide attack’, The Hindu, 15 February 2019, https://www.thehindu.com/news/national/ied-blast-in-kashmirs-pulwama-manycrpf-jawans-killed/article26268289.ece 2  The Hindu. ‘IAF strikes on JEM camp in Balakot: Tri-service chiefs meet PM, NSA’, 27 February 2019, https://www.thehindu.com/news/national/iaf-jets-hit-terrorist-campacross-loc-iaf-sources/article26371599.ece 3  The Economic Times. ‘US deadlines ends, India stops purchasing Iranian oil’, 24 May 2019, https://economictimes.indiatimes.com/industry/energy/oil-gas/us-deadline-endsindia-stops-purchasing-iranian-oil/articleshow/69475495.cms?from=mdr 4  The White House. ‘President Donald J. Trump is cutting off funds the Iranian Regime uses the support its destructive activities around the world’, 8 May 2019, https://www. whitehouse.gov/briefings-statements/president-donald-j-trump-cutting-off-fundsiranian-regime-uses-support-destructive-activities-around-world/

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global mainstream and achieve stability in the Persian Gulf. The Trump Administration’s 8 May 2018 decision to withdraw from the Iran nuclear deal or Joint Comprehensive Plan of Action (JCPOA)5 was accompanied by the US imposing more stringent sanctions on Iran.6 These, in turn, changed the regional dynamics; the US-Iran relations shifted from diplomacy to confrontation. As the US sanctions led to economic hardships, internal unrest and divisions, the clergy-led regime became more belligerent and resolute.7 The hardliners in Iran cited the Trump Administration’s policy to push for security-oriented domestic and regional policies.8 This gave the moderate Rouhani government limited space to manoeuvre its policy of outreach to the West and has forced it to embrace the hardliners’ agenda of defiance and confrontation.9 At the same time, the Trump Administration has some claims to victory as economic hardship instigated domestic unrest in Iran against the regime and its regional policies. Small but frequent protests by students and youth throughout 2019 accentuated that unlike its predecessors, the present generation does not view the regime as revolutionary. Some of their ire were directed at the Supreme Leader, an unprecedented development in the history of post-1979  Iran.10 Nonetheless, with the help of security forces, the regime managed to curb dissent and retain its stronghold. The notion that the “maximum pressure” campaign would pave the way for the crumbling of the Iranian regime continues to be unrealistic as external meddling only unifies the Iranian society under the clergy. 5  The White House. ‘Remarks by President Trump on the Joint Comprehensive Plan of Action’, 8 May 2018, https://www.whitehouse.gov/briefings-statements/remarks-presidenttrump-joint-comprehensive-plan-action/ 6  The White House. ‘Statement from the President on the Re-imposition of United States Sanctions with respect to Iran’, 6 August 2018, https://www.whitehouse.gov/briefingsstatements/statement-president-reimposition-united-states-sanctions-respect-iran/ 7  Golnar Motevalli and Arsalan Shahla. ‘Trump offensive leaves Iran’s hardliners ascendants as poll near’, Bloomberg, 16 December 2019, https://www.bloomberg.com/news/ articles/2019-12-16/trump-offensive-leaves-iran-s-hardliners-ascendant-as-poll-nears 8  Al-Jazeera. ‘Supreme leader criticizes Iran’s politicians amid US tensions’, 23 May 2019, https://www.aljazeera.com/news/2019/05/supreme-leader-criticises-iran-politicians-tensions-190522205021503.html 9  Parisa Hafezi and Babak Dehghanpisheh. ‘Pressure over Iran nuclear deal forced Zarif to resign: ally’, Reuters, 26 February 2019, https://www.reuters.com/article/iran-zarif-hardliners/pressure-over-iran-nuclear-deal-forced-zarif-to-resign-ally-idINKCN1QF19U 10  Afshin Shahi and Ehsan Abdoh-Tabrizi. ‘Iran’s 2019–2020 demonstrations: The changing dynamics of political protests in Iran’, Asian Affairs, 14 February 2020, 51(1), 1–41, https://www.tandfonline.com/doi/full/10.1080/03068374.2020.1712889

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It was clear that any military confrontation between the US and Iran would not be confined to the Iranian territories or waters but would also harm Washington’s regional allies, their stability and, more importantly, the free flow of hydrocarbon resources from the Persian Gulf. A spate of attacks in May and June and drone attacks on crucial Aramco oil facilities in September revealed Iran’s intentions and capabilities to escalate the regional conflict. These, in turn, moderated the Emirati position vis-à-vis Iran and prompted it to dilute the Emirati image of unconditionally supporting President Trump’s Iran policy. The May attacks on oil tankers led to the US enhancing its military presence in the Persian Gulf and strengthening its Fifth Fleet in Bahrain.11 In July, the US sent 500 soldiers to Saudi Arabia to deter any possible attacks from Iran.12 In the wake of the Aramco attacks, the US not only increased the number of troop deployment in the Kingdom13 but also agreed to sell US$110 billion worth of weapons and systems.14 The American troops returned to the Kingdom for active deployment for the first time since their complete withdrawal in 2003, shortly after the highly unpopular US-led invasion of Iraq.15 Meanwhile, the US-Iran tension was on the verge of explosion after Iran shot down the US unmanned aerial vehicle (UAV) drone over the Persian Gulf on 20 June.16 While Iran claimed that the surveillance drone was downed after it violated the Iranian air space,17 the US accused the 11  US Department of Defense. ‘Statement from the Department of Defense on Additional forces to U.S. Central Command’, 10 May 2019, https://www.defense.gov/Newsroom/ Releases/Release/Article/1844752/statement-from-the-department-of-defenseon-additional-forces-to-us-central-com/ 12  Thomas Gibbons-Neff. ‘U.S. to send about 500 more troops to Saudi Arabia’, The New  York Times, 18 July 2019, https://www.nytimes.com/2019/07/18/us/politics/ troops-saudi-arabia-iran.html 13  Ibid. 14  Barbara Starr and Veronica Stracqualursi. ‘Pentagon announces new troop deployments to Saudi Arabia’, CNN, 12 October 2019, https://edition.cnn.com/2019/10/11/politics/us-additional-troops-middle-east-iran/index.html 15  Oliver Burkeman. ‘American signals withdrawal of troops from Saudi Arabia’, The Guardian, 30 April 2003, https://www.theguardian.com/world/2003/apr/30/usa.iraq 16   Joshua Berlinger, Mohammed Tawheeq, Barbara Starr, Shirzad Bozorgmehr and Frederik Pleitgen. ‘Iran shoots down US drone aircraft, raising tensions further in Strait of Hormuz’, CNN, 21 June 2019, https://edition.cnn.com/2019/06/20/middleeast/irandrone-claim-hnk-intl/index.html 17  Al-Jazeera. ‘Iran releases video it says proves US did not destroy drone’, 20 July 2019, https://www.aljazeera.com/news/2019/07/iran-releases-video-proves-destroydrone-190719182653902.html

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Iranian Revolutionary Guards Corps (IRGC) of shooting the UAV while it was in the international air space monitoring the movement of international shipping.18 The incident brought the two rivals close to a direct confrontation, but President Trump tweeted that plans were dropped at the last moment to avoid the loss of Iranian lives.19 The US-Iran tensions were also felt in Iraq, which already faced year-­ long protests over the government’s ineptitude in handling the economic crisis and providing basic amenities. The protests were not confined to corruption and mismanagement but were also directed at Iran’s meddling in Iraqi politics and government directly and through proxies such as the Popular Mobilization Force (PMF).20 The protestors not only used slogans and posters but targeted and burnt down the Iranian consulates in Najaf and Karbala. On the other hand, the peaceful demonstrators were targeted by the PMF leading to the deaths of nearly 500 Iraqi protestors during the year. The situation came to a head in December when attacks and counter-attacks broke out in Baghdad between the US forces in the country and the Iran-backed Kataib Hezbollah eventually to the US killing Qasem Soleimani—head of the Al-Quds Force of the IRGC—in Baghdad on 3 January 2020. Yemen Crisis The conflict in Yemen continued unabated in 2019 and threatened to spread beyond the Yemeni borders. The Iran-backed Houthis continue to hold on to their positions in most of the northwestern part of the country and remained in control of capital Sana’a. The hope generated by the Hodeida ceasefire agreement signed in Stockholm in December 2018 did not materialize; while the Houthis maintained their military positions, Saudi Arabia released only a few Houthi prisoners. The situation deteriorated with differences emerging between the Mansur Hadi-led 18  The Hindu. ‘Iran insists U.S. drone violated air space, vows to defend borders’, 21 June 2019, https://www.thehindu.com/news/international/iran-insists-us-drone-violated-airspace-vows-to-defend-borders/article28102891.ece 19  Michael D. Shear, Eric Schmitt and Maggie Haberman. ‘Strikes on Iran Approved by Trump, Then Abruptly pulled back’, The New  York Times, 20 June 2019, https://www. nytimes.com/2019/06/20/world/middleeast/iran-us-drone.html 20  Jane Arraf. ‘They have stolen everything from us’: Iraq’s Anti-government protest continue’, NPR, 5 November 2019, https://www.npr.org/2019/11/05/776051741/ they-have-stolen-everything-from-us-iraqs-anti-government-protests-continue

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government and the Southern Transition Council (STC) that threatened to cede from Yemen. The differences came into the open in October when the STC backed by the UAE took control of Aden and threatened to oust the Hadi government from its exiled capital. The issue was resolved in December with the signing of a truce. In July 2019, the UAE signalled a change in its position and started to withdraw its forces from Yemen and handed over the areas under its control to the STC. On the other hand, Saudi Arabia was at the receiving end of Houthi attacks inside its territory. On 12 June, the Abha International Airport in the southwest Asir province of the Kingdom came under cruise missile attacks causing injuries to 26 civilians and soldiers.21 Riyadh retaliated by carrying out airstrikes on Sana’a a few days later. Subsequently, in September, two of Aramco oil facilities in Abqaiq and Khurais came under drone attacks leading to a temporary disruption in oil production and supplies from the Kingdom. Though the Houthis claimed responsibility for the attack, the US and Saudi Arabia blamed Iran for the attack.22 The Houthis also threatened to target oil facilities inside UAE.23 GCC Crisis The continuing crisis over Qatar24 added more complexity to the situation in the Persian Gulf. Despite efforts by regional countries backed by Washington, the principal players in the GCC crisis—Saudi Arabia, UAE and Qatar—were unable and unwilling to set aside their differences and work together. Even the perceived threats from Iran proved insufficient to overcome their differences. Indeed, since the outbreak of the crisis in June 2017, Qatar has strengthened its ties with Iran and has forged closer political, military and economic relations with Turkey, thereby giving the latter 21  BBC News. ‘Yemen war: Houthi missile attack on Saudi airport injuries 26’, 12 June 2019, https://www.bbc.com/news/world-middle-east-48608213 22  Roberta Rampton and Arshad Mohammed. ‘U.S. blames Iran for Saudi oil attack, Trump says ‘locked and loaded’, Reuters, 16 September 2019, https://www.reuters.com/ ar ticle/us-saudi-aramco-attacks/u-s-blames-iran-for-saudi-oil-attack-tr umpsays-locked-and-loaded-idUSKBN1W00SA 23  Abdullah Ahmed. ‘Houthis vows to target vital facilities in UAE’, Anadolu Agency, 18 September 2019, https://www.aa.com.tr/en/middle-east/houthis-vow-to-target-vitalfacilities-in-uae/1587761 24  Al-Jazeera. ‘Qatar’s Emir Sheikh Tamim skips Gulf summit in Saudi Arabia’, 10 December 2019, https://www.aljazeera.com/news/2019/12/qatar-emir-sheikh-tamimskip-gulf-summit-saudi-arabia-191210075123465.html

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new leverage in the Persian Gulf. There were some minor developments during the year which generated hopes; for example, the Qatari participation in the Peninsula Shield joint military exercise in March; and Saudi, Emirati and Bahraini national football teams taking part in the Arab Gulf Cup tournament held in Doha in November. At the same time, the refusal of the Qatari Emir to travel to Saudi Arabia twice for attending the Arab-­ Islamic Extraordinary Summit in May (Mecca) and the GCC Summit in December (Riyadh) underlined that the relations between the two remained frosty. Thus, continuing the GCC and Yemeni crises and the heightening of the US-Iran tensions marked the political landscape of the Persian Gulf during 2019. How did India manage these issues and navigated its interests?

Bilateral Relations Since taking over office in May 2014, Prime Minister Narendra Modi has devoted considerable attention and resources to pursuing closer ties with the Arab and non-Arab countries of the Persian Gulf. Through a spate of visits and bilateral contacts, India established closer political contacts with the key regional countries, especially the Kingdom of Saudi Arabia, the UAE and Iran. The progress report for 2019 has been mixed and less than optimum as India’s relations with the region continue to lag behind its promises and potentials. Political Issues The Persian Gulf is India’s priority area in the Middle East for its energy security as well as for being its “extended neighbourhood” and home to a large Indian expatriate population. While traditionally, India has maintained friendly ties with all the regional countries, New Delhi was often criticized for its lack of political outreach and diplomatic engagement with the region. This partly changed with the arrival of Prime Minister Modi, who spurred an activist foreign policy and showed a willingness to make the diplomatic outreach matching India’s potential. In the Persian Gulf, he undertook several visits and imparted a new dynamism in India’s Gulf Policy. This has been recognized in the Gulf capitals with countries like

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Bahrain, Saudi Arabia and the UAE felicitating him with their highest civilian awards for his contributions in promoting bilateral ties.25 Nonetheless, 2019 proved to be a mixed bag for India. Firstly, its ability to engage with the region was curtailed by the Lok Sabha elections held between April and May. Prime Minister Modi’s high-stake re-election bid meant that the focus of the government was entirely domestic and the personality-centric approach also limited the scope for foreign policy. Modi’s massive victory ensured continuity in according importance to the Persian Gulf and the growing political engagements with it. Prime Minister Modi visited Bahrain and the UAE in August and in October participated in the Future Investment Initiative (FII) in Riyadh. While India’s engagement with the region would continue to be anchored in Saudi Arabia and the UAE, the renewed emphasis had also been given to Bahrain, Oman and Kuwait. Secondly, India’s relations with Iran have been severely restricted by the US factor. While India sees Iran as a friendly nation vital for its political and strategic considerations, the space for manoeuvre has been shrinking. The renewed American sanctions meant that India stopped oil imports from Iran after the US waiver ended in May 2019.26 Efforts by Iran to convince India to adopt the rupee payment mechanism used during the previous sanction regime was unsuccessful as New Delhi did not want to hamper the growing ties with Washington. While it endorsed Iran’s right to enjoy the peaceful use of nuclear energy, New Delhi never favoured a nuclear Iran. It hoped that the JCPOA would close the nuclear controversy and enable it to pursue its energy ties with Tehran. But before India could benefit from the nuclear deal, the Trump Administration sought to exert “maximum pressure” on Iran. Though New Delhi does not believe in the use of force and coercion in international politics, the cost of non-­ compliance of the US demands is too high to bear. The manner in which India approached the issue underlined that the Iran file in the Ministry of External Affairs is handled by Americas (AMS) division than by the West Asia and North Africa (WANA), Gulf  or Pakistan, Afghanistan & Iran (PAI) divisions. 25  The Hindu BusinessLine. ‘UAE honours PM Modi with highest civilian award’, 24 August 2019, https://www.thehindubusinessline.com/news/uae-honours-pm-modi-withhighest-civilian-award/article29243453.ece 26  The Economic Times. ‘US deadline ends, India stops purchasing Iranian Oil’, 24 May 2019, https://economictimes.indiatimes.com/industry/energy/oil-gas/us-deadline-endsindia-stops-purchasing-iranian-oil/articleshow/69475495.cms?from=mdr

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Thirdly, hopes generated by the Modi government in the Indian ability to deliver on its economic commitments and promises increasingly remain unrealized. Age-old issues such as project delays, backsliding on commitments due to a variety of factors and ineffective implementations continue to hamper India’s engagement with the Persian Gulf. One of the key objectives of its outreach has been to attract more investments into the country; many projects could not materialize because of inept political or bureaucratic handling or they became a victim of domestic politics. In recent years, there were hopes that things would improve, if not change and a promising start was made in that direction with the announcement of a few mega investment projects, especially in the energy sector. Nonetheless, the situation seems to be returning to the older days, especially with the fate of the proposed refinery project in Maharashtra hanging in the balance over cost escalation and project location.27 Finally, lack of sustained bilateral interactions between societal and commercial communities and organizations tend to fizzle out of the dynamism generated by political level exchanges. There are hardly any meetings beyond the political and bureaucratic ones. The business councils are without any known structures, meeting schedule and social media platforms. The Indian expatriate community does not have the capacity to impact the political and diplomatic ties because of its economic and financial preoccupations. The Indian expatriates especially the business houses, despite much appreciation in the region, have not been able to become an asset in furthering India’s relations with the Persian Gulf countries. Economic Ties The Persian Gulf region holds a premier position in the distribution of global oil and gas reserves (Tables 1.1 and 1.2). The year 2019 has been dismal for the region as the real growth rates were sluggish and the projections for same in 2020 is equally subdued for most of the countries (Table 1.3). The oil prices dipped in later half of 2019 after an initial spurt

27  Murali Gopalan. ‘Politics will decide the fate of Ratnagiri refinery’, The Hindu Business Line, 22 February 2019, https://www.thehindubusinessline.com/companies/politics-willdecide-the-fate-of-ratnagiri-refinery/article26343343.ece

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Table 1.1  Persian Gulf oil reserves, 2018

Bahrain Iran Iraq Kuwait Oman Qatar Saudi Arabia UAE Yemen Persian Gulf total

Billion barrels

Share in global reserves (per cent)

R/P ratio years

0.1 155.6 147.2 101.5 5.4 25.2 297.7 97.8 3.0 833.5

0.01 9.0 8.5 5.9 0.3 1.5 17.2 5.7 0.2 48.3

– 90.4 87.4 91.2 15.0 36.8 66.4 284.8 121.4 99.1

R/P ratio is reserve to production ratio that gives the lifetime of the reserves in years at the current rate of production; figures for Bahrain are from CIA World Fact Book Source: BP. Statistical Review of the World Energy 2019, https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2019-fullreport.pdf

Table 1.2  Persian Gulf natural gas reserves, 2018

Bahrain Iran Iraq Kuwait Oman Qatar Saudi Arabia UAE Yemen Persian Gulf total

Trillion cubic meters (tcm)

Trillion cubic feet (tcf)

Share in global gas reserves (per cent)

R/P ratio years

0.2 31.9 3.6 1.7 0.7 24.7 5.9 5.9 0.3 74.9

6.4 1,127.7 125.6 59.9 23.5 872.1 208.1 209.7 9.4 2,642.4

0.1 16.2 1.8 0.9 0.3 12.5 3.0 3.0 0.1 37.9

12.3 133.3 273.8 97.0 18.5 140.7 52.6 91.8 480.7 144.52

Source: BP. Statistical Review of the World Energy 2019, https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2019-fullreport.pdf

(Fig. 1.1) and was below the average prices in 2018 (Table 1.4). The average world oil demand had marginally increased from 98.84 mb/d in 2018 to 99.67 mb/d in 2019 and the oil production cuts in 2019 by Organization of Petroleum Exporting Countries (OPEC) kept the world

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Table 1.3 Estimated and projected real GDP growth rates in 2019 and 2020 (in per cent)

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Estimated Projected growth growth rate, rate, 2019 2020 Bahrain Iran Iraq Kuwait Oman Qatar Saudi Arabia UAE Yemen India

1.98 −9.46 4.40 0.59 0.04 1.97 0.17 1.56 2.11 6.12

2.09 0.04 4.68 3.07 3.68 2.76 2.18 2.18 1.98 7.03

Source: IMF.  World economic outlook database October 2019, https://www.imf.org/external/ pubs/ft/weo/2019/02/weodata/weorept. aspx?pr.x=25&pr.y=7&sy=2017&ey=2020&scs m=1&ssd=1&sort=country&ds=.&br=1&c=449% 2C419%2C453%2C456%2C429%2C433%2C443 %2C466%2C474&s=NGDP_RPCH&grp=0&a=

production at 99.10 mb/d.28 The US-China trade war and the resultant uncertainties, geopolitical tensions and social unrest in crucial emerging markets weighed down on global and regional trade and manufacturing activities. The global growth after downside revision was estimated at 2.9 per cent in 2019.29 The year also marked a significant decoupling of the oil prices with the geopolitical tensions in the region and the impact of the attacks on the Saudi oil facilities in September and the re-imposition of US sanctions on Iran were milder than the earlier oil shocks.30 Against this backdrop, India’s economic relations with the region saw renewed momentum and upward movement. Its bilateral trade with the UAE and Saudi Arabia continued to be robust and these two countries 28  Organization of the Petroleum Exporting Countries (OPEC), Monthly Oil Market Report, March 2020, Table 11.1, https://momr.opec.org/pdf-download/ 29  International Monetary Fund (IMF), World Economic Outlook, January 2020, p.  3, https://www.imf.org/en/Publications/WEO 30  Amy M. Jafee. ‘What Effects Will Tighter U.S. Sanctions on Iran’s Oil Have?’, Council on Foreign Relations,  25 April 2019, https://www.cfr.org/in-brief/what-effects-willtighter-us-sanctions-irans-oil-have

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Fig. 1.1  Monthly average spot crude oil prices, 2019. ORB is OPEC reference basket. Source: Adapted from OPEC.  OPEC Bulletin 12/19-1/20, p.  101, https://www.opec.org/opec_web/static_files_project/media/downloads/publications/OB122019_012020.pdf

were among the top five trading partners of India in 2018–19 (Table 1.5). Five countries from the region were among the top 25 trading partners in 2018–19 (Table 1.6) as against four in 2017–18. The share of the Persian Gulf in India’s total exports has been declining since 2014 but showed an upward movement between April and January 2019–20 (Table  1.7). The shares of Bahrain, Iran and Iraq in the total Indian exports to the region have been increasing since 2016, while those of Kuwait and Oman were on a decline. The share of Saudi Arabia in India’s exports to the region has declined significantly mostly due to the decline in the petroleum products exports largely more Saudi imports from China and UAE. The UAE and Saudi Arabia constituted 74.89 per cent of India’s total export to the Persian Gulf in 2018–19.

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Table 1.4  Spot crude oil prices, 2011–18 (yearly average) (US$ per barrel)

Basra light Iran light Oman crude OPEC-ORBa Saudi Arabia (Arab Heavy) UAE-Dubai UK Brent dated

2011

2012

2013

2014

2015

2016

2017

2018

– 108.29 106.63 107.46 104.06

– 109.79 109.35 109.45 108.32

– 107.19 105.51 105.87 103.89

94.45 97.26 97.04 96.29 93.68

47.87 51.40 51.21 49.49 47.01

39.53 41.66 41.96 40.76 38.45

51.88 52.36 53.32 52.43 50.96

68.62 69.10 70.10 69.78 68.79

106.21 109.07 105.45 96.71 50.94 41.39 53.08 69.68 111.36 111.62 108.62 99.08 52.41 43.76 54.17 71.22

Source: OPEC, Annual statistical bulletins various years ORB-OPEC representative basket

a

Table 1.5  India’s largest trading partners, 2018–19 (US$ million) Country

Exports

Imports

Total trade

Trade balance

US

52,406.27 (15.88) 16,752.2 (5.08) 30,126.73 (9.13) 5,561.72 (1.68) 13,001.99 (3.94)

35,549.48 (6.92) 70,319.64 (13.68) 29,785.33 (5.79) 28,479.21 (5.54) 17,987.01 (3.50)

87,955.76 (10.42) 87,071.84 (10.31) 59,912.05 (7.10) 34,040.93 (5.10) 30,988.99 (3.67)

16,856.79

China UAE Saudi Arabia Hong Kong

−53,567.43 341.40 −22,917.49 −4,985.0

Figures in bracket are per cent share Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

As Table  1.8 shows, India’s total imports from the region dropped significantly between 2015 and 2016 from the levels in 2014 largely reflective of the movement in oil prices (Fig. 1.1) and the dominance of oil in bilateral trade. The relative shares of the countries of the Persian Gulf in the total imports from the region reflected their importance in India’s oil and gas imports. About 50 per cent of India’s total imports from the Persian Gulf came from the UAE and Saudi Arabia. Iran’s share has waxed and waned according to the US sanctions; imports drastically dropped to US$1.35 billion in 2019–20 (April–January) as against US$13.52 billion in 2018–19, as the expiry of the US waver brought oil imports to a halt.

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Table 1.6  Rank of the Persian Gulf countries in top 25 trading partners, 2018–19 (US$ million) Country

Rank

Exports

Imports

Total trade

Share (per cent)

UAE

3

7.10

4

34,040.93

5.10

Iraq

7

24,161.13

2.85

Iran

15

17,036.65

2.02

Qatar

21

29,785.33 (5.79) 28,479.21 (5.54) 22,372.47 (4.35) 13,525.64 (2.63) 10,721.7 (2.08)

59,912.05

Saudi Arabia

30,126.73 (9.13) 5,561.72 (1.68) 1,788.66 (0.54) 3,511.01 (1.06) 1,611.16 (0.48)

12,332.86

1.46

Figures in bracket are per cent share Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

However, the negative trade balance is a challenge that India has to grapple with in the coming years in the face of its sluggish export growth with most of the Persian Gulf countries. India’s surplus trade balance with the UAE has shrunk from US$10.87 billion in 2015–16 to US$431.40 million in 2018–19. India’s top ten items of exports, which are also high-­ value products like petroleum products, engineering goods, biological formulations and so on (with the exception of UAE and Oman), constitute only about 45 per cent or less of its export to most of the countries in the region (Table  11.4). At the same time, these items are among the leading imports for all the countries in the region. The often-cited India’s growing bilateral trade with most of these countries mask the low value content for the bulk of the exports to the region. Energy Relations: India imports more than 80 per cent of its oil consumption and about 50 per cent of its natural gas requirements.31 The share of oil and gas in its total energy imports and total imports is given in Table  1.9. Oil and gas constituted 83.95 per cent of its total energy 31  The Economic Times. ‘India’s oil import dependence jumps to 84 per cent’, 5 May 2019, https://economictimes.indiatimes.com/industry/energy/oil-gas/indias-oil-importdependence-jumps-to-84-pc/articleshow/69183923.cms; Sunil Jain. ‘Explained: How India can reduce oil and gas imports’, Financial Express, 25 March 2019, https://www. financialexpr ess.com/opinion/explained-how-india-can-r educe-oil-and-gasimports/1526126/

472.98 (0.86) 4,175.06 (7.55) 829.32 (1.50) 1,198.89 (2.17) 2,379.44 (4.30) 1,054.98 (1.91) 11,161.43 (20.19) 33,028.08 (59.73) 992.13 (1.79) 55,292.31 3,10,338.48 17.82

654.14 (1.43) 2,781.51 (6.06) 1,004.39 (2.19) 1,247.51 (2.72) 2,190.96 (4.78) 902.13 (1.97) 6,381.47 (13.91) 30,316.5 (66.08) 399.79 (0.87) 45,878.4 2,62,291.09 17.49

2015–16 471.71 (1.03) 2,379.61 (5.20) 1,111.45 (2.43 1,497.99 (3.29) 2,728.3 (5.97) 784.56 (1.72) 5,110.28 (11.18) 31,175.5 (68.21) 446.13 (0.97) 45,705.53 2,75,852.43 16.57

2016–17

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

a

Provisional; figures in the bracket are per cent share in the Persian Gulf total

India’s total exports to Persian Gulf India’s total exports Persian Gulf’s share in India’s total exports (per cent)

Yemen

UAE

Saudi Arabia

Qatar

Oman

Kuwait

Iraq

Iran

Bahrain

2014–15

Table 1.7  India’s exports to the Persian Gulf, 2014–20 (US$ million)

556.82 (1.26) 2,652.37 (6.02) 1,462.23 (3.32) 1,365.66 (3.10) 2,439.46 (5.54) 1,471.88 (3.34) 5,410.7 (12.28) 28,146.12 (63.87) 563.46 (1.28) 44,068.7 3,03,526.16 14.52

2017–18 742.14 (1.56) 3,511.01 (7.37) 1,788.66 (3.75) 1,333.92 (2.80) 2,246.31 (4.71) 1,611.16 (3.38) 5,561.72 (11.67) 30,126.73 (63.21) 741.32 (1.56) 47,662.97 3,30,078.09 14.44

2018–19 474.33 (1.23) 2,799.30 (7.24) 1,672.60 (4.33) 1,087.03 (2.81) 1,743.16 (4.51) 1,016.46 (2.63) 5,012.07 (12.97) 24,277.89 (62.82) 558.01 (1.44) 38,640.85 2,63,980.70 14.64

2019–20a (April–January)

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Table 1.8  India’s imports from the Persian Gulf, 2014–20 (US$ million) 2014–15

Bahrain 446.25 (0.54) Iran 8,955.02 (10.92) Iraq 14,247.66 (17.37) Kuwait 13,381.97 (16.31) Oman 1,752.24 (2.14) Qatar 14,604.71 (17.80) Saudi 28,107.56 Arabia (34.26) UAE 26,139.91 (31.86) Yemen 540.68 (0.66) Total 1,08,175.99 imports from the Persian Gulf India’s 448,033.41 total imports Persian 24.14 Gulf’s share in India’s total imports (per cent)

2015–16

2016–17

2017–18

2018–19

2019–20a (April– January)

356.9 (0.49) 6,278.75 (8.61) 10,837.58 (14.86) 4,969.69 (6.82) 1,674.71 (2.30) 9,022.16 (12.37) 20,321.33 (27.87) 19,445.68 (26.67) 6.88 (0.01) 72,913.68

290.69 (0.38) 10,506.5 (13.58) 11,707.94 (15.13) 4,462.28 (5.77) 1,290.5 (1.67) 7,646.22 (9.88) 19,972.4 (25.81) 21,509.83 (27.79) 4.81 (0.01) 77,391.17

431.12 (0.46) 11,111.52 (11.95) 17,615.81 (18.95) 7,165.69 (7.71) 4,264.29 (4.59) 8,409.02 (9.05) 22,069.96 (23.74) 21,739.11 (23.39) 153.05 (0.16) 92,959.57

539.63 (0.47) 13,525.64 (11.70) 22,372.47 (19.35) 7,430.82 (6.43) 2,759 (2.39) 10,721.7 (9.27) 28,479.21 (24.63) 29,785.33 (25.76) 11.77 (0.01) 115,625.57

361.09 (0.41) 1,351.05 (1.52) 19,808.1 (22.24) 7,978.03 (8.96) 2,961.02 (3.32) 7,856.64 (8.82) 22,969 (25.79) 25,757.57 (28.92) 21.81 (0.02) 89,064.33

381,007.76 384,357.02 465,580.98 514,078.41 403,137.54

19.14

20.14

19.97

22.49

22.09

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp Provisional; figures in the bracket are per cent share in the Persian Gulf total

a

2017–18

2018–19

2019–20 (April–January) (provisional)

82,966.82 86,970.90 108,665.86 140,926.58 109,610.40 96,953.06 103,163.20 132,294.61 167,871.87 129,215.78 85.57 84.30 82.14 83.95 84.83

2016–17

31,231.41

32,435.60

38,469.30

47,920.26

36,642.59

310,338.48 262,291.09 275,852.43 303,526.16 330,078.09 263,980.70 18.42 12.02 11.07 12.31 14.08 13.42

57,619.99

448,033.41 381,007.76 384,357.03 465,580.99 514,078.42 403,137.55 30.88 21.78 22.63 23.34 27.41 27.19

138,352.73 156,400.01 88.46

2015–16

a

Energy exports comprise 98.31 per cent petroleum products; 1.69 per cent of electricity, coal and related products and LNG

Note: Energy includes all items of HS category 27: mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes; a small fraction of which is also for non-energy use

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

Import of oil and gas Total energy imports Share of oil and gas in total energy imports (per cent) India’s total imports Share of oil and gas in India’s total imports (per cent) Export of mineral fuels and other energy productsa India’s total exports Share of petroleum products in total exports (per cent)

2014–15

Table 1.9  Energy in India’s foreign trade, 2014–20 (US$ million)

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P. R. KUMARASWAMY ET AL.

imports and 27.41 per cent of the total imports in 2018–19. The shares are increasing as the oil and gas prices have increased since 2017 but are still below the levels in 2014–15. India has also established itself in the league of global players for the exports of the petroleum products that meet the most stringent environmental norms. It has been the largest exporter of petroleum products in Asia since August 2009.32 Petroleum products have a significant share in India’s total exports (Table 1.9) and are among the leading export items. Table 1.10 shows India’s top five energy exporters during 2014–20 and the dominance of the Persian Gulf countries. The share of the Persian Gulf in India’s total oil and gas imports had increased from 61.46 per cent in 2015–16 to 64.78 per cent in 2016–17 (Table 1.11). However, the share has hovered around 64 per cent in the last few years and is poised to decline as India’s imports from the US have increased rapidly since 2018, while the imports from Iran ceased in mid-2019. The US-China trade wars leading to the imposition of 25 per cent tariff on US LNG imports by China (with effect from 1 January 2019) and consequent drop of the Chinese imports from 2.15 million tonnes in 2018 to 0.26 million tonnes Table 1.10  Top five sources of India’s energy imports (US$ million) Rank 1 2014–15

Saudi Arabia (23,212.88) 2015–16 Saudi Arabia (15,177.91) 2016–17 Saudi Arabia (15,583.08) 2017–18 Saudi Arabia (17,816.06) 2018–19 Saudi Arabia (24,508.68) 2019–20a Iraq (April–January) (19,765.17)

Rank 2

Rank 3

Rank 4

Rank 5

Iraq (14,177.22) Iraq (10,759.19) Iraq (11,633.29) Iraq (17,544.32) Iraq (22,300.67) Saudi Arabia (19,715.68)

Nigeria (13,532.36) Nigeria (9,769.56) UAE (9,457.6) Australia (9,343.96) UAE (13,656.84) UAE (13,568.72)

UAE (13,509.04) Qatar (7,942.43) Iran (9,006.29) Nigeria (9,293.95) Iran (12,369.07) Nigeria (8,467.54)

Qatar (13,415.31) UAE (7,912.8) Nigeria (9,006.29) Iran (9,232.61) Nigeria (10,619.6) US (7,000.19)

Provisional; Figures in brackets are total value of imports from respective countries

a

Source: DGFT, GOI, Export Import Data Bank

32  GoI. Ministry of Petroleum and Natural Gas. ‘Investment opportunities in refineries’, http://petroleum.nic.in/refining/investments-opportunities

2018–19

2019–20a (April– January)

108,175.99 72,913.68 78.85 69.94

77,391.17 72.79

92,959.57 115,625.57 75.40 78.13

89,064.33 75.60

Note: Energy includes all items of HS category 27: mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes; a small fraction of which is also for non-energy use

a

2017–18

56,335.41 70,090.80 90,337.41 67,329.39 86,970.9 108,665.86 140,926.58 109,610.4 64.78 64.50 64.10 61.43

2016–17

156,400.01 96,953.06 103,163.20 132,294.61 167,871.87 129,215.78 54.54 52.59 54.61 52.98 53.81 52.11

85,300.30 50,992.26 138,352.73 82,966.82 61.65 61.46

2015–16

Provisional Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

Oil and gas imports from Persian Gulf India’s total oil and gas imports Persian Gulf’s share in India’s total oil and gas imports (per cent) India’s total energy imports Persian Gulf’s share in India’s energy imports (per cent) India’s total imports from Persian Gulf (per cent) Share of oil and gas imports in India’s total imports from Persian Gulf (per cent)

2014–15

Table 1.11  India’s Oil and Gas Imports from the Persian Gulf 2014–20 (US$ million)

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in 2019 from the US33 resulted in larger volumes of American LNG available in the Asian market.34 While India has diversified crude imports, petroleum products like LPG come dominantly from Saudi Arabia and the UAE. Table 1.12 shows top five oil and gas exporters to India and their relative shares. Qatar, UAE and Oman along with (pre-war) Yemen have supplied much of India’s LNG imports. The role of the Persian Gulf is paramount in India’s energy security from multiple vantage points. Not only the region has the world’s largest oil and gas reserves in India’s proximity but also the existing and potential economic relations can cushion the huge energy import bill of over US$100 billion. Both accessibility and affordability of modern sources of energy are important for India’s energy security.35 The Persian Gulf countries face numerous challenges (in varying degrees) in their energy sectors ranging from maintaining reservoir pressure in the depleting oil fields, increasing the efficiency of domestic energy consumption, eliminating natural gas flaring, last-mile power connectivity, generating renewable energy power to reducing their carbon footprints and ecological degradation from their hydrocarbon industry. These in turn offer ample opportunities for India to assure its energy security from the position of interdependence. China’s oil consumption has slowed in recent years36 (though imports in 2019 have increased due to new refining capacity and strategic stockpiling) and its domestic oil consumption is estimated to peak soon.37

 MEES, vol. 63 no. 7, 14 February 2020.  Ibid. 35  Press Information Bureau (PIB). Ministry of Petroleum & Natural Gas. ‘In-depth review of India’s Energy policies report launched; Shri Dharmendra Pradhan said the report’s findings are a vindication of the significant advances made in realizing the energy vision enunciated by Hon’ble Prime Minister’, 10 January 2020, https://pib.gov.in/ PressReleaseIframePage.aspx?PRID=1599000 36  IEA. World Energy Outlook 2017, https://www.iea.org/reports/world-energy-outlook2017-china; The Hindu BusinessLine. ‘India’s oil demand growth is set to overtake China by mid-2020s: IEA’, 10 January 2020, https://www.thehindubusinessline.com/markets/ commodities/indias-oil-demand-growth-is-set-to-overtake-china-by-mid-2020s-iea/article30531318.ece 37  Reuters, ‘China’s Diesel demand has peaked and gasoline to peak 2025:CNPC research’, 18 September 2018, https://www.reuters.com/article/us-china-energy-forecast-cnpc/ chinas-diesel-demand-has-peaked-gasoline-to-peak-2025-cnpc-research-idUSKCN1LY0Z0 33 34

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21

Table 1.12  India’s top oil and gas suppliers (2014–20) Rank 1 Oil and products 2014–15 Saudi Arabia (17.98) 2015–16 Saudi Arabia (19.90) 2016–17 Saudi Arabia (19.25) 2017–18 Saudi Arabia (17.72) 2018–19 Saudi Arabia (18.80) 2019–20a Iraq (April– (19.46) January) Gas (LNG) 2014–15 Qatar (82.99) 2015–16 Qatar (67.73) 2016–17 Qatar (56.80) 2017–18 Qatar (50.72) 2018–19 Qatar (50.71) 2019–20a Qatar (April– (44.72) January)

Rank 2

Rank 3

Rank 4

Rank 5

Iraq (10.98)

UAE (10.43)

Nigeria (10.02)

Kuwait (8.83)

Iraq (14.11)

Nigeria (11.83)

UAE (10.32)

Venezuela (6.85)

Iraq (14.67)

UAE (11.48)

Iran (11.12)

Nigeria (8.34)

Iraq (17.45)

Iran (9.18)

UAE (8.91)

Nigeria (8.15)

Iraq (17.11)

UAE (10.29)

Iran (9.49)

Nigeria (7.24)

Saudi Arabia (19.41)

UAE (12.61)

Nigeria (7.48)

US (6.27)

Nigeria (6.47) Nigeria (11.20) Nigeria (11.85) Nigeria (13.56) Nigeria (11.23) Nigeria (10.77)

Yemen (4.06) Australia (4.30) Australia (8.68) Australia (8.99) Angola (6.71) Angola (10.62)

Spain (1.75) Oman (3.24) Equatorial Guinea (5.73) Angola (6.51) Australia (5.59) UAE (9.43)

Algeria (1.08) South Africa (2.97) UAE (2.74) Equatorial Guinea (4.54) Oman (5.80) US (7.83)

Provisional Figures in the bracket are per cent share in the total

a

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

India offers a rapidly growing market for the energy exporters of the Persian Gulf. At the same time, its progress in the negotiations with the regional countries for joint ventures in integrated refining and petrochemical projects will shape the refinery margins and India’s export of

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petroleum products in the coming years. India’s efforts to have a strategic petroleum reserve of 5.33 million metric tonnes38 offer storage facilities for the Gulf Arab producers outside the chokepoint of the Gulf of Hormuz, while strengthening its energy security. The UAE has supplied oil for the reserves in Mangalore and Padur (Karnataka) and Saudi Armco has signed an agreement in this regard.39 Collaboration in the downstream sectors, up-gradation of refineries, renewable energy, energy efficiency and related services are the emerging areas of partnership that needs to be scaled up. The overall India’s economic ties with the Persian Gulf have been robust but not uniform. Because of the high proportion of imports, the balance of trade is skewed in favour of the Persian Gulf countries. The challenge is to shape the relations according to the promises and pitfalls of the transition and turmoil in the region. With limited success in economic diversification, the growth stimulus in the Persian Gulf is largely driven by the oil sector. The region needs partners that provide market for their nascent but  growing non-oil exports and facilitate sustainable resource management and capacity building of their nationals in a wide spectrum of sectors. Iraq’s reconstruction offers numerous opportunities for Indian companies to regain their erstwhile market. Baghdad has been favourably deposed towards India and India’s contribution to the investment and reconstruction efforts could open new opportunities. The recently opened Sheikh Jaber Causeway in Kuwait offers in the long term better connectivity to Iraq, improving its regional linkage  and risk management. Besides, the economic outreach of the Gulf Arab countries to Iraq was prominent in 2019 and might blunt some of the existing cleavages. FDI: The deliverables like the Chabahar project in Iran and the fertilizer project in Oman are capable of cultivating mutually beneficial forward and backward economic linkages between India and the region. Relations with Oman seemed to be losing steam in the last few years with fluctuations in bilateral trade (Table  6.8) and stagnating  FDI inflows in 2019 (Table 6.13). The same was sought to be revived during prime minister’s 38  Indian Strategic Petroleum Reserves Limited (ISPRL). ‘About us’, http://www.isprlindia.com/aboutus.asp 39  The Economic Times. ‘ADNOC to fill up Mangalore oil reserves in Nov: Indian Officials’, 28 October 2018, https://energy.economictimes.indiatimes.com/news/oil-and-gas/ adnoc-to-fill-up-mangalore-oil-reserves-in-nov-indian-officials/66397925

1 INTRODUCTION 

23

visit to Oman in 2018 as the Sultanate is important for India for its strategic location outside the Strait of Hormuz. Besides, it is one of the few countries where India has a stake in the upstream oil sector40 and has a joint venture in a third country. Its relatively high ranking in Ease of Doing Business 2020 (Table 11.9) and ability to side-step the intra-GCC fault-lines make Muscat a conducive base for India’s economic expansion in the region. FDI from the GCC countries (except from the UAE) is only a trickle of their potential given the vast sovereign wealth funds (Table  1.13), while significant investments are reported in other institutional investments and funds. FDI from Saudi Arabia and Qatar had picked momentum in 2019. India has been continually improving its investment climate but is still behind in giving parity to some of the GCC countries and its other Asian competitors (Table  11.8). Both sides view each other with interest and expectation to contribute to the building of infrastructure and manufacturing capacity in some sectors. For India, investment in infrastructure is paramount41 while the Gulf Arab countries seek investments in a host of the manufacturing sector and value addition in the petrochemicals. Service sector business opportunities cut across collaboration in health care, tourism, information technology and information technology-enabled services (ITES). Table 1.14 shows the high level of internet penetration in some of the Persian Gulf countries and the growing popularity of e-commerce. As trade and commerce between the India and the Persian Gulf grow, issues of maritime security assume paramount importance in the bilateral relations. As Table 1.15 shows, better bilateral shipping connectivity exist between India and Saudi Arabia as well as UAE than with the US. India’s 40  Bilal Abdi. ‘IOC Acquires Shell’s entire stake in Oman oilfield for $329 million’, The Economic Times, 6 April 2018, energy.economictimes.indiatimes.com/news/oil-and-gas/ ioc-acquires-shells-stake-in-oman-oilfield-for-329-million/63632094 41  Dipanjan Roy Chaudhary. ‘India seeks Kuwaiti investments in infrastructure and power sectors’, The Economic Times, 30 June 2019, https://economictimes.indiatimes.com/news/ economy/foreign-trade/india-seeks-kuwaiti-investments-in-infrastructure-and-power-sectors/articleshow/70012684.cms; Shantanu Nandan Sharma. ‘Inside Modi’s game plan to bring in investment for Infrastructure’, The Economic Times, 14 July 2019, https://economictimes.indiatimes.com/news/economy/infrastructure/inside-modis-game-plan-tobring-in-investment-for-infrastructure/articleshow/70208190.cms?from=mdr

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Table 1.13 Assets under management of sovereign wealth funds (US$ billions)

Bahrain Iran Kuwait Oman Qatar Saudi Arabia UAE

18.8 68 599.3 32.1 317 226.8 1,324

Sources: Sovereign Wealth Fund research, Ie Foundation, Sovereign Wealth Funds 2018, https://docs.ie.edu/cgc/SWFCGC-2018.pdf. Figures for Bahrain and Saudi Arabia (2017) are from respective sovereign wealth fund documents

exports to the region should robustly grow to rationalize the transport cost and improve merchandise trade balance with the region. Table 1.15 also shows that Saudi Arabia, the UAE and Kuwait have better bilateral liner shipping connectivity with India than with the US, thus, presenting a case for more maritime security cooperation between India. This is gaining importance especially as President Trump have called on the Asian countries to protect their own maritime trade.42 In 2019, Indian Navy provided armed escort and surveillance for movement of Indian flagged ships in the Gulf of Oman and the Persian Gulf.43 The attacks on the tankers in the regional waters, reminiscent of the tanker wars in the 1980s, call for increased maritime security cooperation among the stakeholders as the regional strife frequently spills over in the sea lanes, besides piracy.

42  France24. ‘Trump tells other countries to protect own Gulf shipping’, 24 June 2019, https://www.france24.com/en/20190624-trump-tells-other-countries-protectown-gulf-shipping 43  Shaurya Karanbir Gurung. ‘To ensure security of Indian vessels, navy deploys warship in Gulf of Oman, Persian Gulf’, The Economic Times, 20 June 2019, https://economictimes. indiatimes.com/news/defence/to-ensure-security-of-indian-vessels-navy-deploys-warshipsin-gulf-of-oman-persian-gulf/articleshow/69879830.cms?from=mdr

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Table 1.14  Ranking in UNCTAD B2C E-commerce Index, 2019

Bahrain Iran Iraq Kuwait Oman Qatar Saudi Arabia UAE Yemen India

Internet penetration (2018) (per cent)

Internet users that did online shopping in last one year (2017) (per cent)

Rank in e-commerce index (2019)

Rank in e-commerce index (2018)

99 70 49 100 80 100 93

22 42 14 21 – – 27

65 42 131 55 59 47 49

61 49 129 65 72 59 52

98 27 34

52 – 11

28 141 73

33 146 80

Source: United Nations Conference on Trade and Development, UNCTAD B2C E-COMMERCE INDEX 2019, https://unctad.org/en/PublicationsLibrary/tn_unctad_ict4d14_en.pdf

Table 1.15  Liner shipping bilateral connectivity index 2019 Partners economy Bahrain Iran China India US

0.391 0.304 0.392

Iraq

Kuwait Qatar Saudi Arabia UAE

0.384 0.388 0.268 0.349 0.318 0.297 0.326 0.332 0.258

0.475 0.630 0.422 0.529 0.445 0.527

US

0.659 0.679 0.547 0.507 0.532 –

Source: UNTACDSTAT.  Liner Shipping Bilateral Connectivity Index, https://unctadstat.unctad.org/ wds/TableViewer/tableView.aspx Note: The index shows country pair’s integration level into global liner shipping networks and is computed on bases of five indicators: 1.  number of transhipments required to get from country A to country B; 2.  number of direct connections common to both country A and B; 3.  number of common connections by country pair with one transhipment; 4.  level of competition on services that connect country A to country B; and 5.  size of the largest ship on the weakest route connecting country A to country B.

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Table 1.16  Population of overseas Indians in the Persian Gulf, 2020

Bahrain Iran Iraq Kuwait Oman Qatar Saudi Arabia UAE Yemen Persian Gulf total India’s total Share of Persian Gulf (per cent)

Non-Resident Indians (NRIs)

Persons of Indian Origin (PIOs)

Total overseas Indians

323,292 (+10,374) 4,000 (0) 18,000 (8,000) 1,028,274 (+99,853) 779,351 (+91,125) 745,775 (+54,236) 2,592,166 (−220,242) 3,419,875 (+319,875) 500 (0) 8,911,233 (+363,221) 12,499,395 71.29

3,366 (+109) 337 (+64) 7 (7) 1,587 (+105) 1,790 (+871) 775 (+225) 2,781 (+621) 5,269 (+683) 10,000 (0) 25,912 (+2,734) 15,592,357 0.16

326,658 (+10,483) 4,337 (+64) 18,007 (+8,007) 1,029,861 (99,958) 781,141 (+91,996) 746,550 (+54,511) 2,594,947 (−219,621) 3,425,144 (+320,558) 10,500 (0) 8,937,145 (+365,956) 28,198,352 31.69

Figures in the brackets are change over last estimate in 2018 Source: GoI, MEA, http://mea.gov.in/images/attach/NRIs-and-PIOs_1.pdf

Expatriates: About 8.5 million Indian expatriates work in the region who remitted about US$41 billion in 2018.44 But there had been a decline in the number of Indians in Saudi Arabia, while the number has increased in other countries (Table  1.16). Oman and Kuwait have been facing increasing social pressure to boost the employment of nationals and to restrict the economic role of the expatriates. The role for India is to 44  The Economic Times. ‘India highest recipient of remittances at $79 bn in 2018: World Bank’, 9 April 2019, https://economictimes.indiatimes.com/nri/forex-and-remittance/ india-highest-recipient-of-remittances-at-79-bn-in-2018-world-bank/ar ticleshow/68788815.cms?from=mdr

1 INTRODUCTION 

27

re-­orient its economic engagement with region by creating tangible deliverables for the region and to generate employment opportunities by technical and skill development through joint venture projects. Designing a mutually strengthening relationship is the desirable future growth trajectory for India’s relations with the Persian Gulf region.

MEI@ND Founded in October 2009 as a private and not-for-profit academic initiative, Middle East Institute at New Delhi (MEI@ND) has completed a decade and reiterates its commitment to generating a serious, nuanced, scholarly and non-partisan understanding of the region of strategic importance to India. The MEI has undertaken several academic and outreach activities, including Contemporary Review of the Middle East, a refereed quarterly published by Sage (India) and several edited volumes, with the participation of young and budding scholars. The Persian Gulf dominates India’s political, strategic, economic, energy, cultural and social interests in the broader Middle East and hence, the Persian Gulf Series was launched in 2012. It systematically follows, analyses and details bilateral relations annually. Kindle published the inaugural issue.45 Two subsequent volumes Persian Gulf 201346 and Persian Gulf 201447 were published by Sage (India). Smashword published the fourth in the series Persian Gulf 2015.48 The 2016–17 volume pertaining to 2015 and 2016 events was published in collaboration with Institute for Defence Studies and Analyses (IDSA, renamed Manohar Parrikar-IDSA in February 2020).49 Thanks to Sagarika Ghosh, we found a home in Springer that has taken over the series. After the 201850 and 201951 volumes, the present Persian Gulf 2020 is the eighth in the series and the third under Palgrave Macmillan print and covers 2019 developments. 45  Persian Gulf 2012, https://www.amazon.in/Persian-Gulf-2012-Indias-Relationsebook/dp/B0099RZ6NG 46  Persian Gulf 2013, https://us.sagepub.com/en-us/nam/persian-gulf-2013/ book242306 47  Persian Gulf 2014, https://us.sagepub.com/en-us/nam/persian-gulf-2014/ book245036 48  Persian Gulf 2015, https://www.smashwords.com/books/view/549471 49  Persian Gulf 2016–17, https://idsa.in/book/book_persian-gulf-2017 50  Persian Gulf 2018, https://www.palgrave.com/gp/book/9789811319778 51  Persian Gulf 2019, https://www.palgrave.com/gp/book/9789811514319

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The series began as an edited volume and when we moved to Springer, we settled for co-authorship for greater coherence and timely execution. The basic template of the series remains the same, presenting India’s relations with the region in a comprehensive, holistic and systematic manner. Dr. Sameena Hameed, an economist, has joined the Persian Gulf 2020 and her participation expands and enriches the economic dynamics of the series. The MEI@ND prefers Persian Gulf to other expressions only because of its historical nature and is an UN-recognized nomenclature. When there are water bodies like the Arabian Sea, Indian Ocean or Bay of Bengal, why object to the Persian Gulf? However, like other geographical expressions, the term Persian Gulf does not denote Iranian ownership of the said waters. A few caveats. Unlike the earlier volumes, the economic data of Persian Gulf countries are sourced from respective official national databases. Some of the figures are given in national currencies and for the benefit of a wider audience, they are converted into dollars (on the basis of the average official exchange rate of 2019). Some of the annual data for selected indicators were available for 2019, while for others the latest quarterly figures were used. There may be discrepancies in the foreign investment figures of the national governments with that of the UNCTAD due to the differences in definition and methodology. In a few cases, the real growth figures might vary with that of the World Bank due to difference in the base year. Some countries do not share oil export destinations data and the same has been supplemented by the international sources like International Trade Centre (ITC), Geneva and UNCTAD, which are often at variance with each other. The two-digit HS code given by the ITC has been used for the commodity description for the export and import figures. Moreover, the accounting years also differ; while India uses financial years that cover the April-March period, some countries use current year; and Iran fiscal year begins from 20 March. Likewise, the figures put out by India’s Directorate General of Foreign Trade for a current year are often revised in the following year. Hence, there could be a slight discrepancy. For example, the trade figures for 2017–18 would be different in Persian Gulf 2019 and Persian Gulf 2020. Moreover, references to the internet websites (URLs) were accurate when the manuscripts were finalized on 15 April 2020. The authors or publisher are not responsible for URLs that may have expired or changed since the manuscript was finalized.

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As authors, we record our sincere gratitude to all the previous contributors who made the series possible and flourishing. We register our recognition and appreciation to our innumerable scholar friends, especially, C. Uday Bhaskar, Girijesh Pant, Gulshan Dietl, Jayati Srivastava, Meena Singh Roy, Rajesh Rajagopalan, Sanjay Singh, Shyam Babu, Srabani Roychoudhary, Sreeradha Datta and Vivek Mehra. Above all, we are grateful to Honourable Shri M. Hamid Ansari for his wholehearted, valuable and unflinching support for the MEI. Special thanks are reserved to Rohit Sharma for his delicate skills in fine-tuning the references and to  Gour Sundar Saha  for preparing the index. We immensely value the support of Sandeep Kaur in getting this volume out within such a short time. Above all, we acknowledge and appreciate the unconditional love, affection, inspiration and support of our family and friends in completing this volume. With great respect and gratitude, we are dedicating this volume to Professor C. Raja Mohan, one of the finest strategic analysts and commentators in the country and a true friend of MEI.  And all omissions and commissions are ours alone. P. R. Kumaraswamy, Md. Muddassir Quamar and Sameena Hameed 15 April 2020 New Delhi

CHAPTER 2

Bahrain

Key Information Ruling family: Al-Khalifa; Ruler: King Hamad Bin Isa al-Khalifa (since 6 March 1999); Crown prince: Prince Salman Bin Hamad Bin Isa al-­Khalifa (since 9 March 1999); National day: 16 December; Parliament: 40-member Nominated Consultative Council and 40-member Elected Chamber of Deputies; Last parliamentary election: 24 November 2018; Major group in parliament: Independents (Shia Opposition boycotted); National carrier: Gulf Air. Socio-economic Indicators Area: 779.95 sq. km; Population: 1.6 million (UNDP, 2019); Native: 46 per cent; Expats: 54 per cent (Asian 45.5 per cent; other Arabs 4.7 per cent; African 1.6 per cent; European 1 per cent; Others 1.2 per cent); Religious groups: Citizens—Muslims: 98–99 per cent (Shia 60–65 per cent and Sunni 30–35 per cent), others 1–2 per cent; Residents—Muslim 70 per cent; Christian 14.5 per cent; Hindu 9.8 per cent; Buddhist 2.5 per cent; Jewish 0.6 per cent; and Others 2.6 per cent including folk religions, unaffiliated, Sikhs and Baha’is (USCIRF, 2019); Youth: 15.16 per cent (15–24 age group) (2018); Population growth rate: 4.9 per cent (World Bank, 2018); Life expectancy at birth: 77.2 years (HDI report, 2019); Literacy rate: 97 per cent (ages 15 and above) (World Bank, 2018); © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_2

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National currency: Bahraini Dinar (BHD); GDP (current prices): US$37.74  billion (World Bank, 2018); Foreign trade: Exports— US$14.35  billion, Imports—US$20.60  billion (World Bank, 2018); Military expenditure: 3.6 per cent of GDP (World Bank, 2018); Sovereign wealth fund: US$18.8  billion (Mumtalakat); Government debt: US$32.0  billion (CEIC data, January 2020); Per capita income: US$40,399 (GNI per capita, at 2011 PPP), US$41,973 (GDP per capita, 2011 PPP) (UNDP, 2019); Oil reserves: 70.874 million bbl. (National Gas and Oil Authority, Bahrain, 2018); Gas reserves: 6.4 tcf (BP, 2018); HDI rank: 45/189 (2019); Infant mortality rate: 7.3/1,000 under five live births (UNDP, 2019); UN Education Index: 0.738 (UNDP, 2019); Gender Inequality Index: 0.207; GII rank: 47/162 (UNDP, 2019); Labour force: 977,300 (World Bank, 2019); Employment to population ratio: (15 and older): 72.1 per cent (UNDP, 2019); Unemployment rate: 1 per cent of total labour force (World Bank, 2019); Total urban population: 89.3 per cent (UNDP, 2019); Urban Population growth (annual per cent): 5 per cent (World Bank, 2018); Last national census: 2010; World Press Freedom Index rank: 167 (RSF, 2019); Ease of Doing Business Index: 43/190 (World Bank, 2019); Corruption Perception Index: 77/180 (Transparency International, 2019); Foreign direct investment: US$1,515  million (inward) (UNCTAD, 2019); Individuals using internet (per cent of population): 98.6 per cent (UNDP, 2019); Net migration rate (per 1,000 population, 2015–2020): 31.1 (UN World Population Prospects, 2019); Forest area (per cent of land area): 0.8 (UNDP, 2019); International tourism, number of arrivals: 12,045,000 (World Bank, 2018); Carbon dioxide emissions (Tonnes per capita): 20.8 (UNDP, 2019); Gender development index: 0.965 (UNDP, 2019); Global terrorism index: Rank 61 out of 163 countries (Vision of Humanity, 2019). India Related Indian cultural centre: 1; Number of Indians: 350,000 (approximately); Number of places of worship for Indians: 1 temple, 5 churches and 6 gurdwaras; Indian schools: 8 (Embassy of India in Bahrain); Indian banks: State Bank of India (2), ICICI Bank (1) and HDFC Bank (1) (RBI, September, 2019); Currency exchange rate: 1  BHD  =  INR  196.684

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(March 2020); Last visit to India by the ruler: Hamad Bin Isa al-Khalifa (February 2014); Last visit by an Indian prime minister: Narendra Modi (August 2019). * * * The Kingdom of Bahrain, though a small island nation amidst large and wealthier neighbours, is an important country due to its crucial geographical position and strong relations with the US. The Fifth Fleet of the US Navy is based in Bahrain, which makes the Gulf state significant, especially in the light of heightened and growing tensions in the Persian Gulf. In regional politics, Manama is closely aligned with Riyadh because of its economic and political dependence on the larger neighbour and the internal sectarian fault lines make Bahrain a crucial player in the Saudi-Iran rivalry and competition for domination. The traditional friendly ties that India maintained with Bahrain got a boost with the visit of Prime Minister Narendra Modi in August 2019, the first prime ministerial visit since India’s independence. Domestic Developments The Bahraini domestic political and economic situation continues to suffer due to sectarian tension that came into open in February 2011 amidst the Arab Spring protests. Though the ruling family has managed to survive with the help of the GCC neighbours, mainly the Kingdom of Saudi Arabia, it has not been able to resolve the festering sectarian fissures and restore even the political freedom that the Bahrainis enjoyed before 2011. The shrinking political space, continuing uncertainties over internal dialogue and declining oil reserves have increased Bahrain’s political and financial dependence upon Saudi Arabia and the UAE. The discovery of a new gas field off the coast in 2018 offers hopes for a reversal of external dependency. However, until the gas field gets into the production stage, Bahrain would continue to be guided by the Saudi-Emirati views on both domestic and regional affairs. Politics, Foreign Policy and Security By 2019, political violence emanating from the restive Shia population has been brought under control. However, the brutal and high-handed

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measures taken by the government to suppress the Shia population has created anger and alienation along sectarian lines and would have longterm consequences. In January, the Bahraini Court of Cassation upheld the life sentence of Ali Salman, Secretary-General of Al-Wefaq—the main opposition party before it was banned and dissolved in 2016—on charges of spying, contacts with enemy and compromising state security.1 Salman and two of his colleagues—Hassan Sultan and Ali al-Aswad—were first put on trial in November 2017 but in July 2018, they were acquitted of all charges by the High Criminal Court in Manama. The prosecution appealed in the High Court of Appeal in November, which overturned the acquittal and sentenced all three to life imprisonment. While the other two did not appeal, Salman appealed against the sentence in the Court of Cassation, which in January 2019 upheld the conviction and sentence.2 The high-profile case became a major international issue because many outside Bahrain saw it as a political prosecution and a violation of human rights.3 The Islamic Republic of Iran was at the forefront of the international condemnation and this led to heated diplomatic exchanges between the two countries. On 29 January, the Iranian Foreign Ministry issued a statement criticizing Salman’s conviction as “unjust” and “based on false accusations.” It stated that Bahrain, “with the support of some foreign countries, is seeking to silence any voice of peaceful protest in the country.”4 The spokesperson also criticized the international community for its silence on the verdict. The Bahraini Ministry of Foreign Affairs rebuffed the accusations the same day, saying Tehran’s position reflects “the aggressive nature of the regime in Iran as well as its approach that disrespects the principles of international relations and good neighbourliness.”5 It further said that Tehran’s position on the ruling of the independent Bahraini court “mirror[s] the Iranian policy which 1  Habib Toumi. ‘Bahrain court upholds Ali Salman’s life sentence’, Gulf News, 28 January 2019, https://gulfnews.com/world/gulf/bahrain/bahrain-court-upholds-ali-salmans-lifesentence-1.61722726 2  Ibid. 3  Jon Gambrell. ‘Bahrain court uphold life sentences for opposition figures’, Associated Press, 28 January 2019, apnews.com/faa94869052545e8a123dad989f5580a 4  Mehr News Agency. ‘Iran calls on Bahraini authorities to end repressive measures against own people’, 29 January 2019, https://en.mehrnews.com/news/142024/ Iran-calls-on-Bahraini-authorities-to-end-repressive-measures 5  Bahrain. Ministry of Foreign Affairs (MFA). ‘Ministry of Foreign Affairs: Statements of Spokesman of Iranian Ministry of Foreign Affairs reflect Iranian regime’s aggressive nature’, 29 January 2019, https://www.mofa.gov.bh/Default.aspx?tabid=7824&language=enUS&ItemId=10164

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interferes in the internal affairs of the Kingdom of Bahrain and other Arab states in order to promote chaos, tension and violence in the region.”6 The court verdict evoked criticisms from the US State Department as well which underlined that the decision “against former parliamentarian Ali Salman narrows the space for free expression and political activity, something historically protected under Bahrain’s constitutional system.”7 However, the incident did not affect the relations between the monarchy and the White House and the Pentagon. The US special representative on Iran, Brian Hook, on several occasions, stated that Bahrain is a frontline state in the American policy of “maximum pressure” against Iran.8 He accused Iran of creating sectarian tensions in Bahrain to destabilize that country. In February, CENTCOM commander Joseph Votel in a statement before the US Senate Armed Services Committee noted that Bahrain is a “strong partner in countering threat financing, especially helping curtail Iran’s efforts to circumvent financial sanctions.”9 For its part, Bahrain has been forceful of its criticism of Iran and the latter’s “meddling” in regional affairs. It fears that Iran has not completely given up on its sovereignty claims over the island country that was historically under Persian kings before it came under the Al-Khalifa rule in late eighteenth century and became a British protectorate in 1868.10 This suspicion has traditionally guided the Bahraini policy towards Iran, and it gained credence at the perceived Iranian meddling on behalf of the Shia population in the wake of the Arab Spring protests since 2011. In the same trajectory, in April 2019, a Bahraini court sentenced a large number of individuals for running a terror cell with the financial support of Iran’s Islamic Revolutionary Guard Corps (IRGC).11 The mass trial of  Ibid.  Cale Brown. Deputy Spokesperson, US Department of State, “Tweet on Court Verdict on Ali Salman,” 29 January 2019, https://twitter.com/StateDeputySPOX/status/ 1090009404253052933 8  Bahrain. MFA. ‘Minister of Foreign Affairs receives U.S. Special Representative for Iran and Senior policy Advisor to Secretary of State’, 15 January 2019, https://www.mofa.gov. bh/Default.aspx?tabid=7824&language=en-US&ItemId=10113 9  Joseph L. Votel. ‘The posture of U.S. Central Command Great Power Competition: The Current and the Future Challenges in the Middle-East’, 5 February 2019, https://www. armed-services.senate.gov/imo/media/doc/Votel_02-05-19.pdf 10  Roham Alvandi. ‘Muhammed Reza Pahlavi and the Bahrain Question, 1968–70’, British Journal of Middle Eastern Studies 37 (1), 159–177, https://doi.org/10.1080/ 13530191003794723 11  Reuters. ‘Bahrain Jails 139 on terrorism charges, revokes citizenship’, 16 April 2019, https://in.reuters.com/article/bahrain-security/bahrain-jails-139-on-terrorism-chargesrevokes-citizenship-idINKCN1RS10N 6 7

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169 persons, mostly Shias, was criticized by many including Bahrain Independent Human Rights Commission and international media.12 Nonetheless, the prosecution and security agencies insisted that the terror cell was funded and supported by the IRGC “with all the technical, logistic and financial support in order to organize them into a single terrorist group” in the form of Hezbollah in Bahrain.13 Among the 169 who were prosecuted, the court acquitted 30, while 69 were sentenced “to life in prison, 39 to 10 years, 23 to seven years, one to five years and seven to three years.”14 Barring one individual, all convicted persons were also stripped of their Bahraini citizenship. Amidst the growing tensions in the Persian Gulf in the wake of attacks on oil tankers off the coast of the UAE and Gulf of Aden in May and June respectively, Bahrain reiterated its cooperation with the US vis-à-vis Iran and welcomed increased American sanctions on Tehran. On 31 July, Bahrain hosted an international meeting to assess the maritime security situation in the Strait of Hormuz. A Foreign Ministry statement noted that the meeting was to “discuss means to enhance international cooperation and coordination in order to combat the rejected and repeated hostile practices of Iran and its terrorist affiliates, which aim to undermine the security of maritime navigation in the Arabian Gulf and the Strait of Hormuz, constituting a threat to the stability of the region and the world at large.”15 Iran criticized it as a “suspicious and provocative meeting.”16 In June, Manama hosted the “Peace for Prosperity” workshop to unveil the economic part of the Trump peace plan promising to resolve the complex Israeli-Palestinian conflict.17 Significantly, Palestinians skipped the workshop, which was unveiled by Trump’s son-in-law and advisor Jared 12  Bethan McKernan. ‘Bahrain Court sentences 139 to jail in mass terror trial’, The Guardian, 16 April 2019, https://www.theguardian.com/world/2019/apr/16/bahraincourt-jails-139-after-terrorism-trial 13  Bahrain News Agency. ‘Terror cell member sentenced’, 16 April 2019, https://www. bna.bh/en/.aspx?cms=q8FmFJgiscL2fwIzON1%2bDvxjDQkEOmBElrt0hldx8%2b0%3d 14  Ibid. 15  Bahrain News Agency. ‘Statement on Bahrain’s hosting of international military meeting’, 31 July 2019, https://www.bna.bh/en/StatementonBahrainshostingofinternational militarymeeting.aspx?cms=q8FmFJgiscL2fwIzON1%2bDrsSr4hLtWRLvExi%2brs6Op0%3d 16  Islamic Republic of Iran. Ministry of Foreign Affairs (MFA). ‘Spokesperson Condemns Bahrain’s Anti-Iran moves’, 8 August 2019, https://en.mfa.ir/portal/NewsView/48315 17  Al-Arabiya. ‘Major World Financial bodies to attend US-led Palestinian conference in Bahrain’, 5 June 2019, https://english.alarabiya.net/en/News/middle-east/2019/06/05/ Major-world-financial-bodies-plan-to-be-at-US-led-Palestinian-conference

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Kushner.18 Despite the efforts by Kushner and the support extended by the Saudi and Emirati leadership, the workshop did not garner any enthusiastic response either in the region or beyond.19 In September, the Bahraini Crown Prince Salman Bin Hamad al-­Khalifa travelled to the US and met President Donald Trump and Secretary of State Michael Pompeo and discussed bilateral issues and regional tensions. A statement issued by State Department after the Crown Prince’s meeting with Pompeo noted that the two leaders “discussed the importance of countering the Iranian regime’s malign influence in the region, how best to move forward on the Middle East Strategic Alliance, and other bilateral and regional issues.”20 It also noted that “Secretary Pompeo thanked the Crown Prince for supporting freedom of navigation by joining the International Maritime Security Construct and for agreeing to host the upcoming Warsaw Process Working Group meeting” concerning refugees.21 On 28 September, the Bahraini Foreign Minister Khalid Bin Ahmed al-Khalifa, while addressing the 74th session of the United Nations General Assembly in New York, “stressed the necessity of achieving global security and peace and combating terrorism.”22 He underlined Bahrain’s threat perception vis-à-vis Iran and accused that the IRGC of creating regional instability “through the establishment and support of terrorist militias, or through its continuous attempts to cause chaos and sedition, and by interfering in the internal affairs of many countries in the region, including the Kingdom of Bahrain.”23 Earlier, Bahrain had welcomed the US decision in April to designate the IRGC as a terrorist organization.24 18  Xinhua Net. ‘Roundup: Palestinians largely reject U.S. economic workshop in Bahrain next month’, 20 May 2019, http://www.xinhuanet.com/english/2019-05/20/c_ 138074999.htm 19  Stephen Kalin, Suleiman al-Khalidi and Mohamed Abdellah. ‘Kushner’s economic plan for Mideast peace faces broad Arab rejection’, Reuters, 23 June 2019, https://www.reuters. com/article/us-israel-palestinians-plan-arabs/kushners-economic-plan-for-mideast-peacefaces-broad-arab-rejection-idUSKCN1TN0RW 20  US.  Department of State. ‘Secretary Michael R.  Pompeo’s Meeting with Bahraini Crown Prince Salman Bin Hamad Al Khalifa’, 17 September 2019, https://www.state.gov/ secretary-michael-r-pompeos-meeting-with-bahraini-crown-prince-salman-bin-hamad-alkhalifa/ 21  Ibid. 22  Bahrain News Agency. ‘Bahrain urges global peace and Security’, 28 September 2019, https://www.bna.bh/en/Bahrainurgesglobalpeaceandsecurity.aspx?cms=q8FmFJgiscL2fwI zON1%2bDtlwxnR4XPuDB6Ka55JNR54%3d 23  Ibid. 24  Reuters. ‘Bahrain welcomes U.S. blacklisting of Iran Revolutionary Guards’, 8 April 2019, https://www.reuters.com/article/us-usa-iran-bahrain-idUSKCN1RK1VK

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Fig. 2.1  Bahrain: Oil and non-oil GDP growth rates, 2016–18 (per cent). Source: Compiled from Bahrain Open Data Portal, National Accounts Annual Report 2018, https://www.data.gov.bh/en/ResourceCenter

Economic Situation The Bahraini GDP growth rates at current prices had shown a wide fluctuation from a negative growth of 7 per cent in 2015 to growth of 10.05 per cent in 2017 (Fig. 2.1). The GDP was US$37.5 billion in 2018, while growth rate was 6.1 per cent over the previous year (Table 2.1). The economic growth was dismal in 2019, with negative growth rates (at current prices) in GDP, oil GDP and non-oil GDP in the fourth quarter of 2019. The year-on-year (y-o-y) GDP real growth rates were 2.73 per cent, 0.84 per cent, 1.58 per cent and −0.44 per cent in the four quarters respectively in 2019.25 The share of the oil and gas sector in the GDP was 14.86 per cent in 2018 as against 23.3 per cent in 2014.26 Except for a spurt in the oil sector 25  Bahrain Open Data Portal, National Accounts Q3, https://www.data.gov.bh/en/ ResourceCenter 26  Bahrain Open Data Portal, National Accounts Annual Report 2018, https://www.data. gov.bh/en/ResourceCenter

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Table 2.1  Bahrain: Oil and non-oil GDP, 2016–18 (US$ million)

GDP (at current prices) Oil GDP Non-oil GDP

2016

2017

2018

Average growth rate (2014–18)

32,119.06

35,345.97

37,516.85

3.12

3,570.35 28,548.72

4,380.98 30,964.99

5,581.17 31,935.95

−3.2 5.7

Source: Bahrain Open Data Portal, National Accounts Annual Report 2018, https://www.data.gov.bh/ en/ResourceCenter

GDP in the first quarter 2019, the real growth rates of the sector were negative in the remaining three quarters. The oil sector GDP was US$5.5 billion in 2018, with the growth rate of 27.5 per cent over the previous year (Table 2.1 and Fig. 2.1). The non-oil sector y-o-y GDP at current prices grew at 2.80 per cent, 3.16 per cent, 3.18 per cent and −0.10 per cent in the four quarters respectively in 2019. The real growth rates for the same period were 1.52 per cent, 1.21 per cent, 1.98 per cent and −0.92 per cent respectively. The non-oil GDP was US$31.94 billion, with a growth rate of 3.1 per cent. The average growth of the non-oil sector in 2014–18 was 5.7 per cent (Table 2.1). Table 2.2 shows the sectoral contribution of the main economic activities and their growth rates. The mining and quarry had a negative growth rate during 2014–16 because of a steep fall in oil prices but had a double-­ digit growth rate during 2016–18. The aluminium sector contributes about 12–13 per cent of the GDP, and Aluminium Bahrain is listed among the top global producers.27 The share of the manufacturing sector was 17.67 per cent, while the financial sector was the largest in the service sector, with a 16.13 per cent share. The manufacturing, construction, transport and communication sectors had an average growth rate of more than six per cent during 2014–18. In the communication sector, the government planned to launch a commercial 5G network using China’s Huawei technology despite the US warning several countries against using the Chinese technology due to possible spying concerns. VIVA Bahrain, a subsidiary of Saudi Arabia’s state-controlled Saudi Telecommunication 27  James Mathew. ‘Revealed: how Bahrain, India plan to seek closer economic ties’, Arabian Business,  1 December 2019, https://www.arabianbusiness.com/politicseconomics/434707-revealed-how-bahrain-india-plan-to-seek-closer-economic-ties

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Table 2.2  Bahrain: Sectoral contribution to GDP and growth rates (per cent) Economic activity

Per cent share in the GDP (2018)

Growth rates 2018–19

Average growth rates (current prices) (2014–18)a

Manufacturing Financial services Mining and quarry Construction Transport and communications Wholesale and resale trade Total services

17.67 16.13 14.86 8.23 7.36

3.7 0.8 −3.9 2.6 7.1

6.75 4.46 −2.82 9.89 6.7

4.31

2.7

4.40

56.21

3.6

-

Source: Bahrain Open Data Portal, National Accounts Q4 2019, https://www.data.gov.bh/en/ ResourceCenter Bahrain Open Data Portal, National Accounts Annual Report 2018

a

Company (STC), signed an agreement to use Huawei products in the 5G network in the island.28 Some of the previous investment projects are close to completion, giving a further boost to tourism. Bahrain opened the world’s largest underwater theme park that featured a sunken Boeing 747 aircraft that divers can explore.29 One of the biggest construction projects in the Kingdom, the new US$1.1 billion airport terminal in Manama, would become operational in March 2020.30 The two prominent economic challenges facing the country are undertaking fiscal reforms and reducing budgetary deficits while promoting growth and job opportunities for the nationals. The unemployment rate among the Bahraini citizens was 4.3 per cent in 2016.31 The total number of establishments in the private sector that provided social security to its 28  Gulf Business. ‘Bahrain to use Huawei in 5G rollout despite U.S warnings’, 26 March 2019, https://gulfbusiness.com/bahrain-use-huawei-5g-rollout-despite-us-warnings/ 29  Ben Mack. ‘Watch: World’s Largest underwater theme park opens in Bahrain’, Gulf Business, 25 September 2019, https://gulfbusiness.com/watch-worlds-largest-underwatertheme-park-opens-bahrain/ 30  Ben Mack. ‘New $1.1 bn terminal at Bahrain Airport to open in March 2020 – crown Prince’, Gulf Business, 8 October 2019, https://gulfbusiness.com/new-1-1bn-terminalbahrain-airport-open-march-2020-crown-prince/ 31  Bahrain Open Data Portal, Bahrain in Figures 2016, p. 32, https://www.data.gov.bh/ en/ResourceCenter

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employees were about 80,977 in 2017, and they employed about 595,425 persons.32 The share of non-Bahraini nationals in the private sector employment with social security was 85.2 per cent in 2016. About 40,000 Bahrainis were employed in the government sector as against nearly 9,000 expatriates.33 On the fiscal front, oil revenues constituted about 71.17 per cent of the total government revenues in 2019. The expenditure in the 2019 budget was projected at US$9.30  billion as against the projected revenue of US$7.46 billion with a deficit of US$1.84 billion.34 Some of the sectoral allocations of the budgetary expenditure were social protection (15.47 per cent) education (12 per cent) and health sector (11 per cent). Saudi Arabia, the UAE and Kuwait had pledged US$10 billion in 2018 to support Bahrain towards reducing the fiscal deficit. It received US$2.3 billion in 2018 as the first instalment and was in the process of receiving US$2.3 billion in 2019.35 The budgetary deficit was 6.2 per cent of GDP in 2018 and was expected to reduce to 3.4 per cent in 2019. To boost the government revenues, Bahrain introduced VAT with effect from 1 January 2019 and became the third GCC country to do so after the UAE and Saudi Arabia.36 Business organizations are mandated to collect VAT and remit the same to local authorities. At the same time, the government scrapped plans to reform the subsidy system amidst fears that it could trigger more unrest among the population and complicate efforts to repair government finance.37 Total subsidies accounted for about 21 per cent of the total government expenditure during the turbulent years of  2011 and 2015 but later declined to 17.48 per cent in 2018.38 The 32   Bahrain Open Data Portal, Labour force 2017, https://www.data.gov.bh/en/ ResourceCenter 33  Ibid. 34  Kingdom of Bahrain, Ministry of Finance and National Economy (MFNE), Budget Law 2019–2020 Tables, https://www.mofne.gov.bh/FinancialDetail.aspx?a=CI1191 35  Gulf Business. ‘Bahrain receives first instalment of GCC aid’, 9 May 2019, https:// gulfbusiness.com/bahrain-receives-first-instalment-gcc-aid/ 36  Aarti Nagraj. ‘Bahrain extends VAT registration deadline for third phase’, Gulf Business, 24 December 2019, https://gulfbusiness.com/bahrain-extends-vat-registration-deadlinethird-phase/?utm_campaign=GB_Daily_Newsletter_24_12_2019&utm_medium= email&utm_source=Eloqua 37  Gulf Business. ‘Bahrain ditches subsidy reform plan as political tensions simmer’, 8 May 2019, https://gulfbusiness.com/bahrain-ditches-subsidy-reform-plan-political-tensions-simmer/ 38  Bahrain Open Data Portal, FI943-FI132 state budget, https://www.data.gov.bh/en/ ResourceCenter

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total subsidy was US$58.5 million, and out of this food subsidy stood at around US$35 million. The government is taking initiatives to attract more investment in the form of venture capital from local and foreign investors. The Bahrain Economic Development Board (BEDB), the investment promotion agency, has set up a fast-track process covering residency, visa requirements and business registrations as well as guidance for the start-ups to use Bahrain as the gateway to the broader Middle East and North Africa (MENA) region.39 Notwithstanding the internal tensions, Bahrain has been rated as the best destination in the Middle East for the expatriates.40 Table 2.3 shows Bahrain’s inward and outward foreign investments. Total inward foreign  investment (both stock and flows) in 2018 was US$79.83 billion, of which US$29.1 billion were FDI, US$10.94 billion were in portfolio investments (FII) and the rest were in other investments. The total foreign investment flows for 2017–18 was US$18.16 billion but the shares of FDI and FII were small. The sectoral distribution went as follows: financial sector got US$15.76 billion (83.60 per cent); manufacturing US$1.58 billion (9 per cent); wholesale and retail trade and motor vehicle repair US$726.89  million (1.56 per cent); and information and communications US$132.26 million (1.56 per cent).41 The financial sector has been the largest recipient of foreign investment over the years, with a total investment of about US$66.74 billion by the end of FY 2017–18. Kuwait, Saudi Arabia and the UAE are the dominant source countries for foreign portfolio investments in Bahrain. The cumulative FDI until 2018 came from Kuwait US$8.88  billion (30 per cent); Saudi Arabia US$8.44 billion (28.96 per cent); Libya US$2.99 billion (10 per cent); and the UAE (5.46 per cent).42 The FDI inflows had increased in the last few years but did not achieve the peak of US$2.82  billion as was  in 39  Sam Bridge. ‘Bahrain launches fast-track process in bid to attract more start-ups’, Arabian Business, 29 October 2019, https://www.arabianbusiness.com/ startup/431831-bahrain-launches-fast-track-process-in-bid-to-attract-more-start-ups 40  Ben Mack. ‘Bahrain emerges as top Middle-East destination for expats  – survey’, Gulf Business, 8 September 2019, https://gulfbusiness.com/bahrain-top-middle-eastdestination-expats-survey/ 41  Bahrain Open Data Portal, Inward Total Foreign Investment FY 2014–18, https:// www.data.gov.bh/en/ResourceCenter 42  Bahrain Open Data Portal, IGA Final Data Tables – Inward Foreign Direct Investments Stocks FY 2018, https://www.data.gov.bh/en/ResourceCenter

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Table 2.3  Bahrain: Inward and outward foreign investments, 2015–18 (US$ million)

Inward FDI Inward FII Total inward foreign investmenta Total outward foreign investment

Flows 2015–16

Flows 2016–17

Flows 2017–18

Foreign investment stock 2018

243.01 4,148.31 1,792.55

1,426.12 2,563.345 3,961.94

1,654.1 669.92 18,160

29,135.54 10,936.94 79,827.57

4,886.06

3,541.44

2,001.82

58,405.2

Sources: CBB, Statistical Bulletin, January 2019, https://www.cbb.gov.bh/wp-content/ uploads/2019/03/Jan-2019.pdf; Bahrain Open Data Portal, Inward Total Foreign Investment FY 2014–18, https://www.data.gov.bh/en/ResourceCenter Included other investments

a

2009–10; the FDI inflows for FY 2017–18 stood at US$1.65  billion (Table 2.3) and further dropped to US$1.51 billion in 2018.43 Bahrain’s total investments abroad (both stock and flows) were about US$58.40 billion in 2018 (Table 2.3). The countries receiving the investments were Kuwait (28 per cent), Turkey (12.72 per cent), India (10.75 per cent), US (7.9 per cent), UK (6.12 per cent), Saudi Arabia (5 per cent) and the UAE (2.49 per cent).44 Even though Bahrain’s total outward investment was about US$21.42 billion more than the total inward foreign investment, its net investment income from abroad has been negative and its Gross National Income (GNI) has been less than the GDP. The net income from abroad was −US$2.06 billion in 2018 (Table 2.4). Mumtalakat manages the Sovereign Wealth Fund with US$18.8 billion in assets and holds stakes in more than 60 local and international entities, operating in 13 countries.45 Its net profits fell by 75 per cent in 2018 to US$148.4 million as against US$560.1 million a year earlier.46

43  UNCTAD, https://unctadstat.unctad.org/CountryProfile/GeneralProfile/ en-GB/004/index.html 44  Bahrain Open Data Portal, Outward Total Foreign Investments FYs 2014–2018, https://www.data.gov.bh/en/ResourceCenter 45  Mumtalakat, https://mumtalakat.bh/ 46  Gulf Business. ‘Bahrain wealth fund Mumtalakat’s 2018 profit falls 73.5%’, 3 June 2019, https://gulfbusiness.com/bahrain-wealth-fund-mumtalakats-2018-profit-tumbles/

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Table 2.4  Bahrain: Current account balance, 2016–18 (US$ million)

Oil exports Non-oil exports Total exports Imports (fob) Oil imports Non-oil imports Trade in services (net) Net investments income from abroad Current account balance

2016

2017a

2018a

6,059.76 6,678.80 12,738.60 13,539.38 3,136.01 10,403.37 3,485.28 −1,789.02 −1,487.45

8,530.35 6,939.56 15,469.91 16,018.19 4,230.20 11,788.00 3,543.05 −1,982.47 −1,444.78

10,556.28 7,422.39 17,978.66 19,041.31 5,699.62 13,341.69 3,962.55 −2,068.59 –2,425.81

a Provisional  Sources: CBB, Statistical Bulletin, January 2020, https://www.cbb.gov.bh/wp-content/ uploads/2020/03/Jan-2020.pdf; CBS, Statistical Bulletin, January 2019, https://www.cbb.gov.bh/wpcontent/uploads/2019/03/Jan-2019.pdf, https://www.cbb.gov.bh/wp-content/uploads/2020/01/ Nov-2019.pdf

External Sector: Table  2.4 shows the exports, imports and current account balance for 2016–18. The total exports stood at US$17.97 billion in 2018 against US$12.73 billion two years earlier. The oil exports constituted 58.46 per cent of the exports in 2018 which increased from US$6.05 billion in 2016 to US$10.55 billion two years later (Table 2.4). Other major categories of exports were aluminium and articles thereof (11.58 per cent), ores and slags (5.54 per cent), iron and steel and articles thereof (5.80 per cent), vehicles and parts (2.26 per cent per cent); machinery (mechanical) (1.65 per cent); pearls, precious and semi-­ precious stones (1.35 per cent), plastics and articles thereof (1.05 per cent) and fertilizers (1.04 per cent).47 The non-oil exports also increased from US$6.67 billion in 2016 to US$7.42 billion in 2018. Bahrain imported nearly US$5.7 billion worth of oil (mostly crude oil) in 2018 to optimally utilize its refining capacity. Total non-oil imports increased from US$10.43 billion in 2016 to US$13.34 billion in 2018. The composition of imports in 2018 were mineral oil and its products (29.75), machinery (mechanical and electrical) (17.10 per cent), vehicle and parts (6.57 per cent), inorganic chemicals (4.85), ores and slags (3.61), pearls, precious and semi-precious stones (2.86), ships and floating 47  International Trade Centre (ITC). ‘List of Products Exported By Bahrain’, Trade Statistics, Bahrain, https://www.trademap.org/tradestat/Product_SelCountry_TS.aspx?nv pm=1%7c048%7c%7c%7c%7cTOTAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c1%7c1%7c1

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Table 2.5  Directions of trade, 2019 Top five oil export destination (2018)

Top non-oil export destination

Top re-export destination

Top five sources of non-oil imports

Area not specified

UAE (33.68)

China (15.58)

Djibouti (0.07)

Saudi Arabia (23.23) US (12.37)

Australia (7.07)

Saudi Arabia (0.06) India (0.04) UAE (0.02)

UAE (11.84) Oman (6.48) Egypt (5.82)

Saudi Arabia (28.76) China (8.81) Singapore (3.15) Hong Kong (3.08)

UAE (7.00) Saudi Arabia (6.99) Brazil (6.44)

Sources: Bahrain Open Data Portal, Foreign Trade, https://www.data.gov.bh/en/ResourceCenter; ITC, List of Importing market for Bahrain, Product 27, https://www.trademap.org/tradestat/Country_ S e l P r o d u c t C o u n t r y _ T S .a s p x ? n v p m = 1 % 7 c0 4 8 % 7 c % 7 c % 7 c % 7 c 2 7 % 7 c% 7c % 7 c 2 % 7 c 1 % 7 c 1 % 7c2%7c2%7c1%7c2%7c1%7c1 Note: Figures in the bracket are per cent share

structures (2.35), plastics and articles thereof (1.87 per cent) and iron and steel and aluminium and articles thereof (5.35 per cent).48 Bahrain had a positive balance of trade in service sector of about US$3.48  billion in 2016, which marginally rose to US$3.96 billion in 2018. This is reflective of the burgeoning service sector. However, Bahrain had been incurring current account deficits over the years, which increased from US$1.49 billion in 2016 to US$2.42 billion in 2018. The outflow of remittances from Bahrain in the year 2018 stood at US$3.26 billion.49 Table 2.5 shows the direction of the trade in 2019. Most of its exports of petroleum products were to “areas not specified,” followed by Djibouti, Saudi Arabia, India and the UAE. Countries in the region were the major destination for its non-oil exports; Saudi Arabia and the UAE were among the top five sources of imports and non-oil export destinations for Bahrain in 2019. Energy Sector: Bahrain had estimated oil reserves of about 125.6 million barrels as of 1 January 2018.50 It has two oil fields; one onshore and the other off-shore Abu Safeh field (300,000 b/d), which it shares with Saudi Arabia. The Saudi Aramco manages the latter and the revenues are  Ibid.  Central Bank of Bahrain, Statistical Bulletin, January 2020, https://www.cbb.gov.bh/ wp-content/uploads/2020/03/Jan-2020.pdf 50  CIA The World Fact Book. ‘Bahrain’, https://www.cia.gov/library/publications/theworld-factbook/geos/ba.html 48 49

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Table 2.6  Bahrain: Oil and gas production and trade, 2014–18 (thousand barrels)

Crude oil production Crude oil import Crude oil exports Petroleum products (refining capacity b/d) Petroleum products production Petroleum products export Natural gas production (mmcuft)

2014

2015

2016

2017

73,882 76,015 56,311 260,000 103,943 91,544 521,613

73,556 78,711 54,556 260,000 104,621 91,290 519,553

73,944 76,682 56,540 260,000 101,319 86,315 499,884

71,958 80,179 55,639 260,000 102,533 90,600 514,388

Source: Bahrain Open Data Portal, Energy Statistics-Oil Gas, 2017, https://www.data.gov.bh/en/ ResourceCenter

split between the two countries. Besides, Bahrain Petroleum Company (BAPCO) currently receives 220,000–230,000  b/d of oil from Saudi Arabia.51 The attack on the Abqaiq oil field in Saudi Arabia in September 2019 had cut off supplies through pipelines to Bahrain’s only refinery in Sitra.52 Table 2.6 shows the oil and gas production and trade (2014–18). The Bahraini refining capacity has not increased since 2009 and stands at 260,000 b/d. The expanded refinery at Sitra would be online in 2023 and this would increase the refining capacity to 360,000 b/d.53 The export of jet fuels has increased over the years, while that of motor gasoline has nearly stopped due to rising domestic consumption. Diesel, naphtha and fuel oil were the other petroleum products exported by Bahrain. According to the Central Intelligence Agency (CIA), Bahrain has natural gas reserves of about 92.03 bcm (2017).54 In 2017, about 42 per cent of the total natural gas production was re-injected in the oil fields to maintain reservoir pressure and the same has significantly increased from 23.44 51  Gulf Business. ‘Bahrain’s Bapco sees oil trading opportunities as it expands refinery’, 10 March 2019, https://gulfbusiness.com/bahrains-bapco-sees-oil-trading-opportunitiesexpands-refinery/ 52  Reuters. ‘Saudi Arabia shuts pipeline to Bahrain after oil outage: trade sources’, 16 September 2019, https://www.reuters.com/article/us-saudi-aramco-bahrain/saudi-arabiashuts-pipeline-to-bahrain-after-oil-outage-trade-sources-idUSKBN1W11H9 53  Gulf Business. ‘Bahrain’s Bapco sees oil trading opportunities as it expands refinery’, 10 March 2019, https://gulfbusiness.com/bahrains-bapco-sees-oil-trading-opportunitiesexpands-refinery/ 54  CIA The World Fact Book. ‘Bahrain’.

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per cent in 2014. However, due to the growing domestic demand for natural gas, the country would have to import natural gas in the near future. Bahrain has almost completed an LNG receiving and re-­gasification terminal built by Bahrain LNG WLL (on PPP basis) jointly owned by the Oil and Gas Holding Company and a consortium consisting of Teekay LNG Operating LLC, Gulf Investment Corporation and Samsung C&T Corporation.55 Investments in its oil and gas sector had not been profitable for international oil exploration and production companies due to Bahrain’s relatively more stringent fiscal terms of contract.56 In 2018, Bahrain discovered a huge off-shore Khalij al-Bahrain basin estimated to hold more than 80 million barrels of tight oil and 10–20 tcf of tight gas.57 It has initiated the first steps towards exploration. To boost investment in the oil and gas sector, Prime Minister Sheikh Khalifa Bin Salman al-Khalifa issued an order on 2 June 2019 that allows foreign companies to own up to 100 per cent of oil and natural gas projects if the foreign parent company had signed or is in the final stages of signing an exploration and production agreement with the government.58 Social Issues Bahrain has been a relatively open society and was incrementally practicing political participation, press freedom and minority and women’s rights. Things changed dramatically after the 2011–12 Arab Spring protests and the political and media freedom gradually reduced. As of 2019, the situation in Bahrain was no different from its neighbouring GCC states, although the Kingdom is a constitutional monarchy. Accusations of human rights violations are rampant,59 especially against the majority Shia 55  Will Owen. ‘Bahrain LNG completes construction’, LNG Industry, 28 January 2020, https://www.lngindustry.com/liquid-natural-gas/28012020/bahrain-lng-completesconstruction/ 56  Offshore Technology. ‘Bahrain on the cusp of reviving energy hopes’, 22 January 2019, https://www.offshore-technology.com/comment/bahrain-oilfield-discovery/ 57  BBC News. ‘Bahrain discovers offshore oilfield ‘containing 80bn barrels’’, 4 April 2018, https://www.bbc.com/news/world-middle-east-43644629 58  Gulf Business. ‘Bahrain to allow foreign firms to take 100% stakes in oil, natural gas extraction projects’, 3 June 2019, https://gulfbusiness.com/bahrain-allow-foreign-firmstake-100-stakes-oil-natural-gas-extraction-projects/ 59  Human Rights Watch (HRW). ‘Bahrain  – Events of 2019’, 2020, https://www.hrw. org/world-report/2020/country-chapters/bahrain

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community who have historically been kept out of power by the Sunni monarchy.60 Political dissent and any kind of criticism of the government or the monarchy are not tolerated. Even milder social media criticisms invoke  stringent national security laws.61 In May, the Bahraini Interior Ministry announced that anyone who follows “inciting accounts” or shares their posts on social media would be prosecuted. Though Bahraini women relatively enjoy more freedom compared to their counterparts in the neighbourhood, the civil and domestic laws continue to remain discriminatory, especially when it comes to issues of marriage, divorce, ­inheritance and domestic violence.62 Bahrain has a high HDI score of 0.838 and ranks 45th out of 189 countries in the world. In 2019, its GDI score was 0.937, and the GII score was 0.207 and ranked 47th out of 162 countries.63

Bilateral Ties India and Bahrain have traditionally enjoyed strong and friendly ties, but political contacts and engagements have been limited. No Indian prime minister had ever visited the island nation since India’s independence and this ended in August 2019 with the visit by Prime Minister Modi.64 In that respect, Modi’s visit was historic and laid the foundations for a new dynamism whereby Bahrain was accorded its long-due importance in India’s Middle East policy. Political and Security Cooperation Prime Minister Modi undertook a two-day visit to the Kingdom on 24–25 August 2019, and he received a warm and ceremonial welcome. He was conferred with the highest civilian award of Bahrain the King Hamad Order of the Renaissance—First Class “in recognition of his efforts to 60  Andrew England. ‘Shia complain of exclusion from Bahrain’s political process’, Financial Time, 4 October 2018, https://www.ft.com/content/51472a00-9b26-11e8-88de-4 9c908b1f264 61  HRW. ‘Bahrain – Events of 2019’. 62  Ibid. 63  United Nations Development Programme (UNDP). ‘Bahrain – Human Development Indicators’, 2019, http://hdr.undp.org/en/countries/profiles/BHR 64  Interestingly, the leader of the Congress Party Rahul Gandhi visited Bahrain in January 2018 and drew considerable media attention.

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strengthen bilateral relations with the Kingdom of Bahrain.”65 During the visit, the prime minister met with King Hamad Bin Isa al-Khalifa and Crown Prince Salman Bin Hamad al-Khalifa and held wide-ranging talks on issues of bilateral, regional and international affairs. According to the joint statement issued after the meeting between King Hamad and Prime Minister Modi, “the two sides expressed satisfaction with the current state of bilateral relations and agreed to further broaden and deepen the engagement in diverse fields of mutual interest, and underlined the importance of enhancing high-level political exchanges, defence and higher education cooperation, trade and economic relations and people-to-people linkages.”66 Furthermore, the two sides “noted the increasing trend of bilateral trade and existing potential for two-way investments” and “reaffirmed their desire to provide favourable environments for trade and investments.”67 Both sides also signed an MoU on cultural exchange and two statements of intent for cooperation between the Indian Space Research Organization (ISRO) and Bahrain’s  National Space Science Agency (NSSA) and Bahrain joining the International Solar Alliance (ISA).68 An agreement on the launch of the Indian RuPay Card in Bahrain was signed between the relevant agencies. After accepting King Hamad Order of the Renaissance, Prime Minister Modi underlined the historical and cultural bonds between the two people and said that he  “humbly accepts this prestigious honour on behalf of 1.3 billion Indians.”69 He noted his government’s aims to make India into a US$5  trillion economy and solicited Bahrain’s partnership for the “shared progress” of both countries. He was “happy to note that the Indian origin people are the largest foreign community in Bahrain,” and 65  GoI.  MEA. ‘India-Bahrain Relations’, 5 February 2020, http://mea.gov.in/Portal/ ForeignRelation/India-bahrain_Bilateral_Brief_JAN_2020.pdf 66  GoI. MEA. ‘India-Bahrain Joint statement on the visit of Prime Minister to Bahrain (25 August 2019)’, 25 August 2019, https://mea.gov.in/bilateral-documents.htm?dtl/31767/ indiabahrain+joint+statement+on+the+visit+of+prime+minister+to+bahrain+aug ust+25+2019 67  Ibid. 68  GoI. MEA. ‘List of MoU/agreement exchanged during the visit of Prime Minister to Bahrain’, 24 August 2019, https://mea.gov.in/bilateral-documents.htm?dtl/31764/list+o f+mouagreement+exchanged+during+the+visit+of+prime+minister+to+bahrain 69  GoI. MEA. ‘Acceptance Speech of Prime Minister on being conferred The King Hamad order of the Renaissance, during his visit to Bahrain’, 24 August 2019, https://mea.gov.in/ Speeches-Statements.htm?dtl/31765/acceptance+speech+of+prime+minister+on+being+c onferred+the+king+hamad+order+of+the+renaissance+during+his+visit+to+bahrain

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Table 2.7  India-Bahrain bilateral trade, 2014–19 (US$ million) 2014–15 Total imports from 446.25 Bahrain Share in India’s 0.10 total imports (per cent) Total exports to 472.98 Bahrain Share in India’s 0.15 total exports (per cent) Total bilateral trade 919.23 Share in India’s 0.12 total trade (per cent)

2015–16

2016–17

2017–18

356.90

290.69

431.12

539.63

0.09

0.08

0.09

0.10

556.82

742.14

654.14

471.1

2018–19

0.25

0.17

0.18

0.22

1,011.04 0.16

762.40 0.12

987.94 0.13

1,281.77 0.15

Source: Adapted from Department of Commerce, Ministry of Commerce and Industry, GOI, Total Trade Country-wise, https://commerce-app.gov.in/eidb/

they are “welcomed here with open heart.”70 Later, the prime minister addressed the Indian community in Bahrain underlining the aim of his government on India’s economic progress and the contribution of Indians in Bahrain and elsewhere in the rapid development of India.71 The prime minister also laid the foundation stone for the re-development of the 200-­ year old Sri Krishna Temple in Manama. Trade and Commerce The Indo-Bahraini bilateral trade has increased from US$762 million in 2016–17 to US$1.28 billion in 2018–19 (Table 2.7). India’s total exports to the Kingdom increased from US$471  million to US$742.14 million in the same period. India was the seventh largest source of imports for Bahrain, with a share of 3.73 per cent in 2018.72  Ibid.  GoI. MEA. ‘Translation of Prime Minister’s address to the Indian community in Bahrain (24 August 2019)’, 25 August 2019, https://mea.gov.in/Speeches-Statements. htm?dtl/31766/translation+of+prime+ministers+address+to+the+indian+community+in+b ahrain+august+24+2019 72  ITC, Trade Statistics, Bahrain 70 71

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Table 2.8  India-Bahrain oil trade, 2016–19 (US$ million) 2016–17 2017–18 2018–19 Oil imports from Bahrain 46.94 Rate of growth in per cent −50.10 Oil imports as per cent of total imports from Bahrain 16.15 Oil imports as per cent of India’s total oil imports 0.05 Petroleum products export to Bahrain 3.93 Oil products exports as per cent of total exports to Bahrain 0.83

69.12 47.25 16.03 0.05 15.63 2.81

118.94 72.07 22.04 0.07 65.82 8.87

Source: Adapted from Department of Commerce, Ministry of Commerce and Industry, GOI, https:// commerce-app.gov.in/eidb/

The exports to Bahrain is growing since 2016 with new and high-valued export items registering a faster rate of growth in 2018–19, like machinery, mineral fuels and pharmaceutical (Table 2.9). Fish preparations and dairy products, beverage spirits and vinegar, residue from the food industry and animal fodder were among the export items that also  had high growth rates. In 2018–19, iron and steel, aluminium, and articles thereof, and many items in the apparel and textile categories had a negative growth rate (Table 2.9). India had a positive trade balance with Bahrain, which had been increasing since 2016. India’s share was about 5.17 per cent in Bahrain’s total non-oil exports in 2018.73 Imports from Bahrain increased from US$290  million in 2016–17 to US$539.63  million in 2018–19  (Table 2.10). Among the import items that had a high rate of growth 2018–19 over the previous year were pearls, precious and semi-precious stones, fertilizers, oil, aircraft and parts thereof. The share of India in Bahrain’s non-oil exports was 2.61 per cent in 2019. The oil trade is an essential component of the bilateral trade. Table 2.8 shows the oil trade between the two countries. Oil imports were 22.04 per cent of the total imports from Bahrain in 2018–19 as against 16.15 per cent in 2016–17. The rate of growth of oil imports has been significantly high in 2017–19. India’s export of light and medium petroleum products increased to 65.82  million in 2018–19 from US$3.93 million in 2016–17. As per cent of India’s total exports to the Kingdom, the share of petroleum products exports was about 8.87 per cent in 2018–19. Until the expanded refinery comes online in 2023, 73  Bahrain Open Data. Portal, Foreign Trade, Imports by Country, https://www.data.gov. bh/en/ResourceCenter

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Table 2.9  Composition of India’s exports to Bahrain, 2018–19 HS code

Commodity

84 Mechanical equipment 72–81 Metals and articles there of 71 Precious and semi-precious stones, etc. 39 Plastics and articles thereof 85 Electrical machinery and equipment, etc. 87 Vehicles other than tram, railways and parts 50–63 Apparels and textiles 1–24 89 29 30

Agricultural and edible items Ships, boats and floating structures Mineral fuels Pharmaceuticals

Exports 2018–19 Per cent share in total (US$ million) exports to Bahrain

Per cent growth

75.11 94.82 42.75

10.12 12.77 5.76

65.54 32.86 113.68

51.60 34.10

6.95 4.59

69.84 −8.04

37.95

5.12

54.25

40.06

5.40

−8.87

153.09

20.62

63.63

8.57

65.82 4.94

321.15 0.67

100 – 8.87 94.14

Source: Adapted from Department of Commerce, Ministry of Commerce and Industry, GOI, https://commerce-app.gov.in/eidb/

Table 2.10  Composition of India’s imports from Bahrain, 2018–19 HS code

Commodity

Imports 2018–19 Per cent share in total (US$ million) imports from Bahrain

Per cent growth

27

Mineral fuels, mineral oil and their distillates, etc. Ores slags and ash Fertilizers Pearls precious and semi-precious stones Aluminium and articles thereof Iron and steel

118.94

22.04

72.07

96.51 53.41 37.58

17.89 9.90 6.96

23.41 69.08 2,432

115.96

−23

21.49

35.17

6.52

39.40

26 31 71 76 72

Source: Adapted from Department of Commerce, Ministry of Commerce and Industry, GOI, https:// commerce-app.gov.in/eidb/

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Bahrain would be importing more petroleum products to cater to its need for motor gasoline, thereby providing an export opportunity to India. The total investment from Bahrain in India until 2018 was US$6.28 billion, out of which US$933.57 million came in 2017–18.74 The share of India in total outward Bahraini investments was 10.76 per cent but most of it had been in the form of portfolio investments. According to Department for Promotion of Industry and Internal Trade of India, the cumulative FDI from Bahrain into India until December 2019 has been US$177.44 million, which constituted just 0.04 per cent of the total FDI inflows. The FDI inflow has been particularly declining since 2017. However, the Indian FDI in Bahrain was about US$1.01  billion until 2018, which was 3.6 per cent of the total FDI investment in that country.75 Bahrain Investment Corporation, an asset manager, announced US$11.2  million investment in Indian apparel start-ups Bewakoof Brands.76 The investment firm has a maiden India-focused private equity fund and has also invested in four other companies, including US$45 million in Nephrocare Health Services. It acquired private equity and real estate investment management businesses of IDFC Alternatives in India for US$500 million.77 Bahrain is emerging as the hub of financial technology and is interested in India’s fintech companies to launch products for banking, blockchain, crypto assets, robo advisory and remittances. The Bahrain Economic Development Board (BEDB) signed MoU with the Government of Maharashtra to provide a framework for cooperation to promote fintech firms in their respective markets.78 Indian private entities can also launch Venture Capital funds (like China’s MSA capital and

74  Bahrain Open Data Portal, Outward Total Foreign Investments FYs 2014–2018, https://www.data.gov.bh/en/ResourceCenter 75  Bahrain Open Data Portal, IGA Final tables, Inward Foreign Direct Investment, https://www.data.gov.bh/en/ResourceCenter 76  Aarti Nagraj. ‘Bahrain’s Investcorp leads $11.2m funding in Indian start-up Bewakoof, Gulf Business, 14 October 2019, https://gulfbusiness.com/bahrains-investcorp-leads11-2m-funding-indian-startup-bewakoof/ 77  Sarmad Khan. ‘Bahrain’s Investcorp looks to raise $7bn in funds this year as it eyes acquisitions’, The National, 15 April 2019, https://www.thenational.ae/business/economy/bahrain-s-investcorp-looks-to-raise-7bn-in-funds-this-year-as-it-eyes-acquisitions1.848913 78  The Economic Times, ‘Bahrain invites Indian fintech firms to set up base’, 3 March 2019, https://economictimes.indiatimes.com/industry/banking/finance/bahrain-invites-indianfintech-firms-to-set-up-base/articleshow/68242257.cms?from=mdr

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Al-Salam Bank) to synergize between their e-commerce, capital and technology capacities to harness the Middle Eastern market by using Bahrain as the gateway.79 Expatriates The Indians are the largest expatriate community in the Kingdom and constitute about  30 per cent of the total population. There are about 350,000 Indians in Bahrain,80 and there are 262 banking services offered by the branches of Indian banks that are operating in the Kingdom to cater to their financial needs.81 Nearly 70 per cent of the Indian expatriates are involved in unskilled work, including in the domestic sector. However, a sizeable number of white-collar professionals, including doctors, engineers, chartered accountants, bankers, managers, educators and IT professionals, have become part of the workforce and play a vital role in Bahrain’s economic development.82 Moreover, the Indian community has a mark among the Bahrainis because of its professionalism and ethics. Mostly, the Indian community has fewer faced problems in the country, but when any issues crop up, the monarchy and local authorities have responded to address them  immediately. The regular exchanges at the government-to-government level on labour-related issues take place to avoid any problems to the host and expatriate workers.

Opportunities and Challenges The India-Bahrain joint business council, which was re-activated in 2012, held only three meetings under the aegis of FICCI.  The joint business council is without any known institutional structure or advisory body and this severely limits its impact on the policy-making and trade facilitation. 79  Zainab Mansoor. ‘Bahrain bank, China firm create $50m venture capital fund for Middle-East tech market’, Gulf Business, 21 November 2019, https://gulfbusiness.com/ bahrain-bank-china-firm-create-50m-venture-capital-fund-middle-east-tech-market/ 80   Embassy of India, Bahrain. ‘Indian Community in Bahrain’, https://eoi.gov.in/ bahrain/?2671?000 81  Reserve Bank of India (RBI). ‘Survey on International Trade in Banking Services: 2018–19’, 31 January 2020, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay. aspx?prid=49297 82  GoI.  MEA. ‘India-Bahrain Relations’, 5 February 2020, http://mea.gov.in/Portal/ ForeignRelation/India-bahrain_Bilateral_Brief_JAN_2020.pdf

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Besides, India’s more value-added, high technology and knowledge content exports like machinery and pharmaceuticals have only a small share in the Bahraini market, and most of the items of exports are agricultural, textiles, metallic articles and so on. India’s exports to Bahrain are not commensurate with its potential. Consequently, most of the investments from the Kingdom had been FII to gain from the Indian growth rather than FDI to participate in India’s growth process. Bahrain is positioning itself as the gateway for the investors to reach to the broader MENA region and joint investment funds among the corporate entities are being floated to deliver projects across the region. There is no institutional mechanism involving both countries that does market research and re-orients Indian corporate behaviour to the changes in business models, market competition and policy-making in Bahrain. Internal disturbances and financial dependence make Bahrain vulnerable and unstable. Even a decade after widespread protests began, the Kingdom is yet to return to normalcy. The economic reliance upon Saudi Arabia impedes Bahrain from initiating political reforms. The discovery of the new offshore gas field could be a game changer and provide the monarchy the necessary financial independence. India has friendly relations with Bahrain, which also hosts a sizeable expatriate population. In August 2019 Narendra Modi became the first Indian prime minister since independence to visit the island Kingdom and this could pave the way for greater cooperation both in oil and non-oil sectors of Bahrain.

CHAPTER 3

Iran

Key Information Ruling party: Combatant Clergy Association; Supreme leader (Vilayat-­ e-­Faqih): Ali Khamenei (since 4 June 1989); President: Hassan Rouhani (since 15 June 2013, re-elected in May 2017); National day: 1 April; Parliament: 290-member Majlis; Last parliamentary election: 21 February 2020; Major group in parliament: Conservatives; National carrier: Iran Air. Socio-economic Indicators Area: 1,648,195  sq.  kms; Population: 81.8  million (UNDP, 2019); Native: 100 per cent; Expats: NA; Religious groups: Muslim 99.4 per cent (Shia 90–95 per cent; Sunni 5–10 per cent); Zoroastrian, Jewish and Christian 0.3 per cent (USCIRF, 2019); Youth: 14.05 per cent; Population growth rate: 1.19 per cent (2018 est.); Life expectancy at birth: 76.5 years (UNDP, 2019); Major population groups: Persians 61 per cent; Azeri 16 per cent; Kurds 10 per cent; Lurs 6 per cent; Baloch 2 per cent; Arabs 2 per cent; Turkmen and Turkic tribes 2 per cent; other 1 per cent; Literacy rate: 85.5 per cent (UNDP, 2019); National currency: Iranian Rial (IRR); GDP (US$ Current): US$454.01  billion (World Bank, 2017); Foreign trade: Exports: US$105.84  billion; Imports: US$51.61 billion); Military expenditure: 2.7 per cent of GDP (World © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_3

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Bank, 2018); Sovereign Wealth Fund: US$91 billion (Sovereign Wealth Fund Institute); External debt: US$10.9 billion (CEIC, March 2018); GNI per capita: US$18,166 (2011 PPP); GDP per capita: US$19,098 (2011 PPP); Oil reserves: 155.6 billion barrels (BP, 2018); Gas reserves: 1,127.7  tcf (BP, 2018); Human Development Index: 0.797 (UNDP, 2019); HDI rank: 65/189 (2019); Infant mortality rate: 12.8/1,000 live births (UNDP, 2019); UN Education Index: 0.743 (UNDP, 2019); Gender Inequality Index: 0.492 (UNDP, 2019); Labour force: 27.3 million (World Bank, 2019); Unemployment rate: 12 per cent of total labour force (UNDP, 2019); Urban population: 74.9 per cent (UNDP, 2019); Rate of urbanization: 2.1 per cent annual rate (World Bank, 2018); Last national census: 2016; World Press Freedom Index Rank: 170 (RSF, 2019); Ease of Doing Business Index: 127/190 Rank (World Bank, 2019); Corruption Perception Index: 146/180 Rank (Transparency International, 2019); Foreign direct investment: US$3.48 billion (inward) (UNCTAD, 2019); Individuals using Internet (per cent of population): 70 per cent (UNDP, 2019); Net migration (5 years estimate): −274,998 (World Bank, 2017); Forest area (per cent of land area): 6.6 (World Bank, 2016); Carbon dioxide emissions (tonnes per capita): 7.1; Gender Development Index: 0.874 (UNDP, 2019); Global Terrorism Index: Rank 39 out of 163 countries (Vision of Humanity, 2019). India Related Indian Cultural Centre: Tehran (inaugurated in 2013); Number of Indians: 4,000 (approximately 2017); Number of places of worship for Indians: two temples; and three gurudwaras; Indian schools: one; Indian banks: State Bank of India and UCO Bank (RBI, 2019); Currency exchange rate: IRR 1 = 0.0017 INR (March 2020); Last visit to India by head of state: President Hassan Rouhani (February 2018); Last Indian prime minister to visit Iran: Prime Minister Narendra Modi (May 2016). * * * The friendly ties between India and Iran have come under stress due to the US factor since the early 2000s. The situation has become complicated after the election of Donald Trump as the president of the US and his administration’s policy of “maximum pressure” against Iran. As a result,

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India has been forced not only to stop the import of oil from Iran but also to scale down political and diplomatic engagements. The emerging regional dynamics and India’s growing proximity with Gulf Arab states have an impact on the Indo-Iranian relations. Despite all odds, there is slow and incremental progress and continuous engagement between the two countries on the Chabahar project.

Domestic Developments The Islamic Republic of Iran (IRI) continues to reel under a host of social, economic and political challenges which influenced and affected its policies during the year. The return of the American sanctions has crippled Iran’s ability to provide social welfare support to its citizens and this increased the Iranian anger against countries seen to be working at the behest of Washington. Protests within the country intensified throughout 2019 as were the tensions over alleged Iranian involvement in some of the violent incidents in the Persian Gulf. Politics and Security The internal situation in Iran has been affected by the ‘maximum pressure’ policy pursued by the Trump Administration. Since withdrawing from the JCPOA in May 2018, the US has imposed stringent unilateral sanctions on Iran, crippling not only the economy and foreign trade but also fermenting domestic strains.1 This, in turn, has sharpened internal divisions and gave rise to unrest among the youth over unemployment and economic hardships and sparked public disagreements over some of the government’s broader domestic, regional and foreign policies.2 Throughout 2019 Iran witnessed a series of protests which brought university students, unemployed youth and women at the forefront. Given the strengths of the revolutionary regime and its hold on every aspects of life, the protesters could not significantly damage the government’s control, except highlighting the internal fault lines. 1  Mark Landler. ‘Trump Abandons Iran Nuclear Deal He Long Scorned’, The New York Times, 8 May 2018, nytimes.com/2018/05/08/world/middleeast/trump-iran-nucleardeal.html 2  Farnaz Fassihi and Rick Gladstone. ‘With Brutal crackdown, Iran is convulsed by worst unrest in 40 years’, The New York Times, 1 December 2019, nytimes.com/2019/12/01/ world/middleeast/iran-protests-deaths.html

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Iran has been witnessing smaller but frequent protests since 2017 and they continued despite the crackdown by the security forces, arrest of scores of political activists and deaths of about 25 persons in the police action.3 The frequency and scale of these protests increased in 2019. In March-April, the southwestern provinces of Fars, Khuzestan, Lorestan and Golestan witnessed protests after the authorities were blamed for mishandling the flooding due to torrential rains. According to international agencies, a majority of the 31 provinces were lashed by unprecedented rains and caused one of the worst flooding in recent years.4 The southwest region was the most affected, causing infrastructural damages estimated at more than US$2.2 billion and the deaths of at least 76 persons.5 At the time of the floods, President Hassan Rouhani was convalescing in Qeshm Island in the Persian Gulf. Local authorities were unprepared and were unable to respond quickly to rescue the people and provide relief. The delay in the president’s return from vacation, along with the administrative mismanagement, led to serious criticisms in the local press6 and protests broke out in several parts of the country.7 Rouhani had to face criticism on social media and several posts critical of the government for its inaction and mismanagement were noticed by those monitoring the Persian virtual space.8 That the flooding and mismanagement happened at the time of Nowruz (Persian New Year) festivities angered the people even more.

3  Sheena McKenzie. ‘3,700 people were arrested during Iran protests lawmaker says’, CNN, 9 January 2018, https://edition.cnn.com/2018/01/09/middleeast/iran-protests3700-arrested-intl/index.html 4  Reuters, ‘Southwest Iran hit hard by flooding, evacuation underway in Ahvaz’, 10 April 2019, https://www.reuters.com/article/us-iran-floods/ southwest-iran-hit-hard-by-flooding-evacuation-underway-in-ahvaz-idUSKCN1RM1G6 5  Al-Jazeera. ‘Iran suffers ‘$2bn in damages’ as flood toll continues to rise’, 14 April 2019, https://www.aljazeera.com/news/2019/04/iran-suffers-2bn-damages-flood-toll-continues-rise-190414085957795.html 6  Al-Monitor. ‘Iranians enraged by Rouhani’s no-show in flood-stricken areas’, 26 March 2019, https://www.al-monitor.com/pulse/originals/2019/03/iran-floods-rouhani-disaster-response-criticism-drought.html 7  Radio Farda. ‘Protest in Ahvaz, Iran over Government Handling of floods’, 13 April 2019, https://en.radiofarda.com/a/protests-in-ahvaz-iran-over-government-handling-offloods/29877962.html 8  Borzou Daragahi. ‘Iran’s Hurricane Katrina moment’, Atlantic Council, 30 March 2019, https://www.atlanticcouncil.org/blogs/iransource/iran-s-hurricane-katrina-moment/

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The killing of Major General Qasem Soleimani—head of the Al-Quds Force of the Islamic Revolutionary Guards Corps (IRGC)—in a US drone attack in Baghdad on 3 January 2020, saw an outpouring of public support and mourning over the general’s death.9 Until then, Iran had witnessed large-scale anti-government protests where the protesters were even seen burning portraits of the Supreme Leader Ali Khamenei to express their anger.10 Such a visible display of rage against the regime was unheard of since 1979. The protests had begun after fuel price soared by 50 per cent and subsidies were cut11 upon which scores of Iranians depend. The demonstrations soon encompassed larger political and foreign policy dimension over Iran’s huge military commitments and expenditure in Iraq and Syria, despite the growing domestic economic hardships and the lack of political accountability of the leadership. The protestors were seen chanting slogans against the Supreme Leader Khamenei and demanding an end to military involvements outside the country.12 The government soon curbed the use of the internet and social media to prevent the protests from spreading.13 It also acted against those who were identified for inciting the protests.14 Nonetheless, until the end of the year, several incidents of violence and rioting were reported in the international media.15 The authorities could not control protests, which continued for several weeks. University students, including female students, were leading the protests at various places, including Tehran University and Shahid Beheshti 9  Al-Jazeera. ‘Tens of thousands mourn as Soleimani’s remains return to Iran’, 5 January 2020, https://www.aljazeera.com/news/2020/01/tens-thousands-mourn-soleimanibody-returns-iran-200105053330653.html 10  BBC News. ‘Iran petrol price hike: Protestors warned that security forces may intervene’, 17 November 2019, https://www.bbc.com/news/world-middle-east-50444429 11  Ibid. 12  Reuters, ‘Price protests turn politics in Iran as rallies spread,’ 29 December 2017, https://www.reuters.com/article/us-iran-economy-protests/price-protests-turnpolitical-in-iran-as-rallies-spread-idUSKBN1EN0P0 13  Golnaz Esfandiari. ‘Iran shuts down internet amid violent protest over Gas-price hike’, Radio Free Europe Radio liberty, 18 November 2019, https://rferl.org/a/iran-shuts-downinternet-amid-violent-protests-over-gas-price-hikes/30278936.html 14  The Japan Times. ‘Iran curbs internet before possible new protests, reports say’, 16 December 2019, https://www.japantimes.co.jp/news/2019/12/26/world/iran-curbsinternet-before-protests/ 15  Farnaz Fassihi and Rick Gladstone. ‘Iran declares Protest are over, but the evidence suggests otherwise’, The New  York Time, 21 November 2019, https://www.nytimes. com/2019/11/21/world/middleeast/iran-protests-internet.html

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University.16 The protests continued until December and according to the Amnesty International, within that month, more than 300 Iranian protestors had been killed in the actions by the security forces, including by Basij militia and over 1,000 were detained.17 The response of the regime towards these protests was unanimous; Supreme Leader Khamenei, President Rouhani and Foreign Minister Zarif squarely blamed external powers for “inciting” protests and unrest and accused the international media of grossly exaggerating the number of deaths.18 The Soleimani killing in early January 2020 briefly changed the public mood against the US but protestors soon poured out their anger against the regime after Iran admitted to inadvertently shooting down the Ukraine International Airlines flight carrying 176 passengers on 8 January.19 The frequency of protests not only underlined the growing anger and widespread unrest but also reminded the continuing internal tussles within the regime between hardliners and reformists groups represented by Supreme Leader Khamenei and President Rouhani, respectively.20 The situation becomes complicated because of the age of Khamenei, who became an octogenarian in April 2019. On the question over his possible successor, several names are doing rounds and these include Hassan Khomeini, a grandson of founder of the Islamic Republic and first Supreme Leader Ayatollah Khomeini; Mojtaba Khamenei, son of current Supreme Leader Khamenei; Ebrahim Raeesi, Head of Judiciary; and Sadeq Amoli 16  BBC News. ‘Iran Plane downing: Second day of protests turns up heat on leaders’, 13 January 2020, https://www.bbc.com/news/world-middle-east-51081833; Michael Lipin. ‘Students at top Tehran University denounce Iran’s leaders in 3rd day of protest’, VOA News, 14 January 2020, https://www.voanews.com/middle-east/voa-news-iran/ students-top-tehran-university-denounce-irans-leaders-3rd-day-protests 17  Amnesty International. ‘Iran: Thousands arbitrarily detained and at risk of torture in chilling post-protest crackdown’, 16 December 2019, https://www.amnesty.org/en/latest/ news/2019/12/iran-thousands-arbitrarily-detained-and-at-risk-of-torture-in-chilling-postprotest-crackdown/ 18  Reuters. ‘Iran’s Rouhani claims victory over unrest’, 20 November 2019, https://www. reuters.com/article/us-iran-gasoline-protests/irans-rouhani-claims-government-victory-overunrest-he-blames-on-foreigners-state-media-idUSKBN1XU0YW 19  BBC News. ‘Iran Plane crash: Ukrainian jet was ‘unintentionally’ shot down’, 11 January 2020, https://www.bbc.com/news/world-middle-east-51073621 20  Golnaz Esfandiari. ‘With reformers side-lined, Iranians elections looking like Hard-liners Vs Conservatives’, Radio Free Europe Radio Liberty, 26 January 2020, https://rferl.org/a/ with-reformers-sidelined-iranian-elections-looking-like-hard-liners-vs-conser vatives/30397507.html

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Larijani, chairman of powerful Expediency Council.21 As per Article 109 of the constitution, the 88-member Assembly of Experts would choose the Supreme Leader; the choice has to be endorsed by the 12-member Guardianship Council, which is appointed by and is loyal to Khamenei.22 Hence, as happened to Khamenei when Ayatollah Khomeini passed away, the next Supreme Leader would be the nominee of the incumbent and would come from among the hardliner clerics who control or dominate most of the state institutions.23 The hardliner-reformist internal tension flared up again in March when Foreign Minister Zarif resigned for not being invited during the state visit of President Bashar al-Assad of Syria. Zarif was more perturbed by the fact that Al-Quds head Soleimani—a key player in shaping the Iranian role in the Syrian civil war—was present during the meeting between Khamenei and Assad while the Foreign Ministry was not even informed of the visit.24 Zarif eventually resumed office as President Rouhani refused to accept his resignation. The episode did underline the growing influence of the IRGC and its Al-Quds force, which take orders directly from Khamenei, on Iran’s neighbourhood policy.25 For long, Rouhani and Zarif have come under increased domestic scrutiny and criticisms from the hardliners over the nuclear deal and these fissures widened after President Trump unilaterally withdrew from the deal and re-imposed economic sanctions on Iran.26 21  BBC News. ‘Analysis: Quest to find Iran’s next Supreme leader’, 5 December 2018, https://monitoring.bbc.co.uk/product/c200guu1; Rossina Funes and Maeve Gladin. ‘Khamenei is turning 80: Who will be next Iran’s Supreme Leader’, Universidad Navarra, 25 May2019,https://www.unav.edu/web/global-affairs/detalle/-/blogs/khamenei-is-turning-80-whowill-be-next-iran-s-supreme-leader22   Morad Vaisibiane. ‘Iran’s Khamenei searching for his successor’, Radio Farda, 10 June 2019, https://en.radiofarda.com/a/iran-s-khamenei-searching-for-his-successor/ 29990523.html 23  Arthur McMilan. ‘Explainer: How Iran will pick its next supreme leader’, The National, 10 February 2019, https://www.thenational.ae/world/mena/explainer-how-iran-will-pickits-next-supreme-leader-1.824121 24  Al-Jazeera. ‘Zarif resigned over Assad’s trip to Tehran: Spokesperson’, 5 March 2019, https://www.aljazeera.com/news/2019/03/zarif-resigned-assad-trip-tehran-spokesperson-190305092010994.html 25  Ben Hubbard. ‘A High-Level Resignation in Iran Is seen as sign of Hard liners strength’, The New  York Times, 5 March 2019, https://www.nytimes.com/2019/03/05/world/ middleeast/zarif-resignation-iran.html 26  Parisa Hafezi and Babak Dehghanpisheh. ‘Pressure over Iran nuclear deal forced Zarif to resign: ally’, Reuters, 26 February 2019, https://www.reuters.com/article/iran-zarif-hardliners/pressure-over-iran-nuclear-deal-forced-zarif-to-resign-ally-idINKCN1QF19U

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The internal security situation in Iran remains tense. The Republic witnessed several terrorist attacks in the past27 and they spilled over into 2019. In February, a suicide bomb attack on a bus transporting the IRGC soldiers in the Kurin district of the Sistan-Baluchistan province in southeast of the country led to the killing of 27 revolutionary guard members and injuries to ten others.28 The region’s unrest is attributed to the Balochi separatist movement and it witnessed similar attacks in the past and remains a major cause for concern. Furthermore, popular protests, despite their obvious limitations, pose a threat to the security and stability of the Republic.29 Foreign Policy The Iranian foreign and regional policy has come under stress in the wake of the American withdrawal from the JCPOA in May 2018. While tensions with the US have been on the rise since then, the issue has complicated Iran’s relations with many others, including the European Union, Russia, China and India. The Trump Administration’s threats to impose secondary sanctions on any country violating the US sanctions on Iran had adversely affected Tehran’s engagements with major powers. The limited exemptions given by the Trump Administration on petroleum imports from Iran offered to eight countries, including India and China, came to an end in May 2019,30 leading to a near-complete halt in Iranian oil exports.31 Iran was accused of disrupting oil supplies from the Persian Gulf through attacks on oil tankers in the region. In mid-2019, a series of attacks on oil tankers took place; in May, four commercial ships—two Saudi oil tankers, a Norwegian oil tanker and an Emirati bunkering 27  Al-Jazeera. ‘Suicide attack kills 27 members of Iran’s Revolutionary Guard’, 14 February 2019, https://www.aljazeera.com/news/2019/02/suicide-attack-kills-20-members-iranrevolutionary-guard-190213161754559.html 28  Ibid. 29  Seth G. Jones. ‘Iran’s protests and the threat to Domestic stability’, CSIS, 8 November 2019, https://www.csis.org/analysis/irans-protests-and-threat-domestic-stability 30  BBC News. ‘Six charts that show how hard US sanctions have hit Iran’, 9 December 2019, https://www.bbc.com/news/world-middle-east-48119109 31   Alex Lawler. ‘Hit by sanctions and rising tensions, Iran’s oil exports slide in July’, Reuters, 30 July 2019, https://www.reuters.com/article/us-oil-iran-exports/hit-bysanctions-and-rising-tensions-irans-oil-exports-slide-in-july-idUSKCN1UP1UD

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ship—were damaged off the UAE coast of in a sabotage attack.32 On 13 June, two oil tankers belonging to Panama and Japan were attacked while transiting in the Gulf of Oman near the Strait of Hormuz.33 While none of these incidents caused any severe damage to the tankers or disrupted shipping, they raised security fears among the international community and led to discussions on a regional maritime security architecture.34 On 20 June, Iran shot down an American surveillance drone over the Persian Gulf that the IRGC claimed violated the Iranian airspace. The incident stroked fears of a direct military confrontation between the US and Iran.35 The US president changed his mind at the last minute from responding to the attack and he tweeted on 21 June: “On Monday they shot down an unmanned drone flying in International Waters. We were cocked and loaded to retaliate last night on 3 different sights when I asked, how many will die. 150 people, sir, was the answer from a General. 10 minutes before the strike I stopped it.”36 On 14 September, two of the Aramco oil facilities in Abqaiq and Khurais in Saudi Arabia came under drone attacks and this drastically disrupted and reduced the Saudi oil production by half until the affected facilities were restored a week later.37 The Houthi rebels in Yemen claimed responsibility for the attacks. However, the sophistication of the attacks and intelligence assessments resulted in the US and Saudi Arabia blaming Iran for the Aramco attacks.38 Meanwhile, in July, diplomatic tensions gripped between the UK and Iran over the capture of each other’s oil tankers. In the first incident, on 5 32  Frank Gardner. ‘Four ship’s sabotaged in the Gulf of Oman amid tensions’, BBC News, 13 May 2019, https://www.bbc.com/news/world-middle-east-48245204 33  India Today. ‘Gulf of Oman attack: one Oil tanker anchored off UAE coast, US accuses Iran of blast’, 16 June 2019, https://www.indiatoday.in/world/story/gulf-ofoman-tanker-attack-one-oil-tanker-anchored-of f-uae-coast-us-accuses-iran-ofblasts-1550009-2019-06-16 34  Ashutosh Pandey. ‘Gulf of Oman oil tanker attacks fuel maritime security demand, DW, 26 June 2019, https://www.dw.com/en/gulf-of-oman-oil-tanker-attacks-fuel-maritimesecurity-demand/a-49327183 35  Helene Cooper. ‘What we know about Iran shooting Down a U.S. Drone’, The New York Times, 20 June 2019, https://www.nytimes.com/2019/06/20/us/politics/drone-shotdown-iran-us.html 36  Donald Trump. Tweet @realDonaldTrump, 21 June 2019, https://twitter.com/realDonaldTrump/status/1142055388965212161 37  Edmund Blair and Alistair Bell. ‘Saudi Aramco attacks: What we know so far’, Reuters, 16 September 2019, https://www.reuters.com/article/us-saudi-aramco-snapshot/ saudi-aramco-attacks-what-we-know-so-far-idUSKBN1W11KK 38  Ibid.

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July, the British Royal Marines seized an Iranian oil tanker Grace I on suspicion of supplying oil to Syria in violation of the EU sanctions on Damascus.39 In retaliation, Iran captured a British-flagged oil tanker Stena Impero navigating in the Strait of Hormuz on 9 July.40 The tit-for-tat actions caused not only diplomatic tensions between the UK and Iran but also raised questions about the growing diplomatic gap between the EU and Iran. In the wake of the American withdrawal from the JCPOA, Iran and the EU were negotiating alternative mechanisms to keep the nuclear deal while minimizing the impact of the sanctions on Iran.41 The progress on the special purpose vehicle INSTEX (Instrument in Support of Trade Exchanges) was limited and was not to the satisfaction of Iran. Reflecting the frustrations, in May President Rouhani declared that Iran was considering not only withdrawing from some of its commitments under the JCPOA but also to increase its uranium enrichment to a higher level.42 Amidst the tensions with Iran over the JCPOA, on 8 April, the US State Department declared the IRGC as a foreign terrorist organization (FTO), a first such action where a military wing of a member-state of the UN was designated as a terrorist group.43 This was mainly an attempt by the Trump Administration to hold the IRGC accountable for the continued increase in the Iranian military presence and influence in the Middle East, which has become a security concern for its regional allies, especially Israel and Saudi Arabia.44 39  Bianca Briton, Arnaud Siad, Nada Bashir and Samantha Beech. ‘Gibraltar seizes Iranian oil tanker bound for Syria’, CNN, 5 July 2019, https://edition.cnn.com/2019/07/04/ uk/tanker-syria-gibraltar-intl-gbr/index.html 40  The Economic Times. ‘British Oil tanker seized by Iran reaches Dubai port’, 29 September 2019, https://economictimes.indiatimes.com/news/international/world-news/britishoil-tanker-seized-by-iran-reaches-dubai-port/articleshow/71356344.cms?from=mdr 41  Alexandra Brzozowski. ‘EU willing to maintain Iran nuclear deal, risking rift with the U.S.’, Euractiv, 11 January 2020, https://www.euractiv.com/section/global-europe/ news/eu-willing-to-maintain-iran-nuclear-deal-risking-rift-with-the-us/ 42  Tamer El-Ghobashy, Michael Birnbaum and Carol Morello. ‘Iran announces it will stop complying with parts of Landmark nuclear deal’, The Washington Post, 9 May 2019, https:// www.washingtonpost.com/world/iran-to-take-steps-to-reduce-its-commitment-to-landmark-nuclear-deal/2019/05/07/90cc3b1c-70fe-11e9-9331-30bc5836f48e_story.html 43  Al-Jazeera. ‘US labels Iran’s elite revolutionary Guard Corps a ‘terror Group’’, 8 April 2019, https://www.aljazeera.com/news/2019/04/designates-iran-elite-irgc-terroristorganisation-trump-190408141756166.html 44  Aaron David Miller and Richard Sokolsky. ‘Saudi Arabia and Israel are pushing US to confront Iran. Trump Shouldn’t take the bait’, CNN, 21 May 2019, https://edition.cnn. com/2019/05/21/opinions/israel-saudi-arabia-iran-opinion-miller-sokolsky/index.html

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As Iran found itself increasingly isolated due to the US sanctions, both China and Russia have maintained friendly ties with it. They have continued to engage Tehran diplomatically but expressed their opposition to the unilateral US withdrawal from the nuclear deal.45 While China has extensive trade and commercial ties with Iran, Russia has maintained strong political and security ties. The Russo-Iranian cooperation in Syria was mostly responsible for the survival of the Assad regime46 and this has led to the belief that the two countries could cooperate on other regional security matters.47 The joint naval exercise by Russia, China and Iran in December 2019  in the Indian Ocean called Marine Security Belt48 gave credence to the growing understanding between the three for a regional security architecture in the Persian Gulf, which Iran has been advocating. Moreover, the Iranian foreign minister visited Beijing (February, August and December) and Moscow (May, September and December) in quick succession. Economic Situation For over a decade, the Iranian economy has been facing the US-led sanctions over its nuclear programme49 and even before it could benefit from the JCPOA, the Trump Administration arrived and re-imposed stringent sanctions within the ambit of its “tougher measures.”50 This in turn not only decimated the oil export revenues but also created a currency crisis by cutting off the access of Iranian banks to the global financial 45  TASS. ‘Russia, China condemn US unilateral sanctions against Iran’, 5 June 2019, https://tass.com/world/1061896 46  Michael Duclos. ‘Russia and Iran in Syria—A random partnership or an enduring alliance’, Atlantic Council, 17 June 2019, https://atlanticcouncil.org/in-depth-researchreports/issue-brief/russia-and-iran-in-syria-a-random-partnership-or-an-enduring-alliance/ 47  Sajad Abedi. ‘Iran-Russia security partnership may stabilize region’, The Economic Times, 2 February 2019, https://economictimes.indiatimes.com/blogs/et-commentary/ iran-russia-security-partnership-may-stabilise-region/ 48  Reuters. ‘Russia, China, Iran start joint naval drills in Indian Ocean’, 27 December 2019, https://www.reuters.com/article/us-iran-military-russia-china/russia-china-iranstart-joint-naval-drills-in-indian-ocean-idUSKBN1YV0IB 49  Ashish Kumar Sen. ‘A Brief History of Sanctions on Iran’, Atlantic Council, 8 May 2018, https://www.atlanticcouncil.org/blogs/new-atlanticist/a-brief-history-of-sanctionson-iran/ 50  France 24. ‘Trump announces toughest sanctions ‘ever’ on Iran’, 20 September 2019, https://www.france24.com/en/20190920-trump-sanctions-iran

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­ etwork51 and created a cascading effect on its economy. The GDP at curn rent prices was US$446.10 billion in 2018–19 and according to IMF estimates, it could marginally grow to about US$458.5 billion in 2019–20 (Table 3.1). Iran is suffering from double-digit inflation of about 30–35 per cent and hence, gains from the higher oil prices in 2018 were wiped out and the economy has been contracting in real terms since 2016. In its October quarterly assessment, the World Bank estimated that the Iranian economy would shrink by 8.7 per cent in 2019 and the IMF estimated the negative growth of real GDP at 9.46 per cent. Table 3.1 shows the main economic indicators for Iran for 2014–19 and underlines some short-term economic recovery in real growth rates and per capita GDP in 2016.

Table 3.1  Iran: Economic indicators, 2014–19

GDP current prices (US$ billion) GDP growth rate at constant price (per cent) GPD per capita at current prices (US$) Total investment as per cent of GDP Gross national savings as per cent of GDP Inflation (per cent change) Unemployment (per cent of total labour force) Net government debt (per cent of GDP)

2014

2015

2016

2017

2018

2019a

423.41

375.41

404.45

430.71

446.10

458.5

3.22

−1.59

12.52

3.73

−4.85

−9.46

5,395.79 4,723.48 5,026.65 5,289.80 5,416.53 5,506.23 40.40

34.91

33.53

35.70

38.69

40.83

43.61

35.24

37.56

39.52

42.79

38.15

15.56

11.92

9.05

9.64

30.49

35.68

10.60

11.00

12.43

12.08

14.48

16.78

−5.62

21.69

34.50

28.85

25.49

27.28

Source: IMF World Economic Outlook Data Base, October 2019, https://www.imf.org/external/pubs/ ft/weo/2019/02/weodata/weoselser.aspx?c=429&t=1 a IMF estimates; values until 2018 correspond to the data available with Statistical Centre of Iran for the respective financial years till 2018–19

51  Brian O’Toole. ‘Iranian Central bank designation: What does it mean?’, Atlantic Council, 20 September 2019, https://atlanticcouncil.org/blogs/new-atlanticist/ iranian-central-bank-designation-what-does-it-mean/

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Table 3.2  Iran: Sectoral contribution to GDP and average growth rate, 2014–18 (per cent) Economic activity

Share in the GDP (2017–18) Average growth rate (2014–18)

Oil sector 13.50 Manufacturing and mining 13.1 Total services 56.2 Construction 5.1

18.5 3.6 2.0 −7.45

Source: Central Bank of Iran, Economic Trends No. 92, First Quarter, 2018/19

The economy was further hit by massive floods which devastated several regions in the northern and southwestern part of the country in late March and early April 2019 and the government had to withdraw US$2  billion from its Sovereign Wealth Fund to provide relief to the flood-stricken areas.52 Table 3.2 shows the contribution of the main economic activities to the GDP and average growth rates during 2014–18. As it indicates, the service sector accounted for 56.2  per cent of GDP in 2017–18, while the share of industry and mining and construction sectors stood at 13.1 per cent and 5.1 per cent, respectively. The construction sector had negative growth rates for many years, reflecting the imprint of resource crunch for capital expenditures. Except the oil sector, all the other sectors had low or negative growth. Iran has a large private sector and the economy is driven largely by private consumption expenditure and private contributions to the gross capital formation.53 Yet, the growth of other sectors had been low. The drive to self-sufficiency has been the main Iranian strategy to survive the crippling sanctions and it meets 87 per cent of its food consumption needs from domestic sources.54 The US sanctions have hit the manufacturing sector that relied on the import of the raw and intermediate materials.55 However, it has provided an opportunity for the domestic industries to grow and as increasing number of foreign companies pulled out, the contracts are being awarded to

 MEES, vol. 62, no. 17, 26 April 2019.  Central Bank of Iran, Economic Trends No. 92, First Quarter, 2018/19. 54  Ding Dang. ‘Self-sufficiency helps Iran counter sanctions’, Global Times, 15 May 2019, https://www.globaltimes.cn/content/1150016.shtml 55   Adnan Mazarei. ‘Iran has a slow-motion banking crisis’, Peterson Institute for International Economics, June 2019, https://www.piie.com/system/files/documents/ pb19-8.pdf 52 53

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domestic firms.56 Iran has made efforts in indigenizing the manufacturing of strategic petrochemical equipment, like compressors, which are at the heart of the industry.57 At present, all services to the petrochemical industries such as maintenance and upgradation are being provided by domestic players. Some progress was also reported in knowledge industries and the country’s biotechnology sector currently accounts for 0.4 to 0.5 per cent of the global biotechnology market.58 Likewise, the domestic pharmaceutical firms are reportedly catering to 95 per cent of the local needs and are poised for exports.59 The average growth rate of the oil sector during 2014–18 had been sporadic and uneven and that of the manufacturing and mining and service sectors was slow but positive, implying that the country with a large population and resources can linger on in the face of prolonged crisis. Reforms continued in the financial sector, which has been plagued by several poorly regulated and unlicensed financial institutions engaged in corruption and speculative activities and the consequent rise in non-performing loans and bad debts.60 Since taking office in August 2013, the Rouhani government has initiated some banking reforms but was blocked in the conservative-dominated parliament.61 Nevertheless, the Sepah Bank, the oldest state-owned bank in Iran, has almost completed the takeover of five banks linked to the IRGC, Defence Ministry, Basij Militia force and the police.62 These five banks had combined assets of US$43.4 billion and debts of US$42.1 billion when the takeover was announced in early 2019.63 To foster saving the interest rates on term loans had been high throughout the year, thereby increasing deposits. The total time deposits reached US$19.8 billion by December 56  IRNA. ‘Iranian Start-ups offer opportunities to boost domestic economy’, 27 August 2019, https://en.irna.ir/news/83454076/Iranian-startups-offer-opportunities-to-boostdomestic-economy 57  FARS. ‘Iran indigenizes Manufacturing Strategic Petchem Equipment’, 20 February 2020, https://en.farsnews.ir/newstext.aspx?nn=13981201000472 58  FARS. ‘Domestic Biopharmaceuticals Production Saving Iran $1bn Annually’, 16 March 2020, https://en.farsnews.ir/newstext.aspx?nn=13981226000742 59  Iran Front Page. ‘Iran producing 97% of Medicines it needs domestically’, 14 April 2018, https://ifpnews.com/iran-producing-97-of-medicines-it-needs-domestically 60  Tamer Badawi. ‘Iran’s Banking sector reforms’, Carnegie Endowment for International Peace, 2 February 2017, https://carnegieendowment.org/sada/67878 61  MEES, vol. 62, no. 42, 18 October 2019, p. 14. 62  Ibid. 63  Ibid.

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2019, registering a 24 per cent growth over the previous year.64 The Iranian banks did not face the crisis of flight of domestic capital in the face of economic contraction, mainly due to a lack of opportunities in the international financial market as a fallout of the US sanctions. Thus, Iran has a high saving rate to GDP (Table 3.1), but the growth stimulus has been low and resources are not invested efficiently and squandered away in corrupt and speculative activities. The government revised and scaled up its budgetary spending for the financial year 2019–20 to US$89.7 billion against the proposed expenditure of US$82.5 billion submitted in December 2018. However, inflation rate of about 40 per cent wiped out the higher allocation. The government was increasingly looking to tap the domestic market for sukuk (Islamic financial certificate) and Islamic bonds to cover deficits as the US sanctions were drying up oil revenues. As part of the emergency plans, in September the government decided to raise about US$8.3 billion to cover the widening budget deficit in the Iranian year ending on 20 March 2020.65 Given the poor state of the economy, the funds sought to be raised from the domestic market might not be available and deficits were estimated to range between US$8.5 and US$12.7 billion.66 On the revenue front, tax evasion is massive and the annual loss is estimated at US$3  billion67 and this is despite 40 per cent of the economy being tax-exempted.68 Some of the fiscal reforms undertaken in 2019 sparked widespread protests. On 15 November, the gasoline prices were hiked by 50–200 per cent and rationing was introduced, while the prices of diesel and CNG remained unchanged.69 To curb the domestic consumption of gasoline and diesel and their smuggling into the neighbouring countries, in August, the government introduced smart cards in four cities of Tehran, Karaj, Isfahan and Tabriz.70 Similar fuel cards were in place in the border provinces 64  Financial Tribune. ‘Term Deposits Grow by 24%’, 19 February 2020, https://financialtribune.com/articles/business-and-markets/102258/term-deposits-grow-by-24 65  MEES, vol. 62 no. 46, 15 November 2019, p. 14. 66  MEES, vol. 62 no. 50, 13 December 2019, p. 10. 67  MEES, vol. 62, no. 39, 27 September 2019. 68  The Financial Tribune. ‘INTA Chief: 40% of Iranian economy is tax exempted’, 22 September 2019, https://financialtribune.com/articles/domestic-economy/99979/ inta-chief-40-of-iran-economy-tax-exempt 69  MEES, vol. 62 no. 47, 22 November 2019, p. 15. 70  MEES, vol. 62, no. 33, 16 August 2019.

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between 2007 and 2017. The price hike triggered a nationwide protest, spreading across 100 cities and towns and at least 100 banks and 57 shops were set on fire, while about 1,000 people were arrested for their role in these protests.71 External Sector: Oil constituted about 68.69 per cent of the total export revenues in 2018, while other items of exports were plastics and articles thereof (5.75 per cent); organic chemicals (4.25 per cent); and iron and steel (4.04 per cent).72 To boost non-oil exports, Iran exported more iron and steel, which witnessed a significant price rise in recent years. It exported US$3.90 billion worth of iron and steel in 2019. The main items of Iranian imports were machinery (mechanical) (US$7.68 billion), cereals (US$4.35  billion), electrical machinery and parts thereof (US$3.65 billion) and pharmaceuticals (US$1.57 billion).73 Iran’s non-oil trade stood at US$78.5 billion in the first eleven months of the financial year 2019–20.74 It had constantly been struggling to find ways to boost export revenues and circumvent the US sanctions. Iran has been keen to maintain its petrochemical exports, the second largest (though substantially less) and to circumvent the US sanctions, it classifies petrochemical exports as well as gas condensates and non-oil exports.75 A multi-tier foreign exchange rate has been used to deal with the foreign currency crunch and defend the value of Rial from the effects of the US sanctions. The government sees that any weakening of the domestic currency symbolizes diminishing national power to withstand the US sanctions.76 At present, Iran has three exchange rates, official, open market and the Forex Management Integrated System (NIMA) rate, which was introduced as the currency trading platform in 2019. In July, the Central Bank of Iran launched (on a trial basis) a scheme to allow exporters of the non-oil commodities to sell their foreign currencies to the importers of  Ibid.  International Trade Centre (ITC), List of Products Exported by Iran, https://www. trademap.org/tradestat/Product_SelCountry_TS.aspx?nvpm=1%7c364%7c%7c%7c%7cTO TAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c1%7c4%7c1 73  Ibid. 74  The Financial Tribune. ‘Iran’s Non-oil foreign trade deficit at 1.5 billion’, 17 March 2020, https://financialtribune.com/articles/domestic-economy/102640/ irans-non-oil-foreign-trade-deficit-at-15-billion 75  MEES, vol. 62, no. 21, 24 May 2019. 76  Paul Wallace. ‘How Iran is using currency reforms to withstand Trump’, Bloomberg, 20 August 2019, https://www.bloomberg.com/news/articles/2019-08-20/ how-iran-is-using-currency-reforms-to-withstand-trump-quicktake 71 72

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consumer products.77 While the official exchange rate has been maintained around 42,000 Rial per US Dollar, with inflation at 50 per cent, the unregulated (black) market rates have fallen to 156,000 Rial per US Dollar by mid-2019, a decline of 30 per cent from its value in beginning of the year.78 While, NIMA was launched to regulate the black market, exporters preferred selling their foreign exchange in the unregulated market as the NIMA rates were close to the official rates and hence were less attractive. At the same time, the Iranians continued to make overseas payments for everything, from imported cars to college fees, at official rates due to scarcity of the foreign currency. Later in the year, the government allowed the NIMA rate to depreciate and brought it closer to the market rates.79 Tables 3.3 shows the current account balance. The oil exports had increased from US$31.84 billion in 2015 to US$65.81 billion in 2017–18, both on account of higher oil prices and partial relaxation of the sanctions under the JCPOA. The oil exports exhibit a significant decline in 2019, notwithstanding high oil prices, owing to the re-imposition of the US sanctions in November 2018 and the limited waiver given to the six countries, including India, until 2 May 2019. Table 3.4 shows the direction of trade and signifies considerable opacity in the reporting. The share of China in Iran’s total imports increased rapidly between 2001 and 2015 from 12.9 per cent to 26.2 per cent and hovered around 25 per cent since then. The share of the UAE has been broadly declining from 30.4 per cent achieved in 2011 to 13.8 per cent in 2018. Unspecified areas have a dominant share in Iran’s total and oil exports, thereby indicating the clandestine nature of the trade. The importing country’s share in total oil exports also looks underreported. Some of Iran’s oil exports to Malaysia were reportedly ending up in China as the imports from Malaysia have significantly soared up to 481,000 and 462,000 b/d for September and October 2019, respectively.80 There had been a significant outflow of short-term capital during 2016–18, leading to a negative capital account (Table 3.3), which implied 77  The Tehran Times. ‘Integrated forex market to start operation officially in spring’, 25 March 2020, https://www.bloomberg.com/news/articles/2019-08-20/ how-iran-is-using-currency-reforms-to-withstand-trump-quicktake 78  Wallace. ‘How Iran is using currency reforms to withstand Trump’. 79  Dominic Dudley. ‘A Rial mess: Iran tries to reboot its struggling currency again’, Forbes, 22 August 2019, https://www.forbes.com/sites/dominicdudley/2019/08/22/ rial-mess/#7500c5e27c06 80  MEES, vol. 62, no. 21, 24 May 2019.

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Table 3.3  Iran: Balance of payments 2014–18 (US$ millions) Particular

2014–16 2015–16 2016–17 2017–18 2018a

2019a

A. Current account balance Oil exports Total exports Imports Goods trade (net) Net trade in services Net income from abroad B. Capital account (net) Change in international reserves

13,571

1,237

16,388

15,816

18,271

−12,268

55,406 88,976 70,915 18,060 −6,877 1,845

31,848 62,995 57,641 5,354 −4,785 241

55,752 83,978 63,135 20,843 −5,941 928

65,818 98,142 75,546 22,596 −7,916 669

66,367 96,618 41,236 55,381,353 -

16,406 26,988 27,148 Negative

559

2,346

−18,288 −19,321 -

8,561

2,233

−7,666

−8,140

-

Sources: Central Bank of Iran, Economic Trends No. 92, First Quarter, 2018/19; ITC. Trade Statistics, https://www.trademap.org/tradestat/Product_SelCountry_TS.aspx?nvpm=1%7c364%7c%7c%7c%7cT OTAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c1%7c1%7c; IMF. World Outlook 2019 a Figures for 2018 and 2019 are for calendar years and the export and import figures given by the ITC are up to US$7 billion more than that of the Central Bank of Iran for the previous years. Some of the difference may emanate from the use of the different exchange rates

Table 3.4  Iran’s direction of trade, 2018 (per cent) Top five oil export destinations

Top export destinationsa

Top five sources of imports

Asia areas not specified elsewhere (62.2) Europe (16.6) UAE (5.7) South Korea (3.7) China (3.6)

Asia areas not specified elsewhere (42.7) Europe (11.4) China (9.5) Iraq (9.3) UAE (6.2)

China (24.29) UAE (13.8) India (6.4) Turkey (6.3) Germany (5.9)

Source: ITC, Trade Statistics, Iran, https://www.trademap.org/tradestat/Country_SelProductCountry_ TS.aspx?nvpm=1%7c364%7c%7c%7c%7c27%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c2%7c4%7c1 a The top five export destinations according to UNCTAD are China, India, Taiwan, Turkey and Iraq. Figures in bracket are percentage share.

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an increasing risk perception about Iran among the investors. The FDI between 21 March and 22 December 2019 was US$831 million, a moderate decline of 0.6 per cent over the same period in the previous year.81 The UNCTAD estimated FDI inflow of about US$3.48 billion in 2018 which declined from US$5.02 billion in 2017.82 After much discussion and scepticisms, Britain, France and Germany launched the INSTEX in January 2019 as an alternative trade mechanism with Iran to circumvent the US sanctions and later in the year, it was joined by six more EU countries, namely Belgium, Denmark, Finland, the Netherlands, Norway and Sweden.83 The Paris-based clearing mechanism would facilitate non-US Dollar transaction between the Iranian and the European companies. Initially, the arrangement would be used to sell food, medicine and medical devices to Iran and modest transaction of about US$4 million worth of medical instrument supply were reported by November. Despite the special arrangement, the EU-Iran bilateral trade between January and October 2019 witnessed a y-o-y decline of 75 per cent84 and oil shipments to Europe also declined to 110,000 b/d in the first quarter of 2019 as  against 660,000  b/d during the same time the previous year.85 In another development, French President Emmanuel Macron was reportedly working for a credit line against future oil supplies for Iran, if the latter exhibited nuclear restraint. Iran’s liberal factions were seemingly receptive to the proposal as the country was looking for US$15 billion support.86

81  FARS. ‘Foreign investment in Iran Nudges down’, 23 February 2020, https://en.farsnews.ir/newstext.aspx?nn=13981204000783 82  UNCTAD. World Investment Report 2019, https://unctad.org/en/PublicationsLibrary/ wir2019_en.pdf 83  The Guardian. ‘Six more countries join Trump-busting Iran barter group’, 1 December 2019, https://www.theguardian.com/world/2019/dec/01/ six-more-countries-join-trump-busting-iran-barter-group 84  Alexandra Brzozowski. ‘INSTEX fails to support EU-Iran trade as nuclear accord falters’, Euractiv, 14 January 2020, https://www.euractiv.com/section/global-europe/ news/instex-fails-to-support-eu-iran-trade-as-nuclear-accord-falters/ 85  MEES, vol. 62, no. 16, 19 April 2019. 86  MEES, vol. 62, no. 36, 6 September 2019.

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Energy Sector In early 2019, Iran declared that it has 160  billion barrels of oil and 33.33 tcm of natural gas.87 Later in the year, it announced a new oil field discovery, close to the Iraqi border, with an estimated reserve of 53 billion barrels of oil reserves. When materializes, this could be the second largest oil field in Iran after the one in Ahvas, which has an estimated reserve of 63 billion barrels.88 However, the country faces challenge to develop its oil and gas reserves as the foreign stakeholders and prospective investors pulled out in the face of renewed US sanctions and thus forcing a resource crunch. Nevertheless, the government went ahead with the development of key oil and gas projects through domestic companies. In October, it was widely reported that the Chinese CNPC had pulled out of phase II development of South Pars gas field. The US$4.8 billion project, which was to be jointly developed by Total (50.1 per cent), CNPC (30 per cent) and Iranian firm Petropas, was hailed by the media within and outside Iran as the first major post-sanction contract with foreign firms.89 China acquired Total’s stake, when the latter left the project in August 2018. Upon the Chinese reversal, the Iranian Petroleum Minister Bijan Zanganeh said that state-owned Petropas would continue developing the project on its own.90 Despite sanctions, Iran still managed to develop the South Pars production capacity to 23.3 bcf/d, which is 78 per cent of the total Iranian capacity of 29.7  bcf/d.91 The Farzad B, a key offshore gas field in which India had long shown interest, had been handed to the Petropas for development and production activities.92 Iran also 87  Indrajit Sen. ‘Iran declares its oil and gas reserves’, MEED, 7 February 2019, http:// meed.com/iran-declares-oil-gas-reserves/ 88  Aljazeera. ‘Rouhani: Iran finds new oil field with 53 billion barrels’, 10 November 2019, https://www.aljazeera.com/news/2019/11/rouhani-iran-finds-oil-field-53-billion-barrels-191110075249978.html 89  Karen Gilchrist. ‘What Total’s $4.8 billion investment means for Iran’, CNBC, 3 July 2017, https://www.cnbc.com/2017/07/03/iran-to-sign-new-ipc-gas-deal-with-total-forsouth-pars.html 90  Najmeh Bozorgmehr. ‘Blow for Iran as Chinese oil group pulls out of flagship gas field project’, Financial Times, 6 October 2019, https://www.ft.com/content/ ff822e00-e83f-11e9-a240-3b065ef5fc55 91  MEES. ‘Iran Press on With South Pars Development Despite CNPC Pull-out’, 11 October 2019, vol. 62, no. 41, https://www.mees.com/2019/10/11/oil-gas/iranpresses-on-with-south-pars-development-despite-cnpc-pullout/ ac8643d0-ec3e-11e9-bb8c-a9e51c9c19a8 92  MEES, vol. 62 no. 51/52, 20 December 2019, p. 17.

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started work on the 1,100-kilometre-long Goreh-Jask pipeline to the planned Jask oil export terminal. The one mb/d facility laying outside the Strait of Hormuz is scheduled to be operational in 2021.93 In the first quarter of 2018, Iranian oil production was about 3.8 mb/d and export was about 2.3 mb/d.94 When the US sanctions were imposed in November 2018, the average oil exports for 2018 fell to 2.12 mb/d.95 Despite the Persian Gulf oil exporters hiking oil prices for the June 2019 loading, Iran continued to discount prices to hold back importers against the American sanctions.96 The limited waiver given to the eight  oil-­ importing countries lapsed on 2 May and was not renewed by the Trump Administration. This led to a nosedive in Iranian exports in the  later months and as against the average loading of 2.5 mb/d in the first half of 2018, it fell to 332,000 b/d and 231,000 b/d for October and November 2019, respectively.97 Most of them went to China and the rest were split between Syria and Malaysia. In August, China’s oil imports from Iran were just 131,000  b/d, the lowest since 2006.98 Turkey’s President Erdogan had said that it was impossible to stop purchasing oil and gas from Iran despite the US sanctions; yet, the Turkish imports from Iran halved in the first half of 2019 to 84,600 b/d as compared to the same period a year ago and in July the Turkish state refiner Tupras announced that it had halted purchases from Iran.99 Even though the US sanctions greatly ruined the oil exports, Iran has been boosting its production of petroleum products and plans to start gasoline shipments. In mid-2019, the gasoline production reached a record level of 60,000 b/d above the domestic demand.100 Iran exports piped gas to Turkey and Iraq and in smaller volumes to Armenia and Azerbaijan. Its export earnings from Turkey and Iraq were about US$320 million in September.101 The gas exports to the tune of 750 mcf/d

 MEES, vol. 62, no. 40,4 October 2019.  Central Bank of Iran. ‘Economic Trends No. 92, First Quarter, 2018/19’. 95  OPEC. ‘Annual Statistical Bulletin 2019’, https://asb.opec.org/index.php/interactive-charts/oil-trade 96  MEES, vol. 62 no. 20, 17 May 2019. 97  MEES, vol. 62 no. 50, 13 December 2019, p. 8. 98  MEES, vol. 62 no. 43, 25 October 2019. 99  MEES, vol. 62 no. 39, 27 September 2019. 100  MEES, vol. 62, no. 36, 6 September 2019. 101  MEES, vol. 62 no. 50, 13 December 2019, p. 8. 93 94

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to Iraq became a key revenue stream from that month as the oil export revenue collapsed.102 Iran has been exporting a sizeable amount of electricity to Iraq in the last three years. This was partly facilitated by a decline in domestic electricity consumption in the summer of 2019 due to coordinated conservation efforts of the household, agriculture and the industrial sectors.103 As a result, Tanvir—the state power generation company—exported 2.9 billion KWH of electricity to the neighbouring Iraq, Pakistan and Afghanistan during June–September.104 The export of electricity to Iraq got a waiver from the US sanctions due to its importance in its reconstruction. To further boost the power production, Iran has invited bids for a major power transmission plant in Esfahan. Social Issues For long, the Islamic Republic has faced criticisms over its human rights records, treatment of the women and minorities as well as the lack of media freedom. Iranian activists, journalists and opposition leaders have faced retribution from the regime and security forces for speaking up on any issue that is deemed to be a national security matter.105 Scores of activists and protestors lost their lives or were injured or detained in actions by the security forces. Several continue to remain in prison without any charges being filed, while many have been sentenced to prison terms or even faced death penalty on false or trumped up allegations. For example, on 11 March, Nasrin Sotoudeh, “a prominent human rights lawyer,” was sentenced to “33 years in prison and 148 lashes” for defending women who were protesting against the compulsory dress code in public.106 Ethnic and religious minorities, including Zoroastrians, Baha’is, Sunni Arabs, Kurds and Balochis and Azeris as well as secular liberals have long faced persecution and discrimination at the hands of the clerical authorities causing many to either leave the country or hide their identity. The  MEES, vol. 62 no. 37, 13 September 2019.  Financial Tribune. ‘Iran Power Industry: Exports up, Imports down’, 19 January 2020, https://financialtribune.com/articles/energy/101782/ iran-power-industry-exports-up-imports-down 104  Ibid. 105  Human Rights Watch. ‘Iran: Events of 2019’, 2020, https://www.hrw.org/worldreport/2020/country-chapters/iran 106  Ibid. 102 103

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Baha’i community has especially faced persecution and does not have the freedom to openly practice their faith.107 Gender discrimination is a major problem and women face discriminatory laws in civil matters including marriage, divorce, inheritance as well as citizenship. For example, Iranian law does not allow women to pass their citizenship to their children if the father is not an Iranian national.108 Many of the Iranian men and women who have settled abroad or are married to non-Iranians often face difficulty if they visit home. Some with foreign spouses have even been detained or prosecuted as foreign spies on trumped-up charges.109

Bilateral Ties Both due to its strategic importance and geopolitical location, the Islamic Republic of Iran occupies an important place in India’s foreign policy formulations. At the same time, New Delhi faces challenges in managing its relations with Iran within its competing interests and conflicting relations with other countries, especially the US and Gulf Arab countries. These challenges became acute in May 2019 when India failed to get a waiver from the Trump Administration for its oil imports from Iran. Political and Diplomatic Relations In recent years, the Indo-Iran relations have been severely affected by the US and have become a hostage to the American factor.110 The Indian reluctance to continue oil imports in defiance of the US sanctions was not appreciated in Tehran.111 However, several developments indicated that New Delhi and Tehran continued political and diplomatic engagements despite the absence of oil trade.

 Ibid.  Ibid. 109  BBC News. ‘Nazanin Zaghari-Ratcliffe: Husband concerned for her case after Iran’s top general killed’, 3 January 2020, https://www.bbc.com/news/uk-50989216 110   Hamed A.  Kermani. ‘Like a third wheel, US complicates India-Iran relations’, Al-Monitor, 7 January 2020, https://www.al-monitor.com/pulse/originals/2020/01/uscomplicate-iran-india-relations.html 111  Suhasini Haider. ‘India should not have joined U.S. ban, says Iran’, The Hindu, 10 September 2019, https://www.thehindu.com/news/national/india-should-not-havejoined-us-ban-says-iran/article29386180.ece 107 108

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On 26 September, Prime Minister Narendra Modi met President Rouhani on the side-lines of the 74th session of the UN General Assembly in New York. The meeting gained importance mainly due to strains over the halt of oil imports. Though little details of deliberation were disclosed, the meeting helped to calm the strained nerves. After the meeting, the Indian Ministry of External Affairs stated that the two leaders “discussed bilateral relations and exchanged views on regional and global developments of mutual interest.”112 The press release noted the significance of bilateral ties, the importance of Chabahar Port and the decision to mark the 70th anniversary of the establishment of diplomatic ties in 2020. Furthermore, the MEA underlined that Prime Minister Modi “reiterated India’s support for giving priority to diplomacy, dialogue and confidence-­ building in the interest of maintaining peace, security and stability in the Gulf region, which is of vital importance for India.”113 Subsequently, External Affairs Minister S. Jaishankar undertook a two-­ day visit to Iran on 22–23 December. This was his first visit to Tehran after assuming the office earlier in May and was the second one to Iran under Prime Minister Modi  after his predecessor Sushma Swaraj’s April 2016 visit.114 During the visit, Jaishankar had a meeting with President Rouhani and co-chaired the 19th session of the India-Iran Joint Commission Meeting (JCM) with his Iranian counterpart.115 According to the MEA, in the JCM, “the two Ministers reviewed and positively assessed progress in bilateral cooperation, including connectivity, trade and commerce, cultural and people-to-people contacts. They also exchanged views on regional and global issues of mutual interest.”116 Several other important issues came for discussion during the JCM, the most critical being of Chabahar Port, in which India has made investment commitments up to US$85 million to make it operational. It sees the port 112  GoI.  MEA. ‘Prime Minister meets President of Iran’, 26 September 2019, https:// mea.gov.in/press-releases.htm?dtl/31869/prime+minister+meets+president+of+iran 113  Ibid. 114  The Hindu BusinessLine. ‘Jaishankar to embark on two-day visit to Iran from Sunday’, 21 December 2019, https://www.thehindubusinessline.com/news/world/jaishankar-toembark-on-two-day-visit-to-iran-from-sunday/article30366965.ece 115  GoI.  MEA. ‘Visit of External Affairs Minister to Iran (22–23 December 2019)’, 21 December 2019, https://mea.gov.in/outoging-visit-detail.htm?32232/Visit+of+External+ Affairs+Minister+to+Iran+December+2223+2019 116  GoI. MEA. ‘19th India-Iran Joint Commission meeting’, 23 December 2019, https:// mea.gov.in/press-releases.htm?dtl/32237/19th+indiairan+joint+commission+meeting

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as a safe and secure trade corridor between India, Afghanistan and Central Asia.117 Moreover, India had an agreement with Aria Banadar Iranian Port in 2016 to help develop the transport and other infrastructure to make the Chabahar Port fully functional.118 In addition to Chabahar, the JCM in Tehran discussed “strengthening bilateral trade and commerce,” and both sides agreed to “hold early meeting of the Joint Working Group on Trade and to finalize Preferential Trade Agreement, Bilateral Investment Treaty and promote cooperation in customs matters.”119 Moreover, it discussed the continued threat from terrorism and called on all countries to end “terror sanctuaries” and condemned states that aid and support terrorism. The issue of regional peace, security and stability were also flagged and both agreed to “promote exchanges between the Parliamentarians, organize cultural festivals, promote people-­ to-­people contact and youth exchanges” to commemorate the 70th anniversary of the India-Iran diplomatic relations.120 Earlier, on 16 September, the “sixteenth round of Foreign Office Consultations between India and Iran were held in Tehran.”121 The Foreign Secretary Vijay Gokhale led the Indian delegation while Deputy Foreign Minister Seyyed Abbas Araghchi led the Iranian delegation. According to an official statement, “the two sides reviewed the entire gamut of bilateral cooperation, ongoing connectivity and infrastructure development projects including development of Shahid Beheshti Port, Chabahar and full operationalization of the Trilateral Transit Agreement (Chabahar Agreement) between India, Iran and Afghanistan.”122 Moreover, the Foreign Secretary called on Foreign Minister Zarif and Senior Advisor to the Supreme Leader, Ali Akbar Velayati, and apprised them of the Indian views on various regional and international matters of mutual concern.123 117   GoI.  MEA. ‘India-Iran Relations’, September 2019, http://mea.gov.in/Portal/ ForeignRelation/India-Iran_Bilateral_Brief_2019.pdf 118  The Economic Times. ‘India takes over operations of part of Chabahar Port in Iran’, 7 January 2019, https://economictimes.indiatimes.com/news/politics-and-nation/indiatakes-over-operations-of-part-of-chabahar-port-in-iran/articleshow/67424219.cms 119  GoI. MEA. ‘19th India-Iran Joint Commission Meeting’. 120  Ibid. 121  GoI.  MEA. ‘Foreign Office Consultations between India and Iran’, 16 September 2019, https://mea.gov.in/press-releases.htm?dtl/31828/foreign+office+consultations+bet ween+india+and+iran 122  Ibid. 123  Ibid.

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On 13 May, Iran’s Foreign Minister Javad Zarif arrived in India on a two-day visit. It came on the heels of the US announcement on 22 April that the 180-day waiver issued the previous November to the eight countries for oil imports from Iran would not be extended.124 Zarif met the then External Affairs Minister Sushma Swaraj and attended a public meeting organized by the Observer Research Foundation.125 Interestingly the visit took place just days before the 17th Lok Sabha election results were announced. Media reports suggested that the visit focused on understanding the Indian position on the possibilities of continued oil imports from Iran even after the end of the US waiver.126 As subsequent developments revealed, India had quietly ceased oil imports from the Islamic Republic.127 Trade and Commerce Commercial relations form the backbone of Indo-Iran relations, but they have been badly affected by the US sanctions, which in turn, affected the political relations. India’s oil imports from Iran continued until May 2019, while non-oil trade has not been affected in a significant manner. India’s total exports to Iran had grown in value since 2016, yet as per cent share in India’s total exports remained less than 1 per cent during 2016–18 (Table 3.5). Since 2018, there is renewed vigour in Indian exports to Iran and the share increased marginally to 1.06 per cent. India’s total bilateral trade with Iran increased substantially from US$9.06 billion in 2015–16 to US$17.03 billion in 2018–19 (Table 3.5). The share of Iran in India’s total trade rose from 1.41 to 2.02 per cent in the same period. India’s imports from Iran increased from US$6.27  billion in 2015–16 to 124  ANI. ‘Iranian Foreign Minister on two-day visit to India’, 13 May 2019, https://www. aninews.in/news/world/asia/iranian-for eign-minister-on-two-day-visit-toindia20190513221558/ 125  Subhayan Chakraborty. ‘Iranian Foreign minister to Sushma Swaraj, likely to offer gas block’, Business Standard, 14 May 2019, https://www.business-standard.com/article/current-af fairs/iranian-foreign-minister-to-meet-sushma-swaraj-likely-to-of fer-gasbloc-119051301443_1.html 126  Elizabeth Roche. ‘Iranian Foreign Minister in India, to discuss US sanctions with Sushma Swaraj’, Livemint, 13 May 2019, https://www.livemint.com/news/world/iranianforeign-minister-in-india-to-discuss-us-sanctions-with-sushma-swaraj-1557765807580.html 127  Business Standard. ‘India has ended Iranian Oil imports to comply with US sanctions: Envoy’, 24 May 2019, https://www.business-standard.com/article/economy-policy/ india-has-ended-iranian-oil-imports-to-comply-with-us-sanctionsenvoy-119052400105_1.html

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Table 3.5  India-Iran bilateral trade, 2014–20 (US$ millions)

Total exports to Iran Growth rate (per cent) Per cent share in India’s total exports Total imports from Iran Growth rate (per cent) Share in India’s total imports (per cent) Total bilateral trade with Iran Growth rate (per cent) Share in India’s total trade (per cent)

2014–15

2015–16

4,175.06

2,781.51 −33.38

2016–17

2017–18

2,379.37

2,652.37

−14.45

11.46

0.86

0.87

2018–19

April– January 2019–20

3,511.01 2,799.30 32.57 –

1.35

1.06

8,955.02

6,278.75 10,506.51 11,111.52 13,525.64 1,351 −29.89

2

1.65

67.33

5.76

2.73

2.39

1.06 1.06

21.73 – 2.63 0.33

13,130.08 9,060.26 12,886.12 13,763.89 17,036.65 4,150

1.73

−31

2.63

16.49

9.76 –

1.41

1.95

1.79

2.02 –

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp

US$13.52 billion, mostly on account of oil imports. The share of oil in India’s imports from Iran increased from 71.06 per cent to 91.45 per cent in the same period (Table 3.6). However, as India halted oil imports from Iran by mid-2019, imports slumped to US$1.35 billion in April–January 2019–20. According to UNCTAD, India was the second largest export destination for Iran after China in 2019, while it was the third largest exporter to Iran (Table 3.4) and its share increased from 2.1 per cent in 2011 to 6.4 per cent in 2018 though the trajectory had upswings (2011–13) and downswings (2014–16). The downswing implies that India could not utilize the window provided by the JCPOA to boost its exports to Iran. However, there has been an upward movement of exports to Iran despite

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Table 3.6  India-Iran oil trade 2014–19 (US$ millions) Year

2014–2015 2015–2016 2016–2017 2017–2018

Oil importsa 7,292.13 Growth rate of oil imports (per cent) Share of Iran in India’s 6.05 import of oil and its products (per cent) Share of oil in India’s 81.43 total imports from Iran (per cent) India’s petroleum 47.4 product exports to Iran Growth rate (per cent) Share of Iran in India’s 0.08 total petroleum products export (per cent) Share of petroleum 1.14 products in India’s total exports to Iran (per cent)

2018–2019

4,461.57 −38.82

9,006.29 101.86

9,232.61 2.51

12,369.07 33.97

6.50

12.60

10.28

10.62

71.06

85.72

83.09

91.45

43.38

28.34

23.42

18.25

−8.5 0.14

−34.68 0.09

−17.36 0.06

−22.05 0.04

1.56

1.19

0.88

0.52

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp Includes petroleum products worth about US$200 millions

a

re-imposition of sanctions showing India’s determination to make incremental progress through the difficulties. Iran’s share in India’s crude oil imports ratcheted up from 6.05 per cent in 2014–15 to 12.60 per cent in 2016–17 (after the JCPOA) and stood at 10.62 per cent in 2018–19 (Table 3.6). Reliance bought crude oil in 2016 after a six-year hiatus128 and got 2 million barrels in September 2018. Its two refineries with a combined capacity of 1.4 mb/d can process cheap dirty fuel into high-grade petroleum products.129 The company has 128  The Economic Times. ‘Reliance buys Iranian oil after six-year hiatus’, 24 April 2016, https://economictimes.indiatimes.com/industry/energy/oil-gas/reliance-buys-iranianoil-after-six-year-hiatus/articleshow/51963025.cms 129  Financial Tribune. ‘India-Iran Payment Mechanism Operational’, 21 December 2018, https://financialtribune.com/articles/business-and-markets/95719/ india-iran-payment-mechanism-operational

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significant exposure in the US financial market and investments in shale and stopped its oil trade (both imports and exports) with Iran in 2009–10 due to the concerns over the US sanctions. After JCPOA, Iran’s standing increased in India’s total oil and its products supply from the eight largest suppliers in 2014–15 to third in 2017–18 and later fourth in 2018–19 (Table 1.12). India stopped importing Iranian oil once the waiver from the US sanction expired in May 2019. The average oil imports from Iran for 2018 were 513,000 b/d;130 it imported 368,000 b/d in January 2019; 342,000 b/d in April; and 113,000 b/d in May 2019, which was the lowest since March 2013.131 The total oil  imports in 2019 were about US$1,009.60  million. India also exported petroleum products to Iran, mostly gasoline, but the same had declined over the years, mostly due to an increase in domestic refining capacity in Iran. It dropped from US$47.4 million in 2014–16 to 18.25 million in 2018–19 (Table 3.6). On 2 November, both countries signed an agreement to settle oil trade through the Indian government-owned UCO Bank in Rupees.132 As a part of the payment mechanism, UCO Bank opened the Rupee Vostro account of five Iranian banks for the deposit of the oil money.133 Iran would be able to use the Rupee funds for a range of expenses, including payment for imports from India, direct investment in Indian projects, financing of Iranian students in India and even to pay for the maintenance of its missions in India.134 In another facilitatory move, the Indian government exempted the Rupee payments to the Iranian oil companies from 40 per cent withholding tax plus other levies.135 In the previous round of sanctions, India made 45 per cent of its oil payments in Rupees and the

 MEES, vol. 62 no. 25, 21 Jun 2019.  Ibid. 132  India Today. ‘India has exempted rupee payments for Iran oil from hefty taxes, says govt order’, 1 January 2019, https://www.indiatoday.in/india/story/ india-has-exempted-r upee-payments-for-iran-oil-fr om-hefty-taxes-says-govtorder-1421153-2019-01-01 133  The Economic Times. ‘Rupee payment mechanism with Iran working well amid coronavirus pandemic: UCO Bank’, 22 March 2020, https://energy.economictimes.indiatimes. com/news/oil-and-gas/rupee-payment-mechanism-with-iran-working-well-amid-coronavirus-pandemic-uco-bank/74755404 134  India Today. ‘India has exempted rupee payments for Iran oil from hefty taxes, says govt order’. 135  Ibid. 130 131

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remaining in Euros.136 At the same time, Iran’s Bank Pasargad is seeking the approval of the Reserve Bank of India to set up a branch in Mumbai.137 Iran was using the amount deposited in Rupees in the UCO  Bank accounts as payment for India’s oil imports, to make payments for imports from India. Payments to the Indian exporters became erratic and they were worried as the Rupee funds with Iran were drying up after India stopped oil imports from Iran.138 The composition of India’s exports to Iran in 2018–19 were agricultural and edible commodities (60.95 per cent); chemicals (mostly organic) (8.75 per cent); machinery parts (mechanical and electrical) (5.78 per cent); apparels and textiles and oil and perfumery (Table  3.7). In 2019, Iran had imported a record volume of orthodox Indian tea in the first half of 2019 at a price higher than that in the previous year and the Rupee account in the UCO Bank facilitated the payments.139 Iran was the largest importer of basmati rice for some years and

Table 3.7  Composition of India’s exports to Iran, 2018–19 (in US$ millions) HS code

Commodity

1–24 Agricultural and edible items 28–29 Chemicals 84–85 Machinery (electrical and mechanical) 50–63 Apparels and textiles 33 Essential oil and perfumery

Value 2018–19

Share in total exports (per cent)

Growth (per cent)

2,140.2 293 202.81

60.95 8.75 5.78

2.19 11.19 18.10

156.33 152.63

4.41 4.35

−36.64 74.44

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp

136  The Hindu Business Line. ‘Indian refiners pay for Iranian oil in rupees’, 9 January 2019, https://www.thehindubusinessline.com/economy/indian-refiners-pay-for-iranian-oil-inrupees/article25948219.ece 137  Eghtesad. ‘Bank Pasargad could open branch in Mumbai’, 18 January 2020, https:// www.en.eghtesadonline.com/Section-economy-4/31619-bank-pasargad-could-openbranch-in-mumbai 138  Joe C. Mathew. ‘Iran-US tussle: Rupee-Rial trade to grind to a halt in 3–4 months’, Business Today, 8 January 2020, https://www.businesstoday.in/current/world/iran-ustussle-indian-exports-may-face-delay-in-payments-exporters-trade/story/393329.html 139  Sutanuka Ghosal. ‘Iran payment for India tea exports becomes regular’, The Economic Times, 16 September 2019, https://economictimes.indiatimes.com/markets/commodi-

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accounted for about 30 per cent of India’s exports.140 The export of soybean meal (used in food and fodder for animals) to Iran, which accounted for 25 per cent of India’s export of the commodity, has come to a standstill.141 Exports of cereals, sugar and confectionery items, as well as animal fodder and meals, registered a manyfold increase in volumes in 2018–19. Besides oil, India imported chemical (mostly organic), fertilizers and plastic and articles thereof (Table 3.8). However, India’s import of fertilizers had declined in 2018–19 over the previous year and it imports an insignificant amount of iron and steel, which had high growth rates among Iran’s global exports. India is working for a Preferential Trade Agreement (PTA) with Iran and the fourth round of talks was held in March in Tehran.142 Many important items of trade would become subject to zero duty as both sides are committing to reducing tariffs.143 However, the next round scheduled

Table 3.8  Composition of India’s imports from Iran, 2018–19 (in US$ millions) HS code

Commodity

Value 2018–19

27

Mineral fuels, mineral oil and their distillates, etc. Chemicals Fertilizers

12,369.07 91

29 31

Share in total exports (per cent)

724.2 5.35 224.87 1.6

Growth (per cent) 33.97 −6.99 −57.53

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp

ties/news/iran-payment-for-india-tea-exports-becomes-regular/articleshow/71144057. cms?from=mdr 140  Madhvi Sally and Sutanuka Ghosal. ‘Erratic payments from Iran put commodity exporters in a fix’, The Economic Times, 28 October 2019, https://economictimes.indiatimes. com/markets/commodities/news/erratic-payments-from-iran-put-commodity-exportersin-a-fix/articleshow/71790141.cms 141  Ibid. 142  Subhayan Chakraborty. ‘Will sign preferential tariff agreement with India soon, says Iranian envoy’, Business Standard, 29 August 2019, https://www.business-standard.com/ article/economy-policy/will-sign-preferential-tariff-agreement-with-india-soon-says-iranian-envoy-119082801603_1.html 143  Ibid.

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to be held in New Delhi in 2019144 did not take place until year-end. Along with the trade deal, bilateral investment protection agreement and avoidance of double taxation agreements are also in the pipeline. The Chabahar Port was formally inaugurated in December 2017 and had partly begun commercial operations in late 2018.145 The India Ports Global Private Limited (IPGPL) took over the operations of the port in December 2018. Interestingly, the Chabahar Port has not come under the wave of sanctions imposed by President Trump and this offers a small leeway to India to strengthen its investments in Iran.146 At the same time, due to other sanctions on financial transactions with Iranian companies, there were concerns that the procurement of goods and bank payments might be a problem.147 However, after some efforts, India secured a written assurance from the US to “help facilitate global banks to fund the purchase of equipment” to continue the development of the Chabahar Port.148 However, the assurance did not seem to ease the concerns of the suppliers and contract bidders, both Indian and foreign. By June, IPGPL had scrapped a long running tender (issued in December 2017) to find an strategic Indian partner to manage, operate and maintain (MOM) the container and multi-purpose terminals at the Chabahar Port citing lack of clarity on the US sanctions and low participation of the bidders and fewer tenders to provide heavy-duty cranes.149 It had earlier hired a local Iranian 144  The Economic Times. ‘India, Iran may hold next round of negotiations for trade agreement in May’, 1 May 2019, https://economictimes.indiatimes.com/news/economy/foreign-trade/india-iran-may-hold-next-round-of-negotiations-for-trade-agreement-in-may/ articleshow/69128224.cms?from=mdr 145  India Today. ‘Chabahar port begins commercial operations: Why Iran port is important for India’, 8 January 2019, https://www.indiatoday.in/education-today/gk-currenta f f a i r s / s t o r y / i n d i a - t a k e s - o v e r- o p e r a t i o n s - c h a b a h a r- p o r t - i r a n - i m p o r t a n c e 1426057-2019-01-08 146  The Economic Times. ‘US says Chabahar project won’t be impacted by Iran sanctions’, 24 April 2019, https://economictimes.indiatimes.com/news/economy/foreign-trade/usdecision-to-end-iran-oil-sanctions-waiver-wont-affect-indias-investments-in-chabahar-port/ articleshow/69019491.cms?from=mdr 147  P Manoj. ‘Chabahar Port: US gives ‘written’ assurance to India facilitating banks to fund $85mn equipments purchase’, The Hindu BusinessLine, 25 December 2019, https:// www.thehindubusinessline.com/economy/logistics/us-gives-written-assurances-to-indiain-a-big-push-to-chabahar-port-plan/article30393995.ece 148  Ibid. 149  P. Manoj. ‘Tender scarped to select Indian partner to run Chabahar port’, The Hindu BusinessLine, 5 June 2019, https://www.thehindubusinessline.com/economy/logistics/ tender-scrapped-to-select-indian-partner-to-run-chabahar-port/article27526284.ece#

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company, Kaveh Port and Marine Services Co, to run the port as an interim measure for a period of 18  months until an Indian partner was selected for long-term operations.150 IPGPL was also reportedly struggling to get crucial heavy-duty equipment from the European and the Chinese firms due to their concerns over the US sanctions. Hence, as of now, only a portion of the two berths have been completed.151 Despite all hurdles, the beginning of the operation of the port and the delivery of the cargoes were a big sigh of relief for both Indian and Iranian sides and ended the months of confusion and speculations on the status and functioning of the Iranian port. On 20 December, the second meeting of the Follow-up Committee of India, Afghanistan and Iran on the Chabahar Agreement was held in New Delhi. The earlier meeting took place in Tehran in December 2018.152 In the second meeting, it was underlined that since December 2018, when IPGPL took over the operations, over 500,000 tonnes of cargo were handled by the port, including “exports from Afghanistan through Chabahar Port which began in February 2019.”153 Moreover, the three sides agreed “to include Mormugoa and New Mangalore Port from India; in addition to JNPT, Mundra, Kandla and Cochin as part of designated route under the Chabahar Agreement.”154 In this regard, it was agreed that a “study will be conducted by Federation of Freight Forwarders’ Associations in India (FFFAI) to streamline cargo transit” through the Chabahar Port.155 The first export shipment containing 570 tonnes of dried fruits, textiles, carpets and other goods from Afghanistan was sent to India (Mumbai)

 Ibid.  Financial Tribune. ‘Indian budget allocates close to $14 million to Chabahar port project’, 2 February 2020, https://financialtribune.com/articles/domestic-economy/101987/ indian-budget-allocates-close-to-14-million-to-chabahar-port 152  GoI. MEA. ‘First meeting of the follow-up committee between India, Afghanistan and Iran for operationalization of the Chabahar agreement’, 24 December 2018, https://www. mea.gov.in/press-releases.htm?dtl/30813/First+meeting+of+the+Followup+Committee+b etween+India+Afghanistan+and+Iran+for+operationalization+of+the+Chabahar +Agreement 153  GoI. MEA. ‘Second meeting of the follow-up Committee between India, Afghanistan and Iran on the Chabahar Agreement’, 20 December 2019, https://mea.gov.in/pressreleases.htm?dtl/32231/second+meeting+of+the+followup+committee+between+india+af ghanistan+and+iran+on+the+chabahar+agreement 154  Ibid. 155  Ibid. 150 151

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through Chabahar Port in February 2019,156 and subsequently, four more consignments were sent.157 India also shipped 1.1 million tonnes of wheat and 2,000 tonnes of lentils to Afghanistan via Chabahar.158 Nevertheless, the company found it difficult to transfer funds due to the refusal of Brussels-based SWIFT (Society for Worldwide Interbank Financial Telecommunication) to process payment to Iran.159 India is also in talks with Iran for setting an ammonia-based urea plant at Chabahar free trade zone since 2016.160 The distance from Chabahar and Kandla (India) is less than the distance between Delhi and Mumbai and availability of cheap gas and electricity has the potential to cut the cost of urea production by 40 per cent.161 According to GoI, the total cumulative FDI from Iran in India between January 2000 and December 2019 was US$1 million and there had been zero FDI inflow since 2016. Challenges and Opportunities India’s decision to stop oil imports from Iran was in line with its national interest, which has significant exposure to the US market and financial system. Nevertheless, the same needs to be balanced judiciously by

156  Radio Free Europe Radio Liberty. ‘Afghanistan sends first exports to India Via Iran’s Chabahar Port’, 24 February 2019, https://www.rferl.org/a/afghanistan-first-exportsindia-chabahar-iran/29787862.html 157   GoI.  MEA. ‘Question No. 513 status of Chabahar Port’, 20 November 2019, https://www.mea.gov.in/lok-sabha.htm?dtl/32063/ QUESTION_No_513_STATUS_OF_CHABAHAR_PROJECT 158  Rupam Jain. ‘Afghanistan launches new export route to India through Iran’, Reuters, 24 February 2019, https://www.reuters.com/article/us-afghanistan-india-trade/ afghanistan-launches-new-export-route-to-india-through-iran-idUSKCN1QD0MX 159  Sanjay Kapoor. ‘India mustn’t bend to US pressure on Iran’, The Hindu BusinessLine, 23 September 2019, https://www.thehindubusinessline.com/opinion/india-mustnt-bendto-us-pressure-on-iran/article29492116.ece 160  GoI. Ministry of Fertilizers and Chemical. ‘Annual Report 2017–18’, http://fert.nic. in/sites/default/files/Annual_Report_2017-2018.PDF 161  P. Manoj. ‘India-Iran working on a rupee-rial facility on Chabahar port to sidestep US sanctions’, The Hindu BusinessLine, 19 October 2018, https://www.thehindubusinessline. com/economy/india-iran-working-on-rupee-rial-facility-for-chabahar-port-to-sidestep-ussanctions/article25264750.ece

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boosting the Indo-Iranian economic relations on multiple fronts and forms. Joint investments projects in several sectors (bio-chemicals, fertilizers, pharmaceutical, renewable energy) that help goals like climate change, health, food security and war-reconstruction need to be pursued for their potential to navigate through the sanctions. Energy-intensive industries that required gas as feedstock like fertilizers could use the oil and gas within Iran and the finished commodity could become exported to Afghanistan and other global market. Small incremental investment projects would have a cumulative impact on Indo-Iranian relations as well as give India a head start as and when the political situation becomes conducive. The unilateral US sanctions have seriously affected the financial health of the Islamic Republic. The Iranian economy has started to feel the heat giving rise to joblessness and dissent has been manifested in smaller protests across the country. Though not effective, they have exposed Iran’s vulnerabilities. On top, the question of post-Khamenei leadership can no longer be avoided. This has not changed Tehran’s regional policy of supporting and arming proxies causing tensions in the Persian Gulf. With sanctions in place, the US has emerged as a major factor in Indo-Iran relations. For India, apart from the bilateral ties, Iran is important for its policy on Afghanistan and Central Asia. Unlike the US and its regional partners, India does not see Iran as an outcast. Termination of oil imports due to the sanctions undermines bilateral ties and brings bitterness to the friendly relations. Nonetheless, New Delhi will have to take a chance with Tehran, without burning its bridges with Washington.

CHAPTER 4

Iraq

Key Information Ruling party: Dawa Party; President: Barham Salih (since 2 October 2018); Prime minister: Adel Abdel-Mahdi (since 25 October 2018); National day: 14 July; Parliament: 329-member Council of Representatives; Last parliamentary election: 12 May 2018; Major group in parliament: Al-Sa’irun Alliance; National carrier: Iraqi Airways. Socio-economic Indicators Area: 438,317 sq. km; Population: 38.4 million; Native: NA; Expats: NA; Religious groups: Muslim 95–98 per cent (Shia 64–69 per cent; Sunni 29–34 per cent); Christian 1 per cent; others (Jews, Yazidis, Baha’i) less than 1 per cent (UNCIRF, 2019); Youth: 19.42 per cent; Population growth rate: 2.3 per cent (World Bank, 2018); Life expectancy at birth: 70.5 years (UNDP, 2019); Major population groups: Arabs 75–80 per cent; Kurds 15–20 per cent; Turkoman, Assyrian or other 5 per cent; Literacy rate (adult, per cent ages 15 and older): 43.7 per cent (UNDP, 2019); National currency: Iraqi Dinar (IQD); GDP (current prices): US$224,228.01  million (World Bank, 2018); Foreign trade: Exports US$60.8 billion, Import US$29.7 billion (OEC, 2017); Military expenditure: 2.7 per cent of GDP (World Bank, 2018); Sovereign Wealth © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_4

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Fund: US$0.9 billion (SWF Institute); External debt: 49.25 per cent of GDP (IMF, 2018); GNI per capita: US$15,365 (2011 PPP); GDP per capita: US$15,565 (2011 PPP) (UNDP, 2019); Oil reserves: 147.2 billion barrels (BP, 2018); Gas reserves: 125.6 tcf (BP, 2019); HDI rank: 120/189 (UNDP, 2019); Infant mortality rate: 30.5 deaths/1,000 live birth (under five) (UNDP, 2019); UN Education Index: 0.554 (UNDP, 2019); Gender Inequality Index: 0.540 (UNDP, 2019); Labour force: 10,378,580 (World Bank, 2019); Unemployment rate: 7.9 per cent (UNDP, 2019); Urban population: 70.5 per cent (UNDP, 2019); Rate of urbanization: 2.6 per cent (World Bank, 2018); Last national census: 1997; World Press Freedom Index Rank: 156/180 (RSF, 2019); Ease of Doing Business Index Rank: 172/190 (World Bank, 2020); Corruption Perception Index Rank: 162/180 (Transparency International, 2019); Foreign direct investment: US$4,885  million (inward) (UNCTAD, 2019); Individual using Internet (per cent of population): 49.5 per cent (UNDP, 2019); Net migration (5 year estimate): 39,171 (World Bank, 2017); Forest area (per cent of land area): 1.9 per cent (World Bank, 2016); Carbon dioxide emissions (tonnes per capita): 3.8; Gender Development Index: 0.789 (UNDP, 2019); Gender Inequality Index: 0.540 (UNDP, 2019); Global Terrorism Index: Rank 2 out of 163 countries (Vision of Humanity, 2019) India Related Indian Cultural Centre: NA; Number of Indians: 15,000–17,000; Number of places of worship for Indians: NA; Indian schools: NA; Indian banks: NA; Currency exchange rate: 1 IQD = INR 0.062 (March 2020); Last visit to India by the ruler: Prime Minister Nouri al-Maliki, August 2013; Last Indian prime minister to visit: Indira Gandhi, January 1975. * * * India’s relations with Iraq struggle to find a new trajectory as the latter continues to face numerous obstacles on its path to recovery and reconstruction. Despite the defeat of the Islamic State in Iraq and Syria (ISIS), the security situation remains precarious. Political divisions and stalemates stall efforts towards national reconciliation in Iraq. The economy has been in shambles, and the country has been rocked by popular protests

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demanding better governance and accountability. These, in turn, have circumscribed the Indo-Iraqi relations. Though the oil trade continued and Indian businesses have revived their interest in the Iraqi market, the threat of domestic instability looms large.

Domestic Developments Iraq’s woes continued in 2019. Despite some hopes in recent years, the volatile political, security and economic conditions undermined the reconstruction process. The constant internal divisions and widespread public resentments and protests have coalesced with regional tensions and intervention to make the situation worse. Politics and Security The political and security situation in Iraq remained fragile. The government formed in October 2018 after months of stalemate resulting from the fragmented Majlis elections in May survived only for over a year. On 29 November 2019, Prime Minister Adel Abdel-Mahdi was forced to resign owing to several months of popular protests over lack of civic amenities, unemployment, corruption and economic hardships. At least 300 persons were killed during police action and firing on the protestors by members of Kataib Hezbollah and other Shiite militia groups. The prime minister’s resignation was approved by the parliament two days later, but he continued to serve in a caretaking capacity as the formation of the new government, like in the past, proved difficult and time-consuming. Throughout the year, there were several smaller localized protests in different parts of the country. The protests that gripped southern cities of Najaf and Basra had continued from the previous year.1 The initial epicentre of the 2019 protests once again was Basra, where local residents and unemployed youth protested against lack of civic amenities and high unemployment despite the city being the main oil production centre of

1  John Davidson and Ahmed Aboulenein. ‘Iraq protestors torch Iran consulate in Najaf, curfew imposed’, Reuters, 27 November 2019, https://in.reuters.com/article/iraq-protests/iraq-protesters-torch-iran-consulate-in-najaf-curfew-imposed-idINKBN1Y11K6

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the country.2 The residents had organized sit-ins in front of local civic and administrative offices. The situation started to escalate in June, and by September, the protests had intensified, forcing local authorities to deploy riot police outside the Basra city headquarters.3 On 25 September, protestors gathered outside the office of the Prime Minister in Baghdad to demonstrate against government’s apathy towards deteriorating living conditions and high rate of unemployment among educated youths. However, they met with strong action by security forces that reportedly used live ammunition4 and at least seven were killed in the clash and 12 were injured. The 25 September incident angered the general public, especially the youth, and galvanized country-wide protests by intellectuals, educated youths and university students, including the women who demanded the government’s resignation.5 Prime Minister Abdel-Mahdi was forced to act against the security forces, and the chief of the counter-terror force Abdel Wahab al-Saeidi was transferred. This, however, created more controversy rather than containing the situation.6 The Interior Ministry announced an investigation into the incident, but this did not calm the nerves. On 1 October, large-scale protests broke out in Baghdad’s Liberation Square (also referred to as Freedom Square)

2  Al-Jazeera. ‘Several killed as Iraq protests escalate, spread nationwide’, 3 October 2019, https://www.aljazeera.com/news/2019/10/iraqi-police-open-fire-day-protests-hit-baghdad-191002120630933.html 3  The Economist. ‘Iraq’s government seems powerless to halt protests in the Shia heartland’, 10 October 2019, https://www.economist.com/middle-east-and-africa/2019/10/10/ iraqs-government-seems-powerless-to-halt-protests-in-the-shia-heartland 4  Al-Sumeria, ‘Source: security forces release demonstrators with holding higher degrees’ (Arabic), 25 September 2019, https://www.alsumaria.tv/news/%D9%85%D8%AD%D9%8 4%D9%8A%D8%A7%D8%AA/319663/%D9%85%D8%B5%D8%AF%D8%B1%D8%A7%D9%84%D9%82%D9%88%D8%A7%D8%AA-%D8%A7%D9%84%D8%A7%D9%85 %D9%86%D9%8A%D8%A9-%D8%AA%D8%B7%D9%84%D9%82%D8%B3%D8%B1%D8%A7%D8%AD-%D8%A7%D9%84%D9%85%D8%AA%D8%B8%D8% A7%D9%87%D8%B1%D9%8A%D9%86-%D9%85%D9%86-%D8%AD%D9%85%D9%84%D8 %A9-%D8%A7 5  Rudaw, ‘Academics call for resignation of Iraqi government after action against protestors holding higher degrees’, (Arabic), 26 September 2019, https://www.rudaw.net/arabic/middleeast/iraq/260920193 6  VOA News. ‘Controversy grips Iraq after removal of Top commander’, 28 September 2019, https://www.voanews.com/middle-east/controversy-grips-iraq-after-removal-topcommander

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against the economic woes in Iraq, unemployment among the educated youth, corruption among politicians and the Iranian influence and meddling in Iraqi politics.7 The protests soon spread to different parts of Iraq and all major cities, including Basra, Najaf and Karbala, witnessed a massive outpouring of popular anger. Gradually, the Liberation Square protests heightened over the Iranian meddling which emerged as the most visible remonstration of the protest. Furthermore, the demonstrations evolved into daily sit-ins in Baghdad, with swelling number of protestors. Soon the situation turned violent, and scores of protestors were reportedly killed in the actions by security forces and sniper fires by militia belonging to Kataib Hezbollah.8 On 2 October, two activists were killed in Basra; the following day, 18 protestors and one security personnel were killed.9 The situation continued to escalate, and counter-protests were organized by pro-Iranian groups, such as Kataib Hezbollah, Badr Organization and Asaib Ahl al-­ Haq, who are part of the Hashd al-Shabbi or the Popular Mobilization Force (PMF). These, in turn, led to clashes and attacks on media houses such as Kurdistan-based NRT TV and Saudi-based Al-Arabiya networks that were covering and reporting anti-Iran protests.10 Meanwhile, the government imposed restrictions on social media and internet to stall the protests leading to international criticism.11 The protests lost some momentum by mid-October as Iraqis prepared for the Shia holiday of Arbaeen on 19 October. The government in 7  Ben Wedeman. ‘A new wave of Arab protestors say, “It’s the economy, stupid!”’, CNN, 4 October 2019, https://edition.cnn.com/2019/10/04/middleeast/iraq-lebanon-protests-intl/index.html 8  Maria Fantappie. ‘Widespread protest’s point to Iraq’s cycle of social crisis’, International Crisis Group, 10 October 2019, https://www.crisisgroup.org/middle-east-north-africa/ gulf-and-arabian-peninsula/iraq/widespread-protests-point-iraqs-cycle-social-crisis 9  Amnesty International. ‘Iraq: Authorities must immediately rein in security forces and protect freedoms of assembly expression’, 3 October 2019, https://www.amnesty.org/en/ latest/news/2019/10/iraq-authorities-must-immediately-rein-in-security-forces-andprotect-freedoms-of-assembly-and-expression/ 10  Al-Hurra, “Security forces raid offices of two satellite channels in Baghdad,” (Arabic), 5 October 2019, https://www.alhurra.com/iraq/2019/10/05/%D9%82%D9%88%D8%A7 % D 8 % A A - % D 8 % A 3 % D 9 % 8 5 % D 9 % 8 6 % D 9 % 8 A % D 8 % A 9 %D8%AA%D8%AF%D8%A7%D9%87%D9%85-%D9%82%D9%86%D8%A7%D8%AA%D9 %8A%D9%86-%D9%81%D8%B6%D8%A7%D8%A6%D9%8A%D8%AA%D9%8 A%D9%86-%D9%81%D9%8A-%D8%A8%D8%BA%D8%AF%D8%A7%D8%AF 11  Amnesty International. ‘Iraq’.

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Baghdad appealed to the demonstrators to return to their families for the holiday and maintain peace.12 It issued warnings against protests during the holiday and a five-day holiday was announced in Karbala province. Despite the warnings and the security arrangements, Karbala witnessed a massive congregation with the pilgrims chanting anti-government slogans. To avoid untoward incidents, the security forces were restraint.13 However, after Arbaeen holidays, the protestors soon returned to the demonstration sites, and Baghdad’s Liberation Square turned into a massive protest site reminiscent of the Tahrir Square protests in Cairo in January–February 2011. In November and December, the Iranian consulates in Najaf and Karbala, as well as the shrine of Ayatollah Mohammad Baqir al-Hakim, were attacked by people who were angered by the growing Iranian interference.14 The protests and crackdown by the security forces continued leading to scores of deaths.15 This mobilized larger demonstrations and counter-protests by pro-Iran groups and led to clashes between the two.16 According to UN Special Representative for Iraq Jeanine Hennis-Plasschaert who visited Baghdad in November, in the three months of protests since September, more than 400 Iraqis were killed, and over 1,900 were injured in action by the security forces and Shia militias.17 Protests and violence persisted despite the resignation of the prime minister in November. Towards the end of the year, a counter-protest was organized by Kataib Hezbollah outside the US embassy in Baghdad to protest the killing of some of its soldiers in the US airstrikes days earler. On 12  Shafaaq. ‘5 days holiday in an Iraqi province’, 10 October 2019, https://www.shafaaq. com/en/iraq-news/5-days-holiday-in-an-iraqi-province/ 13  Arab News. ‘Iraqi pilgrims protest corruption during Arbaeen march’, 20 October 2019, https://www.arabnews.com/node/1571201/middle-east 14  Shelly Kittleson. ‘Iranian consulates torched in Najaf and Karbala’, Al-Monitor, 4 December 2019, https://www.al-monitor.com/pulse/originals/2019/12/iraq-protestsiran-consulate-karbala-najaf.html 15  Alissa J. Rubin. ‘Iraq in Worst Political crisis in Years as death toll mounts from protest’, The New  York Times, 24 December 2019, https://www.nytimes.com/2019/12/21/ world/middleeast/Iraq-protests-Iran.html 16  Rasha Al Aqeedi. ‘The world paid attention to the wrong Iraqi protest’, The Atlantic, 7 January 2020, https://www.theatlantic.com/ideas/archive/2020/01/iraqs-real-protestersare-caught-in-the-middle/604537/ 17  UN News. ‘Denouncing attacks against Baghdad protestors, UN warns “violent risks placing Iraq on dangerous trajectory”’, 7 December 2019, https://news.un.org/en/ story/2019/12/1053011

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31 December, a large number of protestors tried to storm and burn the embassy, and in retaliation, on 3 January 2020 a US drone strike outside the Baghdad Airport killed the Iranian Al-Quds force commander Qasem Soleimani on. It raised serious fears of an imminent war in the Persian Gulf18 but an uneasy clam returned after some quid pro quo actions by the Iranian forces against the military bases in Iraq used by the US military.19 The security situation in Iraq remained precarious throughout 2019. Despite the military defeat of ISIS, there was constant fear of its revival and random attacks by suspected ISIS elements gave credence to it. In March, the UN Special Representative for Iraq expressed concerns that the political and security situation was deteriorating and that Iraq was losing the “window of opportunity” to move ahead and work towards peace and reconciliation.20 According to Iraq Body Count, there were 2,392 deaths in violent incidents in 2019. Though high, the incidence of casualty (as recorded by the organization) was still the lowest since 2003 and was lower than the count of 3,319 deaths in 2018.21 Nonetheless, by the year end, with a rising number of clashes and fears of rocketing US-Iran tensions, Iraq almost became a battleground for the two after Soleimani’s assassination. Foreign Policy The Iraqi foreign policy revolves around balancing relations with Iran and the US while seeking closer ties with the Arab neighbours. As the regional geopolitics intensified, Iraq has been finding it difficult to manage its international relations. Its prime foreign policy focus has been to avoid a US-Iran proxy war on its territory rather than attracting foreign 18  Dan De Luce and Robert Windrem. ‘After Soleimani strike, Persian Gulf countries worry about a war on their doorstep’, NBC News, 15 January 2020, https://www.nbcnews. com/politics/national-security/after-soleimani-strike-persian-gulf-countries-worryabout-war-their-n1115356 19  Courtney Kube and Doha Madani. ‘Iran retaliates for Gen. Soleimani’s killing by firing missiles at U.S. forces in Iraq’, NBC News, 8 January 2020, https://www.nbcnews.com/ news/world/u-s-base-iraq-comes-under-attack-missiles-iran-claims-n1112171 20  United Nations. ‘Critical ‘window of opportunity’ in Iraq Closing Fast, special representatives tells security council’, 3 March 2020, https://www.un.org/press/en/2020/ sc14134.doc.htm 21  Iraq Body Count. ‘Documented civilian death from violence’, https://www.iraqbodycount.org/database/

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investments for its war-battered economy and improving economic conditions.22 The US removed non-emergency personnel from its embassy and closed the consulate in Basra following a July report hinting at a possible attack by Iraqi militia linked to Iran.23 Besides walking a tight rope of balancing US-Iran relations, Iraq made noteworthy breakthrough in its relations with Saudi Arabia. In his first official visit to the region in April that also took him to Iran and Egypt, Prime Minister Abdel-Mahdi led a delegation of businessmen and officials to Saudi Arabia and met King Salman.24 Earlier in the same month, Saudi Arabia re-opened its consulate in Baghdad after nearly 30 years and two countries began working to open the Arar border crossing (closed for decades) for trade.25 The following month, Oman announced the reopening of its embassy in Baghdad that was closed in 1990 after the Iraqi invasion of Kuwait.26 Iraq reached out to the other countries and secured some important partnerships for the reconstruction of its economy. In April, Prime Minister Abdel-Mahdi visited Berlin and met Chancellor Angela Merkel. During the visit, it was announced that the Iraqi government, in cooperation with Siemens, was planning a US$14 billion redevelopment of Iraq’s electricity infrastructure.27 Germany committed to strengthen economic and security cooperation and invest in the reconstruction projects in Iraq.28  Pesha Magid. ‘How a Proxy war could blow up Iraq- Again’, Foreign Policy, 28 August 2019, https://foreignpolicy.com/2019/08/28/how-the-proxy-war-among-the-u-s-israeland-iran-could-blow-up-iraq-again/ 23  Glen Carey. ‘The Next U.S.-Iran flashpoint could be Iraq’, Bloomberg, 23 July 2019, https://www.bloomberg.com/news/ar ticles/2019-07-23/the-next-u-s-iranconfrontation-could-play-out-on-iraqi-soil 24  Gulf Business. ‘Iraqi PM Abdul Mahdi meet king Salman on first visit to the Kingdom’, 18 April 2019. https://gulfbusiness.com/iraqi-pm-abdul-mahdi-meets-saudi-king-salmanfirst-visit-kingdom/ 25  Saudi Gazette, ‘Arar Border Point to Open on Oct 15’, 14 September 2019, http://www. saudigazette.com.sa/article/577286 26  Ramadan Al Sherbini. ‘Oman to reopen embassy in Baghdad’, Gulf News, 13 May 2019, https://gulfnews.com/world/gulf/oman/oman-to-reopen-embassy-in-baghdad1.63913433 27  Government of Iraq. ‘Prime Minister Abd al-Mahdi holds talks with German Chancellor’, 30 April 2019, https://gds.gov.iq/prime-minister-abd-al-mahdi-holds-talks-with-germanchancellor/ 28  Federal Government of Germany. ‘Angela Merkel assures Iraq of Germany’s support to rebuild the country’, 30 April 2019, https://www.bundesregierung.de/breg-en/news/ angela-merkel-assures-iraq-of-germany-s-support-to-rebuild-the-country-1604800 22

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Iraq’s relations with China and Russia have witnessed some improvement. In August, the Chinese embassy in Baghdad stated that both countries were working “to enhance cooperation and develop bilateral relations in various fields.”29 China is one of the largest trade partners of Iraq and the latter has been among the top oil suppliers for China.30 To shore up Iraq’s missile defence capabilities, Russia has offered its advanced S-300 missile system in the wake of the growing tensions.31 In May, an Iraqi member of parliament Hakim al-Zamili, who is also a member of the defence committee, said that Iraq would buy the more advanced S-400 missile system from Russia.32 In August, the Russian ambassador in Baghdad reportedly “told Iraq’s parliamentary speaker that Moscow was ready to support its UN Security Council initiative to expand its air defence capabilities.”33 Economic Situation The economy started gradually rebounding after contracting massively in real terms between 2016 and 2017. The Central Bank of Iraq data show a slow growth rate of GDP at constant (2007) prices (Table 4.1) but the World Bank data on real growth rate (at constant 2010 prices) show negative growth in 2017 and 2018.34 Table 4.1 shows the GDP and growth rates at current prices during 2014–18. The GDP at the current prices was 29  Xinhua Net. ‘China, Iraq to boost cooperation, bilateral ties in various fields’, 5 August 2019, http://www.xinhuanet.com/english/2019-08/05/c_138285588.htm 30  Xinhua Net. ‘China-Iraq trade exceeds 30bln USD in 2018 amid increasing cooperation: Chinese ambassador’, 6 May 2019, http://www.xinhuanet.com/english/201905/06/c_138036250.htm; Daniel Workman. ‘Top 15 Crude Oil suppliers to China’, Worldstopexports, 31 March 2020, worldstopexports.com/top-15-crude-oilsuppliers-to-china/ 31  Maxim Suchkov. ‘Intel: How Russia is helping Iraq build up its air defences amid US-Iran escalation’, Al-Monitor, 10 January 2020, https://www.al-monitor.com/pulse/ originals/2020/01/russia-iraq-s300-deal.html 32  Mustafa Saadoun. ‘Has Russia begun to play a role in Iraq?’, Al-Monitor, 19 May 2019, https://www.al-monitor.com/pulse/originals/2019/05/iraq-iran-russia.html 33  The Moscow Times. ‘Iraq in talks to buy Russian missile systems;-Lawmaker’, 10 January 2020, https://www.themoscowtimes.com/2020/01/10/iraq-in-talks-to-buy-russian-missilesystems-lawmaker-a68855 34  The World Bank. ‘Iraq’s Economic Update- October 2019’, 9 October 2019, https:// www.worldbank.org/en/country/iraq/publication/economic-update-october-2019. The difference in real growth rate estimates is due to the difference in the base year used for the computation.

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Table 4.1  Iraq: GDP and growth rate, 2014–18 (US$ million) 2014 GDP (at current prices) Growth rates (at current prices) per cent Growth rates (at constant 2007 prices) per cent

2015

2016

2017

2018

228,415.70 164,704.70 166,602.50 190,643.90 212,406.50 –

−27.89

1.15

14.43

11.42

0.70

2.50

13.10

1.00

2.00

Sources: Central Bank of Iraq, National Accounts, https://cbiraq.org/SeriesChart.aspx?TseriesID=197; OPEC, Annual Statistical Bulletin 2019, p. 18

Table 4.2  Iraq: Trade and current account, 2014–18 (US$ million) 2014 Oil and its products exports Non-oil exports Total exports of goods and servicesa Total imports of goods and servicesa Net goods trade balance Current account balanceb

2015

2016

2017

2018

84,332.5 49,330.5 43,774 202.7 230.5 90.3 85,369 51,328 41,298

60,022.4 85,181.8 291.9 1,025.4 57,559 87,260

58,602

48,010

34,208

38,766

26,749 15,865

7,758.4 −1,913

−4,820.9 28,449.5 48,229.1 2,158 14,841 33,764

45,736

Sources: Central Statistical Organisation, Iraq, Annual Import Reports 2018, 2017, 2016, 2015; Annual Export Report 2018; aCentral Bank of Iraq, Foreign Trade Statistics, https://cbiraq.org/SeriesChart. aspx?TseriesID=203 b

OPEC, Annual Statistical Bulletin 2019

US$212.41 billion in 2018, an increase of 11.42 per cent over the previous year. There was a 40.89 per cent growth of oil revenues in 2018 over the previous year (Table  4.2). Higher oil prices helped recuperate the economy and the GDP growth rate was expected at 4.8 per cent in 2019.35 The growth was driven by both oil and non-sector activities; however in the absence of structural reforms and accelerated investments due to precarious security situation, the growth spurts may be short-lived.

35  The World Bank. ‘Iraq Overview’, 1 October 2019, https://www.worldbank.org/en/ country/iraq/overview

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The per capita GDP at current prices, which declined during 2014–17, started to increase consistently and touched US$5,600 in 2018. The government faces the longstanding challenge of improving the basic services and re-constructing infrastructure, especially in the areas devastated in the combat with the ISIS. The Baghdad government has been hosting several conferences and exhibitions to attract foreign traders and investors.36 These efforts have largely failed to attract significant private investments, and only a fraction of the US$30 billion pledged in the February 2018 reconstruction conference had come until the end of 2019.37 The oil sector contributed to about 60 per cent of GDP, 90 per cent of export revenues and 80 per cent of the total government revenues and this is set to increase as Iraq increased its oil production.38 The reforms necessary for the rebound of non-oil economic activities and attracting foreign investment lagged behind. Iraq fell by two notches in the Ease of Doing Business Report 2020 to the 171st position among 190 countries.39 Economic growth remained reliant on oil production and exports as well as expansionary fiscal policy. The 2019 budget was approved at US$111.8 billion, and this was nearly 45 per cent more than the previous year.40 It was also one of the highest spending with the budgetary deficits of over US$23 billion.41 The oil sector’s budgetary contribution of 80 per cent of the total government revenues is the highest in the Persian Gulf region. Under the Budget Law 2019, the Kurdish Regional Government (KRG) agreed to hand over 250,000 b/d of oil to the Iraqi State Organization for the Marketing of Oil (SOMO) in exchange of 12.5 per cent share in  the federal budget. However, the KRG has expressed its inability to hand over the oil owing to its obligations to pay back an 36  Iraq Business News. ‘Conference: Find out what’s happening in Iraqi Business’, 6 November 2019, https://www.iraq-businessnews.com/2019/11/06/conference-findout-whats-happening-in-iraqi-business/; Qatar Financial Centre. ‘Iraq Banking & Investment summit’, https://www.qfc.qa/en/MediaCenter/Events/Pages/Iraq-BankingInvestment-Summit.aspx 37  MEES, vol. 62 no. 41, 11 October 2019, p. 12. 38  UNDP. ‘ Oil and gas fact sheet’, http://www.undp.org/content/dam/rbas/img/ Publications/Fact_sheet/Oil%20Factsheet%20-%20English.pdf 39  John Lee. ‘Iraq falls in Ease of doing business’, Iraq-Business News, 7 January 2019, http://www.iraq-businessnews.com/2019/01/07/iraq-falls-in-ease-of-doingbusiness-index-3/ 40  Arab News. ‘Iraq parliament approves 2019 budget, one of largest ever’, 24 January 2019, https://www.arabnews.com/node/1441091/business-economy 41  Ibid.

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estimated debt of about US$20  billion to international companies that were operating in its region.42 The share of the KRG in the federal budget had been a contentious issue with the central government and partly contributed to the Kurdish referendum held on 25 September 2017.43 The budgetary share has been reduced from the earlier share of 17 per cent to 12.67 per cent in 201844 and is likely to be reduced further if the KRG fails to meet its obligations. The Kurdish crude is usually sold at a discount of US$8 per barrel than the Iraqi crude45 being usually sold under the radar for the fears of incurring the wrath of SOMO.46 Iraqis are grappling with the problems of poverty and unemployment at 13–15 per cent during the year. The country is hosting about 300,000 Syrian refugees, mostly in the Kurdish region.47 The international organizations and countries have been working with the government for reconstruction and rehabilitation efforts in the devastated areas, especially in Kurdistan region. The US Department of State, Bureau of Population, Refugee and Migration gave US$2.5 million aid to support the health services for the Syrian refugees. The World Food Programme has collaborated with the Iraqi government to launch an initiative for the digitalization of the Public Distribution System (PDS), which is one of the largest social security programmes providing food entitlements to the entire population.48 France pledged one billion Euros for the reconstruction efforts49 and has contributed about €60 million 42  Dana Taib Menmey 2019, “Bagdad Sends Delegation to Erbil to Resolve Disputes,” 1 October 2019, Al-Monitor, al-monitor.com/pulse/originals/2019/09/iraq-baghdaderbil-budget-oil-somo.html 43  BBC News. ‘Iraqi Kurds decisively back independence in referendum’, 27 September 2017, https://www.bbc.com/news/world-middle-east-41419633 44  Middle East Eye. ‘Iraq adopts 2018 budget, slashing allocations for Kurds’, 5 March 2018, https://www.middleeasteye.net/news/iraq-adopts-2018-budget-slashing-allocationskurds 45  MEES, vol. 62 no. 48, 29 November 2019, p. 8. 46  Bloomberg. ‘China’s oil refiners risk Iraq’s wrath with rare Kurdish buys’, 18 December 2019, https://www.bloomberg.com/news/articles/2019-12-18/china-buying-kurdishoil-as-weak-margins-spur-cheap-crude-hunt 47  Iraq Business  News. ‘US gives $2.5m for Syrian refugees in Iraq’, 9 January 2019, http://www.iraq-businessnews.com/2019/01/09/us-gives-2-5m-for-syrian-refugeesin-iraq/ 48  Iraq Business News. ‘WFP helps modernize Iraq’s rationing system’, 13 January 2019, http://www.iraq-businessnews.com/2019/01/13/wfp-helps-modernise-iraqsrationing-system/ 49  John Lee. ‘France pledges 1bn EUR loan to rebuild Iraq’, Iraq Business Review, 15 January 2019, http://www.iraq-businessnews.com/2019/01/15/france-pledges-1bn-eurloan-to-rebuild-iraq/

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(US$65.16  million) since December 2017, including €20  million (US$21.72) for the stabilization projects in Mosul city.50 External Sector: Oil exports constituted 96.44 per cent of total export revenues in 2019. Table 4.2 shows that the oil revenues, after a fall during 2014–16, increased to US$85.18  billion in 2018. The non-oil exports, though of insignificant value, grew  more than three times in 2017–18. The imports were declining during 2014–16, implying significant deceleration of economic activities with the falling oil revenues. Following the pattern of exports, the imports increased from US$34.20 billion in 2016 to US$45.73 billion in 2018. Iraq has been having a negative trade balance in service of about US$12 billion and FDI inflows were also negative in 2018.51 Except for 2015 and 2016, Iraq had trade and current account surplus in recent years. China is Iraq’s largest trading partner, and with about US$30 billion trade52 accounted for about 23 per cent of the Iraqi total foreign trade. Exports to the European Union increased by 30 per cent over the last year and ranked as the top export market in the first half of 2019. India and China were the second and the third largest export markets for Iraq in the first eight months in 2019.53 Almost all the non-oil exports went to the UAE. The top five sources of imports for Iraq in 2018 were China (26.2 per cent); Iran (11.9 per cent); the US (9.8 per cent); South Korea (6.5 per cent); and Russia (6.4 per cent).54 The share of Iran in Iraq’s total imports has nearly halved between 2017 and 2018 from 30.1 per cent to 11.9 per cent, while that of China and Russia more than doubled.55 China’s investment in Iraq surpassed US$30  billion in 2018 with an annual growth rate of 10 per cent, and China aims to increase its ­footprints 50  Iraq Business News. ‘Post-Daesh Iraq: France’s engagement’, 21 January 2019, http:// www.iraq-businessnews.com/2019/01/21/post-daesh-iraq-frances-engagement/ 51   UNCTAD. ‘General Profile, Iraq’, https://unctadstat.unctad.org/CountryProfile/ GeneralProfile/en-GB/368/index.html 52  Xinhua Net. ‘China-Iraq trade exceeds 430 bln USD in 2018 amid increasing cooperation: Chinese ambassador’, 6 May 2018, http://www.xinhuanet.com/english/201905/06/c_138036250.htm 53  MEES, vol. 62, no. 39, 27 September 2019, p. 3. 54  Government of Iraq. Central Statistical Organization (CSO), Annual Import Report 2018, http://cosit.gov.iq/documents/trade/foreign%20trade/%D8%A7%D9%84%D8%AA %D9%82%D8%B1%D9%8A%D8%B1%20%D8%A7%D9%84%D8%B3%D9%86%D9%88%D9 %8A%20%D9%84%D9%84%D8%A7%D8%B3%D8%AA%D9%8A%D8%B1%D8%A7%D8%AF %D8%A7%D8%AA%20%D9%84%D8%B3%D9%86%D8%A9%202018.pdf 55  Ibid.

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by participating in the construction and development activities as Iraq lies along the key artery of the Belt and Road Initiative.56 Iraq hopes to make significant trade gains from its agreement with Jordan (in December 2018); these include opening of the Iraqi-Jordanian Al-Karama-Tebril  Border for trade; huge transit fee concession from Jordan for Iraqi imports through the Port of Aqaba; and border land allocation to the Iraqi-Jordanian Free Industrial Zone.57 There is also an agreement to finalize the framework for the Iraq-Jordanian oil pipeline that would be extended from Basra through Haditha to Aqaba.58 The ceremonious reopening of the al-Boukamal al-Qaim crossing, a 185-mile highway between Iraq’s Anbar province and the Syrian province of Dier Az Zor for free traffic of goods and people, on 30 September 2019 was another potential boost to the Iraqi economy, especially with its Arab neighbours.59 Energy Sector The proven oil reserves in Iraq were 147.2 billion barrels in 2018 (Table 1.1) and this indicates 8.5 per cent of the world’s oil proven reserves. Iraq is the second largest producer of oil within the OPEC after the Kingdom of Saudi Arabia. Despite substantial oil reserves, the challenges to its production and exports are manifold. It has a tiny coastline in the Persian Gulf, which restricts its export capacity to about 3.7 mb/d from its southern oil fields near Basra, which has an offshore terminal and almost all of the crude oil exports (96 per cent) pass through it. Iraq also suffers from

56  The Economic Times. ‘Iraq to join China’s Belt and Road project’, 23 September 2019, https://economictimes.indiatimes.com/news/international/world-news/iraq-to-join-chinas-belt-and-road-project/articleshow/71262739.cms?from=mdr 57  Osama al- Sharif. ‘Jordan moves to restore strategic ties with Iraq’, Iraq Business News, 26 January 2019, http://www.iraq-businessnews.com/2019/01/26/jordan-moves-torestore-strategic-ties-with-iraq/ 58  John Lee. ‘Iraq, Jordan to Ease trade, finalize plans for oil pipeline’, Iraq Business News, 2 January 2019, http://www.iraq-businessnews.com/2019/01/02/iraq-jordan-to-easetrade-finalise-plans-for-oil-pipeline/ 59  Caroline Rose. ‘A highway linking Iraq and Syria becomes an opportunity for Tehran’, Atlantic Council, 28 October 2019, https://www.atlanticcouncil.org/blogs/menasource/ a-highway-linking-iraq-and-syria-becomes-an-opportunity-for-tehran/

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a lack of sufficient storage capacity in the coastline, and the expansion of Al-Fao storage station capacity is behind schedule.60 Oil exports traverse through antiquated onshore and offshore pipelines to offshore terminals and single-point mooring. Any technical malfunctions of the pipelines severely contain the export capacity and lack of sufficient storage capacity results in production cuts. The government has been planning three more subsea pipelines, and presently British Petroleum and ENI (Italy) are carrying out Front-End Engineering Design (FEED) for two of them. However, the lack of quality midstream infrastructure like adequate pumping ability means that  export capacity bottlenecks would continue.61 Iraq is planning to build an offshore industrial island on its coast that would increase its export capacity by 3 mb/d, and negotiations are going on with a Dutch company for the project.62 Table 4.3 shows the gradually increasing oil production and exports. In 2018, Iraq produced about 4.4 mb/d and exported 3.8 mb/d of oil. The production in August 2019 was 4.97 mb/d, which is the maximum that the Iraqi export infrastructure could handle.63 As part of its expansion Table 4.3  Iraq: Oil and gas production and trade, 2014–18 2014 Oil production (thousand b/d) Oil exports (thousand b/d) Petroleum products production (thousand b/d) Petroleum product exports (thousand b/d) Petroleum product imports (thousand b/d) Petroleum product imports (US$ million) Natural gas marketed production (mcm) Natural gas imports (mcm/y)

2015

2016

2017

2018

3,110.5 3,504.1 4,647.8 4,468.7 4,410.0 2,515.5 3,004.9 3,803.5 3,802.0 3,862.0 508 419 449 537 592 9.3

13.7

36.8

20.1

45.7

99.0

81.1

91.7

115.6

89.4

4,572.5 2,292.7 1,989.5 2,435.6 2,813.4 7,927 7,685 10,416 10,650 11,130 – – – 1,456 4,100

Sources: OPEC, Annual Statistical Bulletin 2019; Central Statistical Organization, Iraq, Annual Import Report 2018, 2016

 MEES, vol. 62, no. 38, 20 September 2019, p. 4.  MEES, vol. 62 no.51/52, 20 December 2019, p. 2. 62  Ibid. 63  Simon Watkins. ‘OPEC’s No 2 Prepares for Oil Export Boom’, Oil Price, 29 September 2019, https://oilprice.com/Energy/Crude-Oil/OPECs-No2-Prepares-For-Oil-ExportBoom.html 60 61

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plans, Iraq aims to achieve an oil production of 6.2 mb/d by the end of 2020 and 9 mb/d by the end of 2023. The crude oil exports touched a record level of 3.58 mb/d in the third quarter of 2019, despite OPEC+64 production cut deal which became effective from January 2019 to collectively cut production by 800,000  b/d from the October 2018 level.65 Nevertheless, due to price fall the surge in exports did not increase Iraq’s oil revenues, which fell from the previous quarter as well as on year-on-­ year levels.66 Iraq’s exports from the Kirkuk oil field through its only Kirkuk-Ceyhan pipeline (called the Iraq-Turkey pipeline) to Turkey averaged 106,000 b/d in August 2019, highest since oil production was re-­ started in November 2018.67 The Iraqi exports through the pipeline running through the Kurdish region stopped weeks after the Iraqi government seized control over the hotly contested oil rich Kirkuk region in the aftermath of the Kurdish referendum in September 2017.68 However, an agreement between the Iraqi government and the KRG led to the resumption of exports through the pipeline of about 50,000 to 100,000  b/d from the Kirkuk oil field to Turkey.69 To boost oil exports, the Iraqi government has revived the capacity expansion plans of the Kirkuk-Ceyhan pipeline to 1.1  mb/d. The pipeline has long been subjected to attacks from local tribes, Kurds and later, the ISIS.  There is another 40-inch diameter pipeline which was built by the Kurdish government which links the Tak Tak and Tawke oil fields with the Kirkuk-Ceyhan pipeline.

64  Presently the OPEC has 13 members, after the withdrawal of Qatar in January 2019 and Ecuador in January 2020. In 2016 ten more oil-producing countries joined to form OPEC+ and these are Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan. 65  OPEC. ‘175th meeting of the OPEC conference 5th OPEC and Non-OPEC ministerial meeting’, OPEC Bulletin 1/19’, https://www.opec.org/opec_web/static_files_project/ media/downloads/publications/OB012019.pdf 66  MEES, vol. 62 no.40, 4 October 2019 p. 3. 67  Ibid. 68  Khalid Al Ansary, Kadhim Ajrash and Anthony Di Paola. ‘Iraq-Kurd clash cuts oil output at disputed Kirkuk fields’, Bloomberg, 17 October 2017, bloomberg.com/news/articles/2017-10-17/iraq-kurd-clash-cuts-oil-output-at-disputed-kirkuk-fields 69  David Sheppard, Chloe Cornish and Anjli Rawal. ‘Iraq resumes oil exports from Kirkuk’, Financial Times, 16 November 2018, https://www.ft.com/content/1b3347de-e99e11e8-885c-e64da4c0f981

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The Kurdish region has vast proven oil and gas reserves, estimated to contain about 45 billion barrels of oil70 constituting about 30 per cent of the known Iraqi reserves. Corruption, mismanagement and monopoly of power by two main parties, Kurdish Democratic Party (KDP) and Patriotic Union of Kurdistan (PUK), have paralyzed the oil sector.71 By November 2019, the KRG produced a little less than 500,000  b/d and exported most of it independently through Turkey.72 The Iraqi government reportedly forged a deal with the KRG in December, which caps the KRG oil production at 450,000 b/d.73 The deal gives some space to Baghdad to adhere to its commitment under the OPEC production cuts of 800,000 b/d extended until 31 March 202074 as it has come under fire for flouting its production quota for several months in 2019.75 Early in the year, Iraq has signed MoU with Jordan to export 10,000 b/d of oil at a discounted price76 and in November, exported 334,618 barrels of oil to its neighbour through trucks.77 As discussed earlier, anti-government protests were severe in the oil heartland of Basra and other major oil-producing areas in the south.78 These, in turn, affected oil production, exports and domestic supply. The access to Umm Qasr Port, the main export terminal, was blocked for

70  Maria Petkova. ‘What does Russia get from its KRG gamble’, Al-Jazeera, 15 April 2019, https://www.aljazeera.com/indepth/features/russia-krg-gamble-rosneft-iraq-kurdistan-190409123038460.html 71  Yerevan Saeed. ‘The KRG’s anti-corruption effort must start from its oil sector’, Al-Jazeera, 1 December 2019, https://www.aljazeera.com/indepth/opinion/krg-anti-corruption-effort-start-oil-sector-191201091348197.html 72  MEES. vol 62, no. 45, 8 November 2019. 73  MEES. vol. 62 no. 37, 13 September 2019, p. 2. 74  OPEC. ‘The 6th OPEC and NON-OPEC Meeting Concludes’, Press release No 7/2019, https://www.opec.org/opec_web/en/press_room/5594.htm 75  MEES, vol. 62, no. 49, 6 December 2019, p. 2. 76  Reuters. ‘Iraq and Jordan agree deal over trade and goods’, 2 February 2002, https:// www.reuters.com/ar ticle/iraq-jordan/iraq-jordan-agree-deal-over-trade-of-oiland-goods-idUSL5N1ZX0A8 77  John Lee. ‘Oil ministry finalizes export figures for November 2019’, Iraq-business News, 27 December 2019, https://www.iraq-businessnews.com/2019/12/27/oil-ministryfinalises-export-figures-for-november-2/ 78  Al-Jazeera. ‘Several killed as Iraq protest escalate, spread nationwide’, 3 October 2019, https://www.aljazeera.com/news/2019/10/iraqi-police-open-fire-day-protests-hit-baghdad-191002120630933.html

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nearly a week during protests.79 Iraq is deficient in the domestic production of petroleum products like gasoline and diesel and imported about 89,400 b/d of petroleum products worth about US$2.8 billion in 2018 (Table 4.3). The blockade of Basra port obstructed import of gasoline and diesel as well as equipment for the oil companies in and around Basra.80 There were reports of disruptions in the oil production and refining facilities of the Qayara field81 and in the Nasiriyah refinery. Most of the oil exploration and production in Iraq are carried out by foreign companies.82 Under the terms of the technical service contracts (TSCs) with the foreign players, the government repays the firm for investments and offers an infinitesimally small share of oil production.83 Even in the largest of the oil fields, the remuneration to oil companies works out to be about US$1 per barrel and is among the lowest margins worldwide.84 China is the biggest player in the oil sector, and CNPC (China National Petroleum Corporation) has stakes in some of the biggest oil fields, including Rumaila (46.5 per cent), West Kurna1 (32.7 per cent), Halfaya (45 per cent) and Adhab (37.5 per cent).85 Other Chinese companies feature prominently in upstream and downstream services and engineering contracts. China Petroleum Engineering and Construction Company reportedly got US$121 million contracts to upgrade gas capture facilities at the West Qurna oil field.86 In the last week of September, an Iraqi delegation led by Prime Minister Abdel-Mahdi, accompanied by Oil Minister Thamir Ghadban, visited Beijing and signed a slew of contracts in trade, security, finance, foreign affairs and education.87 Both countries have initiated “oil for reconstruction agreement” under which the Chinese firms would 79  Qassim Abdul-Zahra and Samya Kullab. ‘Iraq protestors burn tires, block access to country’s main port’, Global News, 18 November 2019, https://globalnews.ca/ news/6182285/iraq-protests-main-port-blocked/ 80  MEES, vol. 62, no. 45, 8 November 2019, p. 11. 81  Ibid. 82  MEES, vol. 62, no. 28, 12 July 2019, p. 4. 83  Ibid. 84  Ibid. 85  MEES, vol. 62, no.39, 27 September 2019, p. 2. 86  John Lee. ‘China Wins $121m West Qurna-1 contract’, Iraq Business News, 27 November 2019, https://www.iraq-businessnews.com/2019/11/27/china-wins-121mwest-qurna-1-contract/ 87  Xinhua Net. ‘Spotlight: Iraqi’s PM’s China visit to boost strategic partnership, cooperation: analyst’, 28 September 2019, http://www.xinhuanet.com/english/2019-09/ 28/c_138429307.htm

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undertake reconstruction works in Iraq in exchange for 100,000 b/d of oil.88 Iraq agreed to join the Belt and Road (BRI) project with about 100 contracts being awarded to Chinese firms.89 Russia’s private firm Lukoil, in partnership with Japan’s Inpex (60:40 stakes), has undertaken an oil exploration and production project in Block 10 covering 5.8 square kilometres, located 150 kilometres west of Basra and 120 kilometres away from the West Kurna field.90 The Russian firm also operates 400,000 b/d West Kurna-2 oil field with a stake of 75 per cent along with the North Oil Company. Lukoil looks forward to developing its Eridu discovery estimated to contain about 2.5 billion barrels of oil, hailed as Iraq’s “largest in decades.”91 However, Baghdad’s stringent commercial terms and bureaucratic delays are reportedly impeding the firm’s production and expansion plans.92 Iraq has not finalized the most recent licensing round (the fifth) held in 2018.93 The political upheavals and cabinet crisis impose significant challenges for foreign oil companies that already face tough contractual obligations. Iraq is running out of low hanging fruits in the economy and needs major projects to maintain the growth momentum. There seems to be a disconnect between the state oil companies and the international oil companies (IOCs) over the country’s TSCs, which allow the former to take away 98 per cent of the revenues.94 The IOCs are more interested in high-­ value projects rather than big volume upstream projects. They are operating the big five oil fields which have been constrained by shortage of water supplies to be injected in oil fields to maintain reservoir pressure to meet their production commitments under Production Plateau Targets (PPTs). With the exception of BP, which has its own water facilities, other oil 88  Salam Zidane. ‘Iraq, China launch ‘oil for reconstruction’ agreement’, Al-Monitor, 10 October 2019, https://www.al-monitor.com/pulse/originals/2019/10/iraq-china-indiaoil-construction.html 89  Ben Mack. ‘Iraq joining China’s Belt and Road initiative’, Gulf Business, 24 September 2019, https://gulfbusiness.com/iraq-joining-chinas-belt-road-initiative/ 90  Iraq Business  News. ‘Lukoil confirms Geological Model for Eridu Field’, 11 January 2019, http://www.iraq-businessnews.com/2019/01/11/lukoil-confirms-geologicalmodel-for-eridu-field/ 91  MEES, vol. 62 no. 46, 15 November 2019, p. 7. 92  MEES. ‘Iraq: Lukoil not happy’, vol. 62 no. 46, 15 November 2019, https://www. mees.com/2019/11/15/oil-gas/iraq-lukoil-not-happy/ad3b5430-07a6-11ea8482-d1f98d78346e 93  MEES, vol. 62 no.51/52, 20 December 2019, p. 2. 94  MEES, vol. 62, no. 43, 25 October 2019, p. 2.

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companies can do little until the common sea water supply project moves ahead, and moreover, Iraqi officials and the IOCs have been at odds over the commercial terms.95 The IOCs have been unhappy at the snail pace of decision-making, and the sacking of Basra Oil Company Director Ihsan Ismaael in October, who was at the helm of all negotiations, has created more uncertainty and speculations among the foreign players.96 Iraq’s proven natural gas reserves was  estimated at 3.6  tcm in 2018 (Table 1.2), and the marketed production was about 11.1 bcm that year (Table 4.3). However, a huge amount of natural gas from the associated oil fields of about 1.7 bcf/d, was wasted in flaring due to a lack of capturing and processing capacity thereby forcing Iraq to import for its domestic needs. In 2018, Iraq awarded contracts to reduce gas flaring significantly in the next few years.97 The country has faced power blackouts for long, and the northern Iraq faced some of the worst power shortages,98 often sparking huge demonstrations. Baiji, in Salahuddin Province, which was among the hardest hit by the ISIS insurgency, is central to power supplies in northern Iraq. The power sector is allocated almost 10 per cent of the funds designated for restoring basic services in the ISIS-hit provinces.99 Germany’s Siemens and Egypt’s Orascom construction company signed an agreement with the Iraqi Ministry of Electricity in 2019 to rebuild two power plants with a combined capacity of 1.69 GW at Baiji.100 The US-based GE has been approved to build transmission lines and power substations in Nineveh and Anbar provinces, along with laying transmission lines in Baghdad and Diyala.101 It has also signed an agreement (along with Mass Energy Group Holding) for the phase three expansion of the Besmaya power plant, the largest new addition to the power capacity since 2014.102  Ibid.  Ali al-Aqily, Jassim al-Jabiri and Ben Lando. ‘Ismaael removed as head of Basra Oil company’, Iraq Oil Report, 16 October 2019, https://www.iraqoilreport.com/news/ ismaael-removed-as-head-of-basra-oil-company-42174/ 97  Oil and Gas Journal. ‘SGC awards BHGE contract for flare gas recovery’, 6 August 2018, https://www.ogj.com/drilling-production/article/17295800/sgc-awards-bhgecontract-for-flare-gas-recovery 98  MEES, vol. 62, no. 29, 19 July 2019, p. 8. 99  MEES, vol. 62, no. 38, 20 September 2019, p. 2. 100  Ibid. 101  Ibid. 102  GE. ‘GE reports’, genewsromm.com 95 96

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The power sector is in critical need of gas feed, transmission lines and midstream connections to the power stations. In October 2019, the Trump Administration gave Iraq a fresh 120-day waiver from sanctions to continue importing natural gas and electricity from Iran.103 Gas imports from Iran were about 750 mcf/d, nearly one-third of the total gas supply to the power sector, while up to 1.2 GW power supply was added to the Iraqi power grid from Iran.104 Iraq had received numerous waivers since the US re-employed sanctions against Iran in 2018 in cognizance of the importance of the Iranian gas for Iraq. Baghdad currently pays about US$150  million per month to Iran for electricity imports.105 On 1 November 2019, the Iraq electricity grid was synchronized with the Iranian network to facilitate greater power exchanges.106 Social Issues For over four decades, the Iraqi society has been ravaged by civil war, conflict and violence. These, in turn, re-incited social mobilization along ethnic, sectarian and tribal identities. Social degradation has continued since the days of Saddam Hussain, who used and widened the fault lines to stay in power. The international sanctions after the Kuwait crisis had debilitated the socio-economic conditions, and the process continued after the US-led invasion of 2003. Bitter sectarian violence, the rise of insurgent and terrorist groups and the eventual collapse of the central authority due to the emergence of the ISIS plunged Iraq into one of the worst phases in its history. This has not only caused a humanitarian crisis and induced one of the largest refugee exoduses in the Middle East but took a heavy toll on the weakest sections of the society—the poor, minorities, women and children.107 Women faced the worst form of violence at the hands of the ISIS that not only killed and maimed the people but committed the worst kind of

 MEES, vol. 62 no. 42,18 October 2019, p. 3.  MEES, vol. 62 no.29, 19 July 2019. 105  MEES, vol. 62 no.37, 13 September 2019, p. 3. 106  Iraq Business News. ‘National Grids of Iran, Iraq “Synchronized”’, 2 November 2019, http://www.iraq-businessnews.com/2019/11/02/national-grids-of-iran-iraqsynchronized/ 107   Human Rights Watch. ‘Iraq: Events of 2019’, https://www.hrw.org/worldreport/2020/country-chapters/iraq 103 104

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sexual violence, slavery and organized crime against them.108 Iraqi women continued to suffer from violence and conflicts and have been struggling to create a safer society. Youth and children face adversity from the breakdown of communities and the dysfunctional political system. Lack of proper education and unemployment opportunities have been one of the major issues that brought protesters to the streets in 2018 and 2019.109 In 2019, Iraq had an HDI value of 0.689 and ranked 120th in the world and a GDI of 0.789 and GII of 0.540.110

Bilateral Ties Though Iraq has been one of the closest friends of India in the Persian Gulf region, relations were under stress since the early 1980s. The bilateral relations face headwinds from a cycle of violence, political uncertainty and the sectarian divide and thus resulted in limited progress. Political Relations India has good relations with Iraq, and in the last two years, the latter has emerged as India’s top crude oil supplier. In 2019, it even overtook Saudi Arabia as  India’s top supplier of  petroleum and related products. This, however, could not induce closer political contacts or diplomatic fortunes with Baghdad. Furthermore, despite opportunities in several areas, the Indian government and private companies continue to shy away from greater engagement in Iraq except for some developments in the Kurdish autonomous region. The only important political contact during the year took place in September when Minister of State for External Affairs V. Muraleedharan travelled to Iraq. During the visit, he called on President Barham Salih and Prime Minister Abdel-Mahdi and met Foreign Minister Mohamad A.  Alhakim.111 The junior minister also visited Erbil and met with the  Ibid.  Sinan Salaheddin. ‘Soaring unemployment fuels protests in Southern Iraq’, AP News, 26 July 2018, https://apnews.com/c335ab38b6924cb8b71bf9579ff8380c/Soaringunemployment-fuels-protests-in-southern-Iraq 110  United Nations Development Programme (UNDP). ‘Iraq: Human Development Indicators’, 2019, http://hdr.undp.org/en/countries/profiles/IRQ 111  GoI.  MEA. ‘India-Iraq Bilateral Brief, February 2020, http://mea.gov.in/Portal/ ForeignRelation/Bilateral_Brief-IRAQ_2020.pdf 108 109

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president, prime minister and foreign minister of the KRG and “unveiled a bust of Mahatma Gandhi at Sami Abdulrahman Park and also addressed the Indian community.”112 India has been helping the government of Iraq in capacity-building and offering scholarships to the students in higher education institutions. Under the Indian Technical and Economic Cooperation (ITEC) programme, Iraqi officials are trained in various vocations. According to the Ministry of External Affairs, “a total of 200 slots have been allotted under ITEC program” to the Iraqi nationals in 2019–20.113 India has been offering training to Iraqi diplomats at the Foreign Service Institute (FSI) (renamed Sushma Swaraj Institute of Foreign Service in February 2020), and “a batch of 29 Iraqi diplomats underwent training” in 2019.114 Trade and Commerce India’s trade with Iraq, mostly driven by oil imports, had increased from US$15.07 billion in 2014–15 to US$24.16 in 2018–19 (Table 4.4) and witnessed a high growth rate between 2017 and 2019 driven by the increasing value and volumes of oil imports. The share of the bilateral trade in India’s total trade has increased from 1.99 per cent in 2014–15 to 2.86 per cent in 2018–19. Due to large oil imports, India has a negative trade balance with Iraq. In 2018–19, exports to Iraq were less than US$2 billion and oil constituted 99.98 per cent of the imports (Table 4.5). Iraq has become the top crude oil supplier since 2017 and its share in India’s total crude oil imports has been consistently increasing to reach 19.52 per cent in 2018–19 while the share in overall enery imports was 13.28 per cent (Table  4.5). The value of oil imports from Iraq increased from US$14.17 billion in 2014–15 to US$22.30 in 2018–19. India imported 1.012 mb/d of oil for the first eight months in 2019, with an average share of 22.5 per cent of its total oil imports.115 In August, the share went up to 26.9 per cent. Basra oil has been imported by HPCL for its Visakh refinery in Andhra Pradesh, and 8 million barrels were supplied in 2015 to fill the strategic reserves as India

 Ibid.  Ibid. 114  Ibid. 115  MEES, vol. 62 no. 39, 27 September 2019, p. 10. 112 113

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Table 4.4  India-Iraq bilateral trade, 2014–20 (US$ million) Year

2014–15

2015–16

2016–17

2017–18

2018–19

April– January 2019–20

India’s exports to Iraq Growth rate (per cent) Iraq’s share in India’s total exports (per cent) India’s imports from Iraq Growth rate (per cent) Iraq’s share in India’s total imports (per cent) Total bilateral trade Growth rate (per cent) Share in India’s total trade (per cent)

829.32

1,004.39

1,111.45

1,462.23

1,788.66

1,672.60

21.11

10.66

31.56

22.32

–

0.38

0.4

0.48

0.54

0.63

0.27

14,247.66 10,837.58 11,707.94 17,615.81 22,372.47 19,808.12

3.18

−23.93

8.03

50.46

27

2.84

3.05

3.78

4.35

4.91

15,076.98 11,841.98 12,819.39 19,078.04 24,161.14 21,480.71

1.99

−21.46

8.25

48.82

26.64

–

1.84

1.94

2.48

2.86

3.22

Source: Directorate General of Foreign Trade. Export Import Databank, https://commerce-app.gov.in/ eidb/Default.asp

sought to capitalize on the low oil price.116 Increased supplies from Iraq had also been used to compensate for decline in supplies from Iran since 2015–16 due to the American sanctions.117

116  John Lee. ‘India Builds Oil reserves with Basra Crude’, Iraq Business News, 22 March 2015, https://www.iraq-businessnews.com/2015/03/22/india-builds-oil-reserves-withbasra-crude/ 117  Ibid.

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Table 4.5  India-Iraq oil trade, 2016–20 (US$ million) Year

2014–15

2015–16

2016–17

2017–18

2018–19

April– January 2019–20 (provisional)

India’s oil imports from Iraq Growth rate (per cent) Iraq’s share in India’s total crude oil imports (per cent) Share of oil in India’s total imports from Iraq (per cent) India’s petroleum product exports to Iraq Growth rate (per cent) Share in India’s total export of petroleum products (per cent) Share in India’s total exports to Iraq (per cent)

14,177.22 10,759.19 11,633.29 17,544.32 22,300.67 19,181.39 −24.11

8.12

50.81

27.11

–

12.17

16.32

16.43

20.08

19.52

22.10

99.49

99.27

99.22

99.59

99.52

96.84

1.18

15.1

133.08

342.6

685.6

661.04

1,174.39

781.61

157.43

100.12

–

0

0.05

0.41

0.89

1.43

1.80

0.14

1.5

11.97

23.43

38.33

39.52

Source: Directorate General of Foreign Trade. Export Import Databank, https://commerce-app.gov.in/ eidb/Default.asp

India exported petroleum products to Iraq worth US$685 million in 2018–19, constituting a share of 1.43 per cent in India’s total petroleum product exports and 38.33 per cent of exports to Iraq. This is one of the fastest growing items, with rapidly rising share in total exports (Table 4.5). As discussed earlier, Iraq has been facing increasing shortages of gasoline and diesel for domestic consumption and this offers a lucrative area for

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India’s trade and investments. Before the ISIS crisis in Iraq, India’s ONGC and Reliance were considered to be overqualified by Baghdad for participation in the massive Nasiriya oil field project.118 Iraq had always given India a friendly treatment in the exploration of its oil fields. Before the US-led invasion, India was pursuing a project for developing discovered oil field in southern Iraq through a consortium of RIL and Algeria’s Sonatrach.119 The agreement on Block 8 (estimated to hold 645 million barrels of proven reserves) originally signed in 2000 was reinitiated and revised in 2013. Three more blocks were offered to India in the same year on a nomination basis in the Middle Furat oil field.120 However, the deteriorating security situation following the rise of ISIS brought the process to a halt, and the Indian stake in Block 8 has not started production.121 Iraq looks towards India for tackling the multiple challenges faced by its energy sector to deliver its full potential for growth and exports. The India-based Asian Oilfield Services Limited has reportedly won orders totalling US$37 million in Iraq in 2019.122 The company has previously carried out 3D surveys at the Shakal block and the Taza block in the Iraqi Kurdistan. Since 2003, Iraq has been a lost market for the Indian firms which were active in many fields, especially in power sector. India  was also a major exporter of steel piles to Iraq.123 The share of India in Iraq’s total imports has been declining from 3.1 per cent in 2015 to 2.6 per cent in 2018. Iraq has been a lucrative market for Indian tea as it imported about 50 million

118  The Economic Times. ‘India, Iraq ink energy cooperation pact to boost ties’, 23 August 2013, https://economictimes.indiatimes.com/news/economy/foreign-trade/india-iraqink-energy-cooperation-pact-to-boost-ties/articleshow/22009218.cms 119  GoI. Ministry of Petroleum and Natural Gas. Annual Report 2001–02, http://petroleum.nic.in/sites/default/files/AR01-02.pdf 120  GoI, MPNG. ‘Minutes of the seventeenth session of the India-Iraq joint commission for economic and technical cooperation held in Baghdad during 7–8 July 2013’, http:// petroleum.nic.in/sites/default/files/Protocolof17thIndia-IraqJCM8.7.13.pdf 121  GoI, MPNG. ‘Indian Petroleum and Natural Gas Statistics 2017–18’, p. 33, http:// petroleum.nic.in/more/indian-png-statistics 122  John Lee. ‘Indian Firm Wins $37m Seismic contract in Iraq’, Iraq Business Review, 19 June 2019, https://www.iraq-businessnews.com/2019/06/19/indian-firm-wins-37mseismic-contract-in-iraq/ 123  GoI, MPNG. ‘Minutes of the seventeenth session of the India-Iraq joint commission for economic and technical cooperation held in Baghdad during 7–8 July 2013.’

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kilograms in 2013–14,124 which ceased as ISIS crisis convulsed the ­country. In 2019, there has been renewed interest among the Indian tea exporters to explore the Iraqi market against the backdrop of suspended tea exports to Pakistan and decline in exports to Iran.125 Besides petroleum products, agricultural and edible items were the second most important Indian exports to Iraq and worth US$667 million in 2018–19 with a growth rate of about 50 per cent. To boost the confidence of the Indian investors and traders, the Iraqi government has encouraged their participation in the conferences and exhibitions. The governments of both countries are working on a liberal visa scheme and double taxation avoidance agreement.126 The total FDI from Iraq during January 2000 to December 2018 was US$0.24 million, and a modest FDI inflow of about US$20,000 into India was made in 2019 after several years.127 Investments and Expatriates The two countries are also working to increase the number of bilateral flights besides further cooperation in health care and pharmaceuticals.128 Iraqi Airways operates direct flights from Baghdad to New Delhi, Mumbai and Ahmedabad, while Air India resumed flights to Baghdad in February 2019, after a gap of more than 25 years.129 India has been a preferred destination for the Iraqis seeking quality medical treatment. About 80,000 124  Avishek Rakshit. ‘Indian Companies to resume large-scale exports to Iraq amid global blues’, Business Standard, 11 July 2018, https://www.business-standard.com/article/companies/indian-companies-to-resume-large-scale-expor ts-to-iraq-amid-globalblues-118071001380_1.html 125  The Economic Times. ‘Iraq keen on resuming tea imports from India’, 6 December 2018, https://economictimes.indiatimes.com/markets/commodities/news/iraq-keen-onresuming-tea-imports-from-india/articleshow/66964716.cms 126  Business Standard. ‘Iraq seeks investment from Indian companies in its oil and gas sector’, 25 September 2019, business-standard.com/article/pti-stories/iraq-seeks-investmentfrom-indian-companies-in-its-oil-and-gas-sector-119092501359_1.html 127  Department for Promotion of Industry and Internal trade. ‘Statement on country wise/year wise FDI equity inflows from January 2000 to December 2018’, 2018, https:// dipp.gov.in/sites/default/files/Chapter_3.2_0.pdf 128  Business Standard. ‘Iraq seeks Investment from India companies in its oil and gas sector’, 25 September 2019, https://www.business-standard.com/article/pti-stories/iraqseeks-investment-from-indian-companies-in-its-oil-and-gas-sector-119092501359_1.html 129  Rezaul H Laskar. ‘Iraq woos Indian health care firms for facilities’, Hindustan Times, 21 March 2019, https://www.hindustantimes.com/india-news/iraq-woos-indian-health-carefirms-for-facilities/story-DdKVdFmiWpvMiiaNRigJvO.html

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Iraqis travel annually to the Indian metros lured by the low-cost quality medical facilities.130 The formal banking facilities between the two countries had been disrupted since 2003131 and a necessary financial ­ mechanism is being worked out. The state-owned Trade Bank of Iraq (TBI) has signed an MoU with India-based ESDS Software Solution to develop financial technology and a cloud platform in Iraq.132 Given its limited direct sea access, bilateral trade is conducted through the Dubai route.133 Currently, about 25,000 Indians are working in Iraq, and a few of them are well-paid executives with the oil and infrastructural companies while others are semi-skilled and unskilled.134 Most of the Indians are in Erbil, the capital of the northern autonomous region of Kurdistan. In recent years, the diplomatic efforts were confined to finding ways to help Indian expatriate workers who were affected by the rise of the ISIS,135 facilitating the Indian pilgrims to Shiite holy places in Najaf and Karbala and issuing advisories for Indian travellers.136 The latest was issued in February which advised Indian nationals to avoid travels to “five Provinces of Iraq, namely Nineveh (Capital Mosul); Salahuddin (Capital Tikrit); Diyala (Capital Baquba); Anbar (Capital Ramadi) and Kirkuk” as these “remain affected by terrorism and violence.”137  Ibid.  Huma Siddiqui. ‘Are the Indian Companies ready to tap the Iraq market? Huge opportunities for Indian companies in Iraq’, Financial Express, 12 December 2018, https://www. financialexpress.com/economy/are-the-indian-companies-ready-to-tap-the-iraq-markethuge-opportunities-for-indian-companies-in-iraq/1411989/ 132  John Lee. ‘TBI partners with Indian firm for Fintech development’, Iraq Business News, 20 June 2019, https://www.iraq-businessnews.com/2019/06/20/tbi-partners-withindian-firm-for-fintech-development/; ESDS Software Solution. ‘Trade Bank of Iraq and ESDS Software Solution Sign MOU to Modernize its Fintech Infrastructure’, June 2019, https://www.esds.co.in/read_news?newsid=81 133  Huma Siddiqui. ‘Are the Indian Companies ready to tap the Iraq market?’ 134  D.P Satish. ‘About 25,000 Indians safe in Iraq amid US-Iran Face off; Embassy Advised to not allow New workers’, News 18, 8 January 2020, https://www.news18.com/news/ world/about-25000-indians-safe-in-iraq-amid-us-iran-face-off-embassy-advised-to-notallow-new-workers-2449879.html 135  GoI. MEA. ‘India-Iraq Bilateral Brief’, September 2019, https://mea.gov.in/Portal/ ForeignRelation/Bilaterl_Iraq_2019.pdf 136  India Today. ‘India issues fresh travel advisory asking citizens to not visit to 5 provinces in Iraq’, 18 February 2020, https://www.indiatoday.in/india/story/ india-issues-fresh-travel-advisor y-asking-citizens-to-not-visit-5-provinces-iniraq-1647742-2020-02-18 137  GoI. MEA. ‘Travel advisory for Indian Nationals traveling to Iraq’, 4 February 2019, https://mea.gov.in/press-releases.htm?dtl/30974/travel+advisory+for+indian+nationals+t ravelling+to+iraq 130 131

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Challenges and Opportunities India has to regain its lost ground in Iraq. Iraq’s vast oil reserves and Indian expertise in oil and gas downstream sectors and executing power projects, including the renewable energy ones, provide a fertile ground for a healthy bilateral relation to cater to mutual developmental needs and India’s energy security. Pushing exports of petroleum products and participating in reconstruction projects in exchange for oil by the public sector companies such as NTPC and BHEL would be useful in reducing some of the burdens of India’s oil import bill. India needs to stem the decline in its share in the Iraqi imports relative to the other competitors in the region and to re-activate its oil exploration and production interest in that country even while navigating through Iraq’s stingy fiscal terms. India also has to undertake the daunting task of collaborating with other players and the Iraqi government for risk management and the safety of its investment and personnel in that country. Iraq’s recovery from years of destruction has been hampered by political divisions and economic mismanagement. This has caused popular unrest in several areas including in the oil-rich southeast and capital Baghdad. With the fear of ISIS resurgence continuing to loom, Iraq needs to work hard to avoid further strife and focus on reconstruction, infrastructure development and providing the necessary means of sustenance for the citizens. The KRG has done a better job and Erbil has started to recover from the setbacks caused by the September 2017 referendum. New Delhi has so far focused on oil-centric approach to Iraq fearing any serious commitment for the reconstruction might be compromised if Iraq descends into chaos again. However, this also means that India will miss the economic opportunities that come with the risks associated with investments in territories prone to instability.

CHAPTER 5

Kuwait

Key Information Ruling family: Al-Sabah; Ruler: Emir Sabah al-Ahmad al-Jaber al-Sabah (since 29 January 2006); Crown Prince: Prince Nawaf al-Ahmad al-Jaber al-Sabah (since 7 February 2006); National day: 25 February; Parliament: 65-member (50 elected, 15 ex-officio cabinet) National Assembly; Last parliamentary election: 26 November 2016; Major group in parliament: Conservative (Salafi and Muslim Brotherhood); National carrier: Kuwait Airways. Socio-economic Indicators Area: 17,818  sq. kms; Population: 4.1  million; Native: 31 per cent; Expats: 69 per cent; Religious groups: Citizen (Muslim 100 per cent); Resident population (Muslim 76.7 per cent; Christian 17.3 per cent; Others 5.9 per cent); Youth: 15.04 per cent; Population growth rate: 2 per cent (World Bank, 2019); Life expectancy at birth: 75.4  years (UNDP, 2019); Major population groups: Kuwaiti 30.4 per cent; Other Arabs 27.4 per cent; Asian 40.3 per cent; African 1 per cent; Others 0.9 per cent; Literacy rate: 96.1 (UNDP, 2019); National currency: Kuwaiti Dinar (KD); GDP (Current prices): US$140.6 billion; Foreign trade: Exports-US$71.9  billion; Imports-US$35.8  billion; Military expenditure: 5.1 per cent of GDP (World Bank, 2018); Sovereign Wealth Fund: © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_5

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US$592 billion (SWF Institute); Government debt: 8.3 per cent of GDP (CEIC, 2018); GNI per capita: US$71,164 (at 2011 PPP); GDP per capita: US$65,515 (at 2011 PPP) (UNDP, 2019); Oil reserves: 101.5 billion barrels (BP, 2018); Gas reserves: 59.9 tcf (BP, 2018); HDI rank: 57/189 (UNDP, 2019); Infant mortality rate: 6.9 /1,000 under five live births (UNDP, 2019); UN Education Index: 0.625 (UNDP, 2019); Labour force: 2.42 million (World Bank, 2019); Unemployment rate: 2.1 per cent of total labour force (UNDP, 2019); Urban population: 100 per cent (UNDP, 2019); Rate of urbanization: 2 per cent annual (World Bank, 2018); Last national census: 2005; World Press Freedom Index: 108 rank (RSF, 2019); Ease of Doing Business Index: 83/190 (World Bank, 2019); Corruption Perception Index: 85/180 (Transparency International, 2019); Foreign direct investment: US$346  million (Inward) (UNCTAD, 2019); Individuals using Internet (per cent of population): 99.6 (UNDP, 2019); Net migration rate (per 1,000 population, 2015–2020): 9.8 (UN World population prospects, 2019); Forest area (per cent of land area): 0.4 (UNDP, 2019); Carbon dioxide emissions (tonnes per capita): 22.8 (UNDP, 2019); Gender Development Index: 0.999 (UNDP, 2019); Gender Inequality Index: 0.245 (UNDP, 2019); Global Terrorism Index: Rank 75 out of 163 countries (Vision of Humanity, 2019). India Related Indian Cultural Centre: India Study Centre (Faculty of Social Sciences, Kuwait University); Number of Indians: 917,970; Number of places of worship for Indians: Seven recognized churches and a few non-­ recognized Christian worship facilities; Indian schools: 20; Indian banks: State Bank of India, Indian Overseas Bank and HDFC Bank; Currency exchange rate: 1 KD = INR 241.82 (March 2020); Last visits to India by the rulers: Emir Sabah al-Ahmad al-Jaber al-Sabah, June 2006; Kuwaiti prime minister 2013; Last Indian prime minister to visit: Indira Gandhi, May 1981. * * * India’s engagement with Kuwait is not in tandem with its rising interactions with other countries of the Persian Gulf. Kuwait is the only stable Persian Gulf country and the only GCC country that Prime Minister Modi

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has  skipped  despite his whirlwind  engagement with  the region. The neglect was partly rectified by the External Affairs Minister Sushma Swaraj visiting the Emirate in October 2018. Indeed, during the past six years, that was the only high-level political exchange between the two countries. It is puzzling because Kuwait, like other GCC countries, has been keen on developing relations with India and has the potential to invest in the growing Indian market. Moreover, both have enjoyed friendly relations for a long time and there is a sizable Indian expatriate population in the Emirate.

Domestic Developments Kuwait is one of the few countries in the Middle East where political participation is allowed and the lawmakers of the 50-member National Assembly are elected with open political affiliation. This practice has been in vogue since Kuwait became independent in 1961. Between 2003 and 2013, there were as many as eight parliamentary elections.1 The frequency of elections was largely due to the nature of the political system where members can censor the government and hold the cabinet accountable for any decision or action. At the same time, the monarchy remains firmly in control of the government and fiances.  Far from bringing transparency and democratic decision making, the prevailing arrangement has resulted in a dysfunctional assembly that affects the larger political process2 and the country’s ability to undertake important projects for economic growth. Political Developments The political logjam and contest between the lawmakers and ruling family persisted in 2019 as in previous years. One of the critical issues was corruption allegations against cabinet ministers and members of the ruling Al-Sabah family. Kuwait was hit hard by a corruption scandal in November that hogged international limelight and brought the Kuwaitis out on the streets and forced the government to resign.3 The issue was the misuse of 1  Inter-Parliamentary Union (IPU). ‘Kuwait: Majlis Al-Ommah (National Assembly)’, http://archive.ipu.org/parline-e/reports/2171_arc.htm 2  France 24. ‘Kuwait PM, cabinet quit after disputes with parliament’, 14 November 2019, france24.com/en/20191114-kuwait-pm-cabinet-quit-after-disputes-with-parliament 3  Al-Jazeera. ‘Spain death toll rises by 932  in one day: Live Updates’, 3 April 2020, https://www.aljazeera.com/news/2019/11/kuwait-government-submits-resignation-191114094823231.html

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public funds worth Kuwaiti Dinar (KD) 240 million (US$790 million) in military contracts and this led to a public spat between Interior Minister Khaled al-Sabah and Defence Minister Nasser al-Sabah, who is also the eldest son of Emir Sabah Ahmad al-Sabah.4 The interior minister was accused of corruption and the lawmakers questioned him over charges of fraud and abuse of power that he denied.5 The tussle between the two senior members of the cabinet brought Kuwaiti citizens to the streets and the Emirate witnessed some of the largest protests in its history.6 The month of November witnessed a severe political turmoil involving key members of the cabinet. The government resigned after the parliament introduced a no-confidence motion against the interior minister on 14 November. Two days later, the defence minister underlined that the government was forced to resign over allegations of the graft. He said that the embezzlement of funds took place in 2017 before he took over the Defence Ministry and that the ministry was investigating the case internally and the report of the ongoing investigation has been handed over to the judicial authorities before the government resigned.7 Earlier, the National Assembly had questioned the Minister for Public Works Jenan Boushehri over the mishandling of 2018 floods when 12 people lost their lives.8 This forced him to resign on 12 November, just two days before the parliament adopted the no-confidence motion. Only a few days earlier, the state prosecution managed to convict another high-profile graft case involving a Russian businesswoman Marsha Lazareva and her local business partner Saeed Dashti who were facing several graft and fraud charges. On 11 November, while acquitting the two in eight other charges, the court convicted them in two cases of

4  Dominic Dudley. ‘Political Turmoil And Corruption Allegations Cast A Shadow over Kuwait’, Forbes, 19 November 2019, https://www.forbes.com/sites/dominicdudley/2019/11/19/political-turmoil-corruption-kuwait/#731029d11aaf 5  Kristin Smith Diwan. ‘Kuwait shakes up its Government amid Charges of Corruption’, The Arab Gulf States Institute in Washington, 21 November 2019, agsiw.org/ kuwait-shakes-up-its-government-amid-charges-of-corruption/ 6  Middle East Monitor. ‘Hundreds protest against corruption in Kuwait’, 7 November 2019, middleeastmonitor.com/20191107-hundreds-protest-against-corruption-in-kuwait/ 7  France 24. ‘Kuwait defence chief says government quit over embezzlement’, 16 November 2019, https://www.france24.com/en/20191116-kuwait-defence-chief-saysgovernment-quit-over-embezzlement 8  Richard Davies. ‘Middle East—Deadly Flash floods in Jordan and Kuwait’, Floodlist, 11 November 2018, http://floodlist.com/asia/jordan-flash-floods-november-2018

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money laundering and Dashti was sentenced to 15  years of rigorous imprisonment, described by her legal team as a “sham.”9 The conviction sent shockwaves across the Emirate and outside with many international investors and businesspersons expressing concerns about the business environment in Kuwait.10 Facing growing pressure from the parliament and protestors, on 14 November the government was forced to resign but it did not reduce the unrest. On 18 November, Emir Sabah addressed the nation and expressed his resolve not to allow anyone involved in corruption to go scot-free.11 He accepted the resignation of Prime Minister Jaber al-Sabah who declined the offer to head the new government. As a result, the Emir appointed Sabah Khalid al-Sabah, who had served as foreign minister since 2011, as the new prime minister and he assumed office with immediate effect.12 The new government was unveiled on 17 December with many crucial ministries, including defence, interior, foreign and finance, getting new ministers.13 The political situation in the Emirate remained tense throughout 2019, especially because of the lack of clarity regarding succession due to the health concerns of the 90-year old Emir Sabah al-Jaber al-Sabah and the publicly inactive 82-year-old Crown Prince Nawaf al-Sabah. Analysts believe that the Emir is trying to delay the inevitable transition to a younger generation due to the infighting within the ruling family and the intra-GCC tensions following the emergence of younger leaderships in

9  Dominic Dudley. ‘Political Turmoil And Corruption Allegations Cast A Shadow over Kuwait’, Forbes, 19 November 2019, https://www.forbes.com/sites/dominicdudley/2019/11/19/political-turmoil-corruption-kuwait/#731029d11aaf 10  Eva Charakambous. ‘As Marsha Lazareva Languishes in Jail, foreign businesses will “think twice” before investing in Kuwait’, Modern Diplomacy, 19 April 2019, http://moderndiplomacy.eu/2019/04/19/as-marsha-lazareva-languishes-in-jail-foreign-businesses-willthink-twice-before-investing-in-kuwait/ 11  Arab Times. ‘No one will evade Public funds crime’, 19 November 2019, http://www. arabtimesonline.com/news/no-one-will-evade-public-funds-crimes/ 12  Reuters. ‘Kuwait’s foreign minister named new PM amid government feud’, 18 November 2019, https://www.reuters.com/article/us-kuwait-government/kuwait-pmdeclines-reappointment-emir-removes-senior-Ministers-idUSKBN1XS12E 13  Reuters. ‘Kuwait appoints new cabinet after parliament tension’, 17 December 2019, https://in.reuters.com/article/kuwait-government/kuwait-appoints-new-cabinet-after-parliamenttension-idINKBN1YL0PZ

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Qatar, Saudi Arabia and the UAE.14 The Emir’s health issues gained ­international limelight after a September meeting with President Trump in the White House was cancelled as the Emir was admitted to a hospital in the US for tests.15 Since his appointment as defence minister, Nasser al-Sabah was seen by many as being groomed by his father, the Emir, to continue his legacy. He could be appointed Crown Prince, if the incumbent and younger half-­ brother of the Emir, the octogenarian Nawaf passes away before the Emir or be nominated by Nawaf as his Crown Prince, after he takes over as Emir upon the demise of the current Emir. However, Nasser’s public spat with the interior minister amidst corruption allegations and the subsequent removal of both from the government16 have raised questions about Nasser’s political ascendance. Foreign Policy Kuwait has faced serious foreign policy challenges in recent times. One of the major failures has been the inability of the Emir to bring about the GCC reconciliation over the Qatar crisis. The tough stand taken by Saudi Crown Prince  Mohammed Bin Salman and Abu Dhabi’s Crown Prince Mohammed Bin Zayed against Iran and the Muslim Brotherhood led both  the countries to impose a political, economic and diplomatic boycott of Qatar in July 2017. Emir Sabah was at the forefront of mediation efforts that proved  unsuccessful, thereby underlining the limits of Kuwaiti influence on regional matters.17 Kuwait has not been able to mitigate other regional crises as well such as civil war in Yemen and increasing hostility between the Gulf Arab countries and Iran. The concerns over Emir’s health have also limited the Kuwaiti diplomatic space. 14  Kristian c. Ulrichsen and Simon Henderson. ‘Kuwait: A Changing System Under Stress’, The Washington Institute for Near East Policy, October 2019, https://www.washingtoninstitute.org/uploads/Documents/pubs/PolicyNote69.pdf 15  Bloomberg. ‘Kuwait’s 90-Year-Old Ruler Hospitalized in U.S., Cancels Trump Visit’, 9 September 2019, https://www.bloomberg.com/news/articles/2019-09-09/kuwait-s-ruler90-in-us-hospital-and-cancels-trump-visit 16  France 24. ‘Kuwait defence chief says government quit embezzlement’, 16 November 2019, https://www.france24.com/ en/20191116-kuwait-defence-chief-says-government-quit-over-embezzlement 17  Iman Zayat. ‘Kuwait’s mediation drive in GCC dispute gains momentum’, The Arab Weekly, 13 December 2019, https://thearabweekly.com/kuwaits-mediationdrive-gcc-dispute-gains-momentum

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Nonetheless, in many ways, Kuwait has been successful in maintaining a balanced foreign policy and has avoided a direct confrontation with any regional country. Since the Iraqi aggression of 1990–91, Kuwait has been careful in maintaining cordial ties with its bigger neighbours. For example, it did not break off diplomatic relations with Iran despite pressure from other members of the GCC.18 It has been managing relations with all outside powers, including the US, Russia, China and European countries. It has been trying to expand relations with the emerging countries in Asia, including India. In that sense, its relations with China, especially trade and business ties, have witnessed significant improvement in the past few years with several high-profile development projects receiving massive Chinese investments.19 Economic Situation The economic performance of Kuwait had been lacklustre in the last few years. The difficulty in making capital expenditure owing to political deadlock has severely affected the economy.20 In the first quarter of 2019, the GDP grew at 2.6 per cent at constant prices while the oil and non-oil sectors grew at 1.3 per cent and 4.1 per cent, respectively.21 Table 5.1 shows a strong correlation between GDP growth rate and oil sector growth. The oil sector as per cent of GDP was 38.47 per cent in 2016 and increased to 47.05 per cent in 2018.22 The negative growth rate of the oil GDP in 2016 had led to dismal non-oil GDP growth in 2016 (Table 5.1) and the continued deceleration of most of the non-oil sectors in 2017–18 (Table  5.2). The oil revenues constitute nearly 88 per cent of the total government revenues and provide the crucial investment funds for the growth of other sectors as well. 18  Muna Al-Fuzai. ‘Kuwait’s foreign policy’, Kuwait Times, 17 August 2019, https:// news.kuwaittimes.net/website/kuwaits-foreign-policy/ 19  Matthew Martin, Fiona MacDonald and Vinicy Chan. ‘Kuwait plans $10 Billion Investment Fund with China’, Bloomberg, 3 March 2019, https://www.bloomberg.com/ news/articles/2019-03-03/kuwait-is-said-to-plan-10-billion-investment-fund-with-china 20  MEES. vol. 62 no.28, 12 July 2019, p. 12. 21  Gulf Business. ‘Kuwait’s economy grows 2.6% in Q1’, 14 July 2019, https://gulfbusiness.com/kuwaits-economy-grows-2-6-in-q1/ 22  Kuwait, Central Statistical Bureau (CSB), ‘Revised and Provisional Estimates of National Accounts 2016–18, (Table 1.2)’, https://www.csb.gov.kw/Pages/Statistics_en?ID= 55&ParentCatID=3

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Table 5.1  Kuwait: National accounts and economic growth rates, 2016–18 (US$ million)

GDP (at current prices) GDP from oil sector GDP from non-oil sector Net investment income from abroad Gross national income

2016

2017

2018 (provisional)

99,828.49 (−25.5) 38,401.8 (−47.3) 74,767.6 (2.1) 11,659.23 (1.1)

110,930 (10.8)

128,274.1 (16.0) 60,356 (31.0) 81,980.3 (4.0) 16,972.10 (−1.7)

111,487.7 (−24.5)

46,177.8 (19.9) 79,099.6 (5.4) 17,258.48 (48.02) 128,188.5 (14.6) 145,246.3 (13.7)

Source: Central Statistical Bureau, Kuwait Note: Figures in the bracket are the growth rates over the previous year

Table 5.2  Kuwait: Sector-wise contribution to GDP and growth rates, 2018 Economic activity

GDP in 2018

Extraction of crude oil and natural 47.4 gas Community, social and personal 22.7 services Real estate, renting and business 8.9 activities Financial intermediation 8.6 Manufacturing 6.8 Transport, storage and 5.9 communications

Growth rate in 2016–17

Growth rate in 2017–18

19.8

30.9

5.9

4.6

4.3

4

4.5 15.4 −4.4

0.6 5.6 9.2

Source: Central Statistical Bureau, Kuwait

As shown in Table 5.2, the contribution of oil and gas to GDP in 2018 was 47.4 per cent, followed by community, social and personal services (22.7 per cent). The share of the manufacturing sector was only 6.8 per cent. Logistics and communication service sectors have been posting high growth rates in recent years.

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There has been a slump in the real estate sector towards the end of 2019 against the backdrop of a weak commercial sector.23 According to ProTenders, construction projects worth US$494  billion were active in 2019; of this US$140.9 billion worth (28.5 per cent) were in the execution stage, while some were in planning and design stage and projects worth US$15.5 billion (3.1 per cent) were on hold for clearance.24 South Al-Mutlaa city is Kuwait’s largest under construction housing project and about US$356  million worth of infrastructure projects around it were approved in 2019.25 Boursa Kuwait became the only exchange operator in the region that is not owned by the state. It sold about 44 per cent of its shares in early 2019, to a consortium of domestic and international investors, including Athens Stock Exchange SA Holding and offered another 50 per cent as IPO to local investors.26 MSCI Inc plans to add Kuwait to its main emerging market stock index in June 2020 that would draw billions of dollars of investments.27 Zain Telecommunication became the region’s first company in the mobile industry to have a climate change action roadmap.28 It is disclosing its climate impact, energy usage and greenhouse emission via the Global Disclosure Project. Kuwait has three telecom providers Zain, Ooredoo and Viva. The Communication and Information Technology Regulatory Authority has invited application to issue virtual telecom licensing,

23  Gavin Gibbon. ‘Drop in commercial sector sales hits Kuwait real estate market’, Arabian Business, 10 December 2019, https://www.arabianbusiness.com/real-estate/435070drop-in-commercial-sector-sales-hits-kuwait-real-estate-market 24  Arabian Business. ‘Revealed: $49bn construction projects active in Kuwait’, 22 June 2019, https://www.arabianbusiness.com/construction/421873-revealed-494bn-constructionprojects-active-in-kuwait 25  Arabian Business. ‘Kuwait signs $356 infrastructure deal for mega housing project’, 29 August 2019, https://www.arabianbusiness.com/ construction/426779-kuwait-signs-356m-infrastructure-deal-for-mega-housing-project 26  Gulf Business. ‘Kuwait bourse IPO more than 8.5 times oversubscribed’, 3 December 2019, https://gulfbusiness.com/kuwait-bourse-ipo-8-5-times-oversubscribed/ 27  Reuters. ‘Kuwaiti equities to be in main MSCI emerging markets index from 2020’, 29 June 2019, https://www.reuters.com/article/us-funds-msci-kuwait/msci-upgradeskuwait-equities-to-its-main-emerging-markets-index-idUSKCN1TQ2VS 28  Ben Mack. ‘Kuwait telco Zain taking lead on Middle East-first mobile industry climate plan’, Gulf Bisuness, 17 September 2019, https://gulfbusiness.com/kuwait-telco-zaintaking-lead-middle-east-first-mobile-industry-climate-plan/

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wherein, the virtual telecom operator leases capacity from the conventional providers to provide communication services.29 Kuwait is planning to invest about US$20 billion in civil aviation in the airport and related services over the next decade.30 The newly opened T4 terminal in the international airport in Kuwait City can now handle 4.5 million passengers and had joined the other GCC countries to ban the use of Boeing aircrafts over faulty engine design.31 Kuwait Airlines is looking to procure about 20 new airplanes in the next few years. The government seeks foreign investment for its capital expenditures to promote growth, build infrastructure and provide jobs. Kuwait City is discussing US$10 billion Kuwait-China Silk Road Fund that would invest in projects related to the Silk City and island development.32 The multi-­ billion Silk City project and development of the artificial islands in the northern region are the signature projects for New Kuwait 2035. However, when Emir’s son Nasser presented the outline of the project in the parliament in March 2019, it was met with stiff resistance for keeping the project outsight outside parliamentary oversight.33 Table 5.3 shows the cumulative inward and outward foreign investments in Kuwait during 2014–17. Foreign investments in Kuwait had increased during 2015–17, of which nearly 40 per cent was FDI. Among the top countries making investments in Kuwait were Qatar (40.1 per cent), Saudi Arabia (10.6 per cent), Bahrain (9.6 per cent), the UAE (9.3

29  Gulf Business. ‘Kuwait to issue virtual telecom operator licence’, 14 July 2019, https:// gulfbusiness.com/kuwait-issue-virtual-telecom-operator-licence/ 30  Arabian Business. ‘Kuwait plans to invest $20bn in civil aviation in next decade’, 16 January 2019, https://www.arabianbusiness.com/transport/411489-kuwait-plans-toinvest-20bn-in-civil-aviation-in-next-decade 31  Sam Bridge. ‘Kuwait emir opens new airport terminal to handle 4.5m passengers’, Arabian Business, 5 July 2018, arabianbusiness.com/travel-hospitality/400100-kuwaitemir-opens-new-airport-terminal-to-handle-45m-passengers; Sam Bridge. ‘Kuwait Joins growing Gulf ban on Boeing 737 Max planes’, Arabian Business, 13 March 2019, arabianbusiness.com/transpor t/415335-kuwait-joins-gr owing-gulf-ban-on-boeing737-max-planes 32  Arabian Business. ‘Kuwait said to be planning 10bn fund with China’, 1 March 2019, https://www.arabianbusiness.com/banking-finance/414416-kuwait-said-tobe-planning-10bn-fund-with-china 33  Sylvia Westall and Ahmed Hagagy, ‘Kuwait plans for northern mega city faces political hurdles’, Reuters, 1 May 2019, https://www.reuters.com/article/us-kuwait-economy/ kuwait-plan-for-northern-mega-city-faces-political-hurdles-idUSKCN1S73I2

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Table 5.3  Kuwait: Cumulative foreign investments, 2014–17 (US$ million) 2014 Foreign direct investments Foreign portfolio investments Financial derivatives Other foreign investment (loans deposit and facilities Total inward foreign investment Outward foreign direct investment Total outward foreign investment

8,904.17 1,423.93 3,748.12 7,406.85

2015

2016

8,230.69 9,279.86 1,072.32 835.94 3,620.85 4,950.988 7,963.14 7,447.92

2017 9,408.45 470.56 5,051.31 8,250.69

21,483.072 20,887.31 22,514.40 23,181.02 28,181.43 26,935.79 25,832.78 25,716.22 56,088.35 58,720.79 58,426.73 55,204.782

Source: CSB Statistical Bulletin, Direct Investment Survey in Kuwait, https://www.csb.gov.kw/Pages/ Statistics_en?ID=61&ParentCatID=3

per cent) and Oman (4.9).34 The sector-wise distribution of the FDI comprised telecommunications (38.4 per cent), investment companies (27.1 per cent), manufacturing (12.4 per cent), banks (9 per cent) and service companies (7.9 per cent). Kuwait’s total cumulative overseas investment in 2017 was US$55.20  billion, of which 46.38 per cent was FDI (Table  5.3). The dominant sectors of outward FDI were banking, investment companies and telecommunications. On 10 September Equate, a joint venture of Kuwaiti Petrochemical Industries Company (PIC), Dow Jones and other Kuwaiti companies, Boubyan and Qurain, announced the completion of the petrochemical plant at Texas. Agility Public Warehouse Company, Kuwait-based logistics company, has a presence in about 100 countries with a turnover of US$5.5 billion.35 It has invested in Ghana and plans to expand in other African countries. Total foreign exchange reserves (including gold) of the Emirate were US$40.3  billion in 2018.36 Kuwait Investment Agency (KIA), which manages about US$592 billion worth of

34  Kuwait, CSB. ‘Statistical Bulletin, Direct Investment Survey in Kuwait’, p.  12, 2018, https://www.csb.gov.kw/Pages/Statistics_en?ID=61&ParentCatID=3 35  Gulf Business. ‘Kuwait’s agility plans to invest heavily in setting up facilities across Africa’, 10 September 2019, https://gulfbusiness.com/kuwaits-agility-plans-to-investheavily-in-setting-up-facilities-across-africa/ 36  The World Bank. ‘Total reserves (includes gold, current US$)’, https://data.worldbank.org/indicator/FI.RES.TOTL.CD

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assets and investments in about 120 countries, does not publicly disclose its investment strategy.37 Oil revenues contributed about 88.26 per cent to the total government revenues during 2018–19, while taxes added only 3.65 per cent.38 The government expenditure was dominated by wages (34 per cent), grants (23 per cent), provisioning of goods and services (15 per cent), while social benefits and subsidies were 4.42 per cent and 2.84 per cent, respectively. The budget for 2019–20 projected a total government expenditure of US$67.95 billion, which was an increase of 4.65 per cent over the previous year. The total government revenue was projected at US$47.75 billion. The projected budget deficit was US$21.5 billion in 2018–19, but narrowed due to the increase in oil revenues. The average price of oil was US$68.62 during 2018–19.39 The budgetary deficits projected for 2019–20 are US$22 billion, but the first 11-month figures for 2019 indicate that Kuwait could have a surplus of US$10 billion, a first one in the last five years.40 Kuwait had been incurring fiscal deficits since 2015 and had been drawing heavily from the General Reserve Fund, one of the country’s two Sovereign Wealth Funds.41 The budgetary surplus comes not only from the increase in the oil revenues but also due to Kuwait’s perennial inability to implement its spending plans.42 The sectoral allocation of the budgetary expenditures in 2019–20 was electricity and water (13 per cent),

37  Gulf Business. ‘Kuwait sovereign fund in portfolio shift signs on global economic weakness’, 18 August 2019, https://gulfbusiness.com/kuwait-sovereign-fund-portfolio-shiftsigns-global-economic-weakness/ 38  Kuwait, Ministry of Finance (MoF). ‘The General Budget: The Fiscal Year 2019/2020’, 2019, https://www.mof.gov.kw/MofBudget/PDF/Budget20-19eng.pdf 39  Gulf Business. ‘Kuwait 2018/19 budget deficit narrows on higher oil prices’, 30 July 2019, https://gulfbusiness.com/kuwait-2018-2019-budget-deficit-narrows-higher-oilprices/ 40  MEES. ‘Kuwait Eyes Huge 2019–20 Budget Deficit’, 12 July 2019, https://www.mees. com/2019/7/12/economics-finance/kuwait-eyes-huge-2019-20-budget-deficit/ dd2f6830-a4a0-11e9-90ac-732910c8f791 41  Arabian Business. ‘Kuwait’s sovereign wealth fund grows despite oil shocks’, 6 June 2019, https://www.arabianbusiness.com/banking-finance/421613-kuwaits-sovereign-wealthfund-grows-despite-oil-shocks 42  MEES. ‘Kuwait Eyes Huge 2019-20 Budget Deficit’.

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education (12.25 per cent), health (10 per cent) and defence (8.3 per cent), among others.43 New toll tax was levied on trucks using recently opened Sheikh Jaber Causeway for a fee of about US$3.03 per tonne of the truck’s total weight.44 With 48.5 kilometres, the causeway is the fourth longest in the world and connects Kuwait City with the future Silk City on the Subiyah Island and is close to the Iran-Iraq border. The causeway was constructed and is  to be operated and maintained by the South Korean company Hyundai for US$160  million.45 There were peaceful demonstrations at Al-Erada Square on 6 November against the frail infrastructure and neglect and over the government spending more time and resources for the new Silk City, a centrepiece of a 15-year plan to diversify and move away from oil-dependent economic model.46 Amidst the political crisis, there was one-hour strike by the workers at Kuwait International Airport for better work conditions in November.47 Rising unemployment is also a pressing issue. The total unemployment rate among the Kuwaitis was 4.7 per cent in 2015, while female unemployment was 5.5 per cent.48 The unemployment rate for the age group 15–24 years was 22.1 per cent, while female unemployment in this category was 31.5 per cent.49 The labour market is segmented with a wide gap between public and private sectors wages. As with other Gulf Arab countries, the nationals prefer to work in the government sector and are preferably recruited. About 75 per cent of those employed in the government sector are Kuwaiti nationals (Table  5.4), with a larger share of female 43  Kuwait, Ministry of Finance (MoF). Kuwait. ‘The General Budget: The Fiscal Year 2019/2020’, 2019, https://www.mof.gov.kw/MofBudget/PDF/Budget20-19eng.pdf 44  Aarti Nagraj. ‘New toll for trucks using Kuwait’s new Sheikh Jaber Causeway’, Gulf Business, 15 July 2019, https://gulfbusiness.com/new-toll-for-trucks-using-kuwaits-newsheikh-jaber-causeway/ 45  Ibid. 46  Arabian Business. ‘Protests emerge as Kuwait dreams of Silk City mega project’, 7 November 2019, https://www.arabianbusiness.com/politics-economics/432609-silk-citydream-stifled-in-only-gulf-state-where-voters-matter 47  Arabian Business. ‘Workers strike at Kuwait airport for better working conditions’, 11 November 2019, https://www.arabianbusiness.com/ transport/432968-workers-strike-at-kuwait-airport-for-better-working-conditions 48  Aarti Nagraj. ‘Kuwait further hikes healthcare fees for expats’, Gulf Business, 17 April 2019, https://gulfbusiness.com/kuwait-hikes-healthcare-fees-expats/ 49  Kuwait, CBS, ‘Labour force Survey 2015’, Table 19, csb.gov.kw/Pages/Statistics_en?ID= 64&ParentCatID=%201

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Table 5.4  Kuwait: Government sector employment by gender and nationality, 2018 Kuwaiti male

Kuwaiti female

Non-Kuwaiti male

Non-Kuwaiti female

Total

126,333

175,381

57,404

41,939

401,057

Source: CBS, Employment Statistic in Government Sector

participation (Fig. 5.1). The average monthly salary of a Kuwaiti in government sector employment is US$4,470 against US$2,080 for nonKuwaitis in the same.50 About 99,343 (24 per cent) non-Kuwaitis were working in the government sector; out of them, 52.9 per cent were from other Arab countries, 39 per cent from non-Arab Asian countries and 4.4 per cent were from the other GCC countries.51 About 74.8 per cent of the non-Kuwaitis were employed in the private sector in 2015, while 17 per cent were employed in the household sector.52 IMF had urged Kuwait to deepen fiscal reforms and align public sector wages with the private sector to incentivize the nationals to take up private-sector jobs.53 In the last few years, Kuwait has been adopting policies to reduce the number of expatriates in the country and increase job opportunities for the nationals. A parliamentary committee had been formed in 2019 to investigate if the oil companies have favoured expatriates over  similarly qualified nationals and whether they had violated the policy of nationalization of the labour force in the oil sector.54 Member of Parliament Safa al-­ Hashem, the only female member in the 50-member national assembly, had urged the government to charge more fees, including a tax on remittances and impose more restrictions on the expatriates. She claims that

50  Kuwait, CBS, ‘Employment Statistic in Government Sector (Kuwaiti/Non-Kuwaiti) 30/6/2018’, (Table 8), https://www.csb.gov.kw/Pages/Statistics_en?ID=13&ParentCatID=1 51  Ibid. Table 2. 52  Ibid. Table 19. 53  Sam Bridge. ‘IMF urges Kuwait to deepen fiscal reforms’, Arabian Business, 19 April 2019, https://www.arabianbusiness.com/politics-economics/417145-imf-urges-kuwaitto-deepen-fiscal-reforms 54  Gulf Business. ‘Kuwaiti oil companies could soon replace several expats with locals  – reports’, 30 December 2019, https://gulfbusiness.com/kuwaiti-oil-companies-soonreplace-several-expats-locals-reports/

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Fig. 5.1  Kuwait: Gender and nationality in the government sector employment. Source: CBS, Employment Statistic in Government Sector

Kuwaiti Male Non-Kuwaiti Male

137

Kuwaiti Female Non-Kuwaiti Female

10% 32%

14%

44%

recruiting “expatriates and offering them administrative job was one of the main reasons for the high unemployment among the Kuwaitis.”55 As a result of these pressures and changes, more expatriates layoff is expected in the education and health sector.56 The healthcare fee for the expatriates in the government hospitals and clinics further increased in 2019; they were raised for the first time in two decades in 2017.57 A debate to introduce 5 per cent tax on the remittances over US$1,500 was revived even though the Central Bank and the Ministry of Finance had opposed such a proposal in the past. The total remittance outflows from Kuwait

55  Gulf Business. ‘ Kuwaiti MP reportedly receives ‘death threat’ for anti-expat remarks’, 18 September 2019, https://gulfbusiness.com/kuwaiti-mp-reportedly-receives-death-threatanti-expat-remarks/ 56  Gulf Business. ‘Kuwait’s education and health ministries to lay off hundreds of expats’, 26 September 2019, https://gulfbusiness.com/kuwaits-education-health-ministries-layoff-hundreds-expats/ 57  Aarti Nagraj. ‘Kuwait further hikes healthcare fees for expats’, Gulf Business, 17 April 2019, gulfbusiness.com/kuwait-hikes-healthcare-fees-expats/

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stood at US$15.08  billion and US$13.69  billion in 2016 and 2017, respectively.58 In another move, the Kuwaiti parliament scrapped an earlier approved plan to increase the number of holidays for the private sector workers from 30 to 35 days.59 Kuwait was mulling over a quota system for the expatriates to check the growth of communities that have become too large like the Indians, Bangladeshis, Egyptians and the Syrians, who constitute 50 per cent of nearly three million expatriate populations.60 Interestingly, the citizen population stands at 1.3 million, indicating the expatriate make up about 69.2 per cent of the total resident population in the Emirate. The Interior Ministry’s General Directorate of Residency has imposed a new ban on domestic workers coming from 27 countries; two of them are in Asia (Bhutan and Indonesia) and the rest belong to Africa.61 The ban also exists on the female workers in some of the Asian and African countries. Kuwait in the past has imposed or lifted ban on the recruitment of domestic workers from different countries depending upon the status of negotiations, agreements on labour issues or the demands of the domestic labour market. Kuwait City was ranked as the worst city in the world in 2019 for the expatriates, by Munich-based InterNations and it also has the world’s largest expatriate community with 3.5 million people.62 About 30,000 expatriates reportedly have left the country in 2019 due to the policy of nationalization of jobs and rationalizing the demographic balance.63 A 58  Shane McGinley. ‘Kuwait receives debate of 5% expat tax on remittances,’ Arabian Business, 12 May 2019, https://www.arabianbusiness.com/banking-finance/419756kuwait-revives-debate-of-5-expat-tax-on-remittances 59  Gulf Business. ‘Kuwait scraps ‘expat-friendly’ plan to increase private sector leave’, 17 April 2019, https://gulfbusiness.com/kuwait-scraps-expat-friendly-plan-increase-privatesector-leave/ 60  Gulf Business, ‘Kuwait mulls new quota system for expat communities—report’, 3 September 2019, https://gulfbusiness.com/kuwait-mulls-new-quota-system-expatcommunities-report/ 61  Zainab Mansoor. ‘Kuwait bans hiring of domestic workers from several countries’, Gulf Business, 4 December 2019, https://gulfbusiness.com/kuwait-bans-hiring-domesticworkers-several-countries/?utm_campaign=GB_Daily_Newsletter_04_12_2019&utm_ medium=email&utm_source=Eloqua 62  Sam Bridge. ‘Kuwait city named World’s worst city for expats to live, work’, Arabian Business, 3 December 2019, https://www.arabianbusiness.com/culture-society/434293kuwait-city-named-worlds-worst-city-for-expats-to-live-work 63  Bernd Debusmann Jr. ’30,000 expats leave Kuwait in first four days of May’, Arabian Business, 6 May 2019, https://www.arabianbusiness.com/politics-economics/ 419448-30000-expats-leave-kuwait-in-first-four-days-of-may

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total of 102,280 residency visas held by the expatriates were cancelled during 2015–18, leading to an increase in the number of apartments lying vacant, thereby putting pressure on the depressed real estate market.64 In another decision, Deputy Prime Minister and Interior Minister Khalid al-­ Jarrah al-Sabah increased the monthly salary required by the expatriates to sponsor family to KD 500 (US$1,645).65 External Sector: Petroleum and oil products constituted 82 per cent of the total export revenues in 2018. Table 5.5 shows the performance of the external sector during 2016–18. Oil revenues increased from US$37.8 billion in 2016 to US$59.6 billion in 2018. The non-oil exports increased by 38 per cent and re-exports by 31.4 per cent during the same period. The total proceeds from export of goods and services increased by 53 per cent against the backdrop of 57.5 per cent increase in the oil export revenues. The import of goods and services increased only by 15 per cent during 2016–18. The trade surplus consequently increased from about US$14 billion in 2016 to US$33 billion in 2018. The exports in 2018 comprised of petroleum and oil products (91 per cent), organic chemicals (3 per cent), plastics and articles thereof (1 per Table 5.5  Kuwait: External trade balance, 2016–18 (US$ million)

Oil and its products exports Non-oil exports Re-exports Total exports of goods and services Total imports of goods and service Trade balance

2016

2017

2018 (provisional) 

37,828.72 2,965.79 1,340.78 47,549.9 48,442.2 14,141.97

45,551.77 3,133.01 1,848.08 56,792.20 51,741.90 19,678.47

59,587.69 4,098.63 1,761.16 72,756.93 56,140.22 32,998.53

Sources: Central Statistical Bureau, Revised and Provisional Estimates of National Accounts 2016–18, https://www.csb.gov.kw/Pages/Statistics_en?ID=55&ParentCatID=3; CSB, Foreign Trade Statistics Third Quarter 2019, https://www.csb.gov.kw/Pages/Statistics_en?ID=38&ParentCatID=4

64  Gulf Business. ‘Apartments in Kuwait lie ‘vacant’ as expats leave the country—report’, 7 July 2019, https://gulfbusiness.com/apartments-in-kuwait-vacant-as-expats-leave-thecountry-report/ 65  InterNations. ‘The best and worst cities for expats in 2019’, 2019, https://www.internations.org/expat-insider/2019/the-best-and-worst-cities-for-expats-39894

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cent), vehicles parts and accessories (1 per cent).66 In the same year, imports included mechanical and electrical machinery (25 per cent), base metal and articles thereof (12 per cent), vehicles and associated parts(12 per cent), textiles and apparels (4 per cent), pearls, precious and semi-­ precious stones (4 per cent), live animal and animal products (4 per cent) and plastics, rubber and articles thereof (3 per cent). Table 5.6 shows the direction of the trade. The exports from Kuwait are dispersed to over 170 destinations, with no single country having a substantial share. About 90 per cent of the exports (including oil and its products) are classified under the “unspecified destination” category.67 Exports to the major destinations have increased in 2017–18, but exports to Saudi Arabia have consistently decreased. Exports to and imports from the Kuwait Free Trade zone were declining in the last few years to a near-­ zero value in 2019.68 Energy Sector: Kuwait has 6 per cent of the world’s oil reserves and is the fourth largest OPEC producer.69 The oil-rich Persian Gulf countries in the last few years have been investing to increase their refining capacities to export more value-added petroleum products. However, as shown in Table 5.7, Kuwait’s export of value-added petroleum products is less than one-third of its crude oil exports and this is partly due to bottlenecks Table 5.6  Kuwait: Direction of trade, 2018 Top five sources of imports

Top five export destinations

Top five trading partners

China (16.8) US (8.7) UAE (8.7) Japan (5.9) Germany (5.7)

India (1.6) China (1.3) Iraq (0.86) UAE (0.78) Saudi Arabia (0.77)

China (6.42) UAE (3.61) US (2.96) India (2.78) Saudi Arabia (2.40)

Source: CSB, Foreign Trade Statistics Third Quarter 2019, https://www.csb.gov.kw/Pages/Statistics_ en?ID=38&ParentCatID=4, International Trade Centre, Trade Statistics, http://www.intracen.org/itc/ market-info-tools/statistics-import-country-product/ 66  Kuwait, CSB, ‘Foreign Trade Statistics Third Quarter 2019’, (Table T6), https://www. csb.gov.kw/Pages/Statistics_en?ID=38&ParentCatID=4 67  Ibid. Table T8. 68  Ibid. 69  Organization of the Petroleum Exporting Countries (OPEC). “Kuwait: Facts and Figures,” Annual Statistical Bulletin, 2019, https://www.opec.org/opec_web/en/about_ us/165.htm

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Table 5.7  Kuwait: Energy reserves production, exports and imports, 2018

Crude oil (million barrels) Petroleum products (thousand barrel) Natural gas (bcm)

Reserves Production (per day)

Exports (per day)

Imports (tonnes)

101,500 2.7 – 891.3

2.05 630.4

– 64,833

1,784

–

2.5 million

17.74

Source: OPEC, Annual Statistical Bulletin 2019, https://www.opec.org/opec_web/en/about_us/165. htm; International Trade Centre, ‘List of Products Imported by Kuwait’, 27 Mineral Fuel, https://www. trademap.org/tradestat/Product_SelCountry_TS.aspx?nvpm=1%7c414%7c%7c%7c%7c27%7c%7c%7c4% 7c1%7c1%7c1%7c2%7c1%7c1%7c2%7c1

facing some of its projects. The Al-Zour refinery with a capacity of 650,000 b/d was slated to become functional in 2019 but is delayed until 2021 and perhaps beyond due to designing issues to reduce the fuel-oil output as per the imminent IMO restrictions on maritime fuel.70 The Clean Fuel Upgradation Project (CFP) scheduled to be completed in 2019 is delayed until 2020–21. After the closure of the aging Shuaiba refinery in 2017, Kuwait has only two refineries with a combined capacity of 736,000 b/d. The CFP was initiated in 2015 to boost refining capacity to 801,000  b/d while upgrading the production of transport fuels to Euro V specifications and almost eliminate the current fuel oil production, which is about 23 per cent by weight.71 As a result, the import of petroleum products has increased in recent years and in 2018, Kuwait imported 64,833 tonnes of petroleum products worth US$143.2 million to meet domestic consumption.72 In a rare development, the Oil Minister Khaled al-Fadhil was re-­ appointed to his position on 17 December 2019. Initially appointed in December 2018, he is poised to become the longest-serving oil minister of Kuwait in recent years.73 Since the dismissal of Ali al-Umair in November 2015, four oil ministers have been appointed, with term averaging less than a year. The frequent changes have hamstrung the state oil companies to develop a long-term plan towards enhancing production capacity and achieve the production targets of 3.65  mb/d by 2020 and led  to the  MEES. vol. 62 no.50, 13 December 2019, p. 9.  Ibid. 72  Ibid. 73  MEES. vol. 62 no.51/52, 20 December 2019, p. 3. 70 71

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downscaling of the production target to 3.1  mb/d. Even this became problematic and the average production for the first 11 months in 2019 was 2.68 mb/d. Production capacity in the giant Burgan oil field reportedly fell in 2019.74 Kuwait is building a US$3 billion LNG receiving terminal at Al-Zour Port in the south. At present, the Emirate is importing 2.5 million tonnes of LNG from BP, Shell and Qatar Petroleum.75 Most of the imported gas is used in power and petrochemical plants. Kuwait Authority for Partnership Projects (KAPP) offered 50 per cent shares in Shamal Azzour Al-Oula, the operator of Al-Zour North power and water plant to investors and was reported to be over-subscribed.76 The power plant constitutes 10 per cent of Kuwait’s installed power generation capacity and 20 per cent of the country’s installed desalination capacity. The Emirate is privatizing other power plants and is set to invite bid for advisory and valuation contracts for the North Shuaiba power plant with an estimated capacity of 270,000 cubic meters. However, KAPP has a poor track record in procuring public-private partnership (PPPs) and its integrated water and power project have suffered from protracted delays.77 Kuwait Institute for Scientific Research received a patent in the US in 2019 for designing a desalination plant of 30,000 litres per day capacity by reducing the hydraulic pressure needed for desalination of sea water.78 Social Issues The situation in Kuwait is relatively better when it comes to social opening and political participation. Media has more freedom in Kuwait compared to neighbouring Gulf monarchies. Kuwaiti women have enjoyed greater freedom in all walks of life. In December, Maryam al-Aqeel became the  Ibid.  Gulf News. ‘Kuwait signs long-term deal to import gas from Qatar’, 5 January 2020, https://gulfnews.com/business/kuwait-signs-long-term-deal-to-impor t-gasfrom-qatar-1.68818326 76  Sam Bridge. ‘Investors rush to buy shares in Kuwait power plant operator’, Arabian Business, 1 December 2019, https://www.arabianbusiness.com/energy/434709investors-rush-to-buy-shares-in-kuwait-power-plant-operator 77  Power Technology. ‘Kuwait power plant scheme faces challenges’, 13 March 2020, https://www.power-technology.com/comment/kuwait-power-plant-scheme-challenges/ 78  Arabian Business. ‘Kuwait scientists receive desalination patent in the US’, 4 September 2019, https://www.arabianbusiness.com/energy/427115-kuwait-scientists-receivedesalination-patent-in-the-us 74 75

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first female finance minister in the GCC countries and she also heads the country’s sovereign wealth fund.79 Kuwait has a high HDI score of 0.808 and ranks 57 among 189 countries as of 2019.80 It has a GDI score of 0.999 and GII score of 0.245. Nonetheless, dissent and free speech have limitations, especially when it comes to criticism of the Emir and the ruling family. The stateless Bidoon community estimated at 100,000 and the large migrant workers face rampant hardship as the laws are inherently discriminatory vis-à-vis these marginalized communities.81 According to the Human Rights Watch, the Bidoons, who “claim Kuwaiti nationality, continue to remain in legal limbo while the government addresses this longstanding issue largely through abuse and coercion.”82 The cases of harassment, exploitation and sexual abuse against domestic workers, especially women caregivers of Asian origin, have been rampant and led to huge diplomatic fallout with the Philippines in 2018 after a Filipina household worker was found to be murdered by her Syrian-­ Lebanese expatriate employers. Another case of the murder of a Filipina domestic worker came to light in May 2019.

Bilateral Ties Kuwait has remained out of the Indian radar when it comes to growing relations with the Persian Gulf countries. This has been puzzling because India and Kuwait have traditionally enjoyed friendly relations. The first and so far, the only high-level visit under the Modi government had to wait until October 2018 when External Affairs Minister Sushma Swaraj visited the Emirate. Kuwait is the only peaceful country in the region that Modi has not visited since coming to office in May 2014. The last visit by

79  Gulf Business. ‘New Kuwait Cabinet has GCC’s first female finance minister’, 17 December 2019, https://gulfbusiness.com/new-kuwait-cabinet-gccs-first-female-financeMinister/?utm_campaign=GB_Daily_Newsletter_18_12_2019&utm_medium= email&utm_source=Eloqua 80  United Nations Development Programme (UNDP). Human Development Reports (HDR). ‘Kuwait: Human development Indicators’, 2019, http://hdr.undp.org/en/countries/profiles/KWT 81  HRW. ‘Kuwait: Events of 2019’, 2019, https://www.hrw.org/world-report/2020/ country-chapters/kuwait 82  Ibid.

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an Indian prime minister to the Emirate took place in May 1981 when Kuwait hosted Indira Gandhi. Political Relations The only political engagement between India and Kuwait in 2019 was the visit of Minister of State of External Affairs V. Muraleedharan in September. He held talks with the Kuwaiti Minister of State for Economic Affairs and met with the Deputy Foreign Minister. The two sides exchanged views on various bilateral and regional issues.83 From the Kuwaiti side, a delegation led by President of the Kuwaiti Directorate-General of Civil Aviation Salman al-Salem al-Sabah visited India to participate in the Global Aviation Summit held in Mumbai in January.84 Despite the limited political contacts, the two countries enjoy good relations and have been working towards greater trade and commerce, cultural contacts and improved security and defence cooperation. Politically, New Delhi can look at Kuwait as an option for attracting Gulf investments into the country. The diplomatic efforts to attract tourists and students have been an ongoing process. In December, the Indian Embassy, in association with the India Tourism Office in Dubai, organized a tourism promotion event in the Emirate. The Indian mission in Kuwait has been doing trade-promotion roadshows in collaboration with state governments like Goa (in April) and Tamil Nadu (in June). In March, the Indian embassy “organized a two-day exhibition, ‘Best of Indian Healthcare Expo 2019’, which witnessed participation of over 20 exhibitors, including leading Indian hospitals and healthcare centres, alternative healthcare providers, wellness centres and prominent medical travel planners from various parts of India, showcasing India’s finest healthcare advancements.”85 Trade and Commerce India was Kuwait’s largest export destination and fourth largest trading partner in 2018 (Table 5.6), yet India was not among the top sources of 83  GoI.  MEA. ‘India-Kuwait Bilateral relations’, 31 January 2020, http://mea.gov.in/ Portal/ForeignRelation/Kuwait_January_2020.pdf 84  Ibid. 85  Ibid.

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imports for Kuwait. Its share in total Kuwaiti imports was about 5 per cent in 2018.86 India’s exports to Kuwait have been declining in the last three years, from US$1.5  billion in 2016–17 to US$1.3  billion in 2018–19 (Table 5.8). At the same time, India’s imports from Kuwait have increased from US$4.46 billion to US$7.43 billion during the same period. There has been an increase in bilateral trade from US$5.96 billion in 2016–17 to US$8.76 billion in 2018–19, primarily due to an increase in India’s import of crude oil. Table 5.9 shows India’s export composition to Kuwait. Most of the items in the apparel and textile categories registered negative growth rates except for human-made filaments, floor coverings and apparel and clothing. About seven items in the category of agricultural and edible items registered a negative rate of growth over the previous year, prominently sugar and sugar confectionaries, edible fruits and nuts. Table 5.10 shows the composition of India’s imports from Kuwait. There was a significant increase in the imports of item categories like aircraft part, spacecraft and parts thereof from Kuwait between April 2019 and January 2020 with a value of US$2.3 billion.87 Its imports in 2018–19 were Table 5.8  India-Kuwait bilateral trade, 2014–19 (US$ million) 2014–15 Total exports to Kuwait Per cent growth Per cent share in India’s total export Total imports from Kuwait Per cent growth Per cent share in India’s total imports Total bilateral trade with Kuwait Per cent growth Per cent share in India’s total trade

2015–16

2016–17

2017–18

2018–19

1,198.89 1,247.51 1,497.99 1,365.66 1,333.92 12.98 4.06 20.08 −8.83 -2.32 0.39 0.48 0.54 0.45 0.40 13,381.97 4,969.69 4,462.28 7,165.69 7,430.82 −21.99 −62.86 −10.21 60.58 3.70 2.99 1.30 1.16 1.54 1.45 14,580.85 6,217.21 5,960.27 8,531.34 8,764.74 −57.36 −4.13 43.14 2.74 1.92 0.97 0.90 1.11 1.04

Source: Department of Commerce, Government of India, Export Import Data Bank 86  Kuwait, CSB, ‘Foreign Trade Statistics Third Quarter 2019’ (Table T9), https://www. csb.gov.kw/Pages/Statistics_en?ID=38&ParentCatID=4 87  GoI. Ministry of Commerce. Export-Import Data Bank, 2019, https://commerce-app. gov.in/eidb/Icntcom.asp

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Table 5.9  Composition of India’s exports to Kuwait, 2018–19 (US$ million) HS code

Commodity

1 to 24 Agricultural and edible items 84 Mechanical equipment 72, 73 Iron and steel and articles there of 50 Apparels and textiles to 63 85 Electrical machinery and equipment, etc. 87 Vehicles other than tram, railways and parts 69 Ceramic products 71 Precious and semi-precious stone, etc. 29 Organic chemicals

Value 2018–19

Share in exports to Kuwait (in per cent)

Growth (in per cent)

438.97

32.90

22.5

140.19 136.92

10.51 10.26

−46.9 27.85

134.57

10.09

21

119.27

8.94

−3.38

74.1

5.54

38.43

39.23 29.41

2.94 2.20

−21.93 52.44

26.7

2

16.58

Source: Department of Commerce, Government of India, Export Import Data Bank

Table 5.10  Composition of India’s imports from Kuwait, 2018–19 (US$ million) HS code

Commodity

Value 2018–19

Share in imports from Kuwait (in per cent)

Growth (in per cent)

27

Mineral fuels, mineral oil and their distillates, etc. Plastics and articles thereof Organic chemicals

3,602.27

86.50

5

121.36 553.52

1.6 7.45

39 29

4.30 −26.5

Source: Department of Commerce, Government of India, Export Import Data Bank

insignificant at US$89.22 million. Kuwait is well integrated with the region through trade and investments and its future plans imply deeper integration. India needs to put more importance in building economic ties with Kuwaiti companies in their regional ventures as well as in third country projects like Kuwait-Japanese joint venture in Vietnam oil refineries.88 The Kuwaiti manufacturing base is very narrow. India needs to boost its exports to Kuwait and create a market for its goods and services for more 88  Business Insider. ‘Vietnam Signs $9 Billion Oil Refinery deal’, 27 January 2013, https:// www.businessinsider.in/stock-market/vietnam-signs-9-billion-oil-refinery-deal/articleshow/21415598.cms

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productive joint ventures. Kuwait has good appetite for overseas investments and has a net positive investment income from abroad (Table 5.1). Kuwaiti investment in India estimated at US$5 billion is largely through indirect portfolio investments89 and KIA have made about US$2 billion investments in India since 2017.90 About 10 per cent of the Kuwait’s total outward foreign investment is destined to India. However, the cumulative FDI from Kuwait in India has been miniscule at about US$73.11 million until December 2019, with precipitous decline since 2017 (Table 11.8). Important companies in Kuwait like the Al-Ghanim Group, KAPICO group, Agility Logistics, Kuwait Finance House and Global Investment House have a presence in India. Investments from Kuwait are a low-hanging fruit, which India needs to capitalize on. In the last two years, Indian EPC companies like Larson and Tubro, Sharpoorji Pallonji, Punj Lloyd, Essar and others have won EPC contracts worth US$6 billion.91 Energy Trade: India’s total bilateral trade with Kuwait touched US$14.6  billion in 2014–15, mostly because of higher imports of US$13.4 billion, primarily crude oil. The share of oil imports in the total imports from Kuwait has increased from 77.44 per cent in 2016–17 to 86.50 per cent in 2018–19 (Table 5.11). At the same time, the share of Table 5.11  India-Kuwait Oil Trade, 2016–19 (US$ million) 2016–17 Oil imports from Kuwait Share in India’s total oil imports (per cent) Share in India’s total imports from Kuwait (per cent) Export of petroleum products to Kuwait Share in India’s total petroleum products exports (per cent) Share in India’s total exports to Kuwait (per cent)

2017–18

2018–19

3,455.54 6,121.36 6,427.71 3.35 4.63 3.83 77.44 85.43 86.50 10.67 4.60 11.85 0.03 0.01 0.02 0.71

0.34

0.89

Source: Department of Commerce, Government of India, Export Import Data Bank

89  Dipanjan Roy Chaudhary. ‘India seeks Kuwaiti investments in infrastructure and power sectors’, The Economic Times, 30 June 2019, https://economictimes.indiatimes.com/news/ economy/foreign-trade/india-seeks-kuwaiti-investments-in-infrastructure-and-power-sectors/articleshow/70012684.cms?from=mdr 90  Hindustan Times. ‘Kuwait wealth fund eyes big investment in India’, 5 February 2019, https://www.hindustantimes.com/world-news/kuwait-wealth-fund-eyes-big-investmentin-india/story-tA6M3nbwlr4lRC1kKWQ0NJ.html 91   GoI, MEA, India-Kuwait Bilateral Relations, http://mea.gov.in/Portal/ ForeignRelation/Kuwait_January_2020.pdf

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Kuwait in India’s total oil imports has marginally declined from 4.63 per cent in 2017–18 to 3.83 per cent in 2018–19. Oil imports from Kuwait constituted 7.82 per cent of India’s total oil imports in 2014–16 and the Emirate was the fifth largest supplier of oil and oil products. India also exported petroleum products worth about US$11.85 million to Kuwait in 2018–19 (Table  5.11). Kuwait’s total imports of petroleum products have increased from US$123.4 million in 2016 to US$143.2 million in 2018 to cater to the increasing domestic need, but India’s share in this continues to be small. The discussion among the industry representatives was last held during the visit of Nasir al-Adsani, the CEO of the KPC, for the PETROTECH-2016 in New Delhi. There is a need to extend energy ties towards a comprehensive partnership in renewable energy, biofuels, energy conservation and efficiency. India’s ONGC-Teri Biotech limited had provided bio-remediation of oil spills sites in Kuwaiti oil fields.92 Expatriates As of December 2019, there are about 900,000 Indians in Kuwait.93 The share of Kuwait in India’s total inwards remittances in 2018–19 was about 5 per cent.94 In January 2019, the Government of India approved an MoU with Kuwait for cooperation on the recruitment of domestic workers. It “provides a structured framework for cooperation on domestic workers related matters and reflects the latest reforms in recruitment processes, their welfare and protection and various initiatives taken by both sides.”95 Under this ambit, India and Kuwait will form a Joint Committee to monitor the implementation of the framework. As a result, the employment of about 300,000 Indian domestic workers in Kuwait, of which about 90,000 are females, will be regulated as per the terms and conditions laid in the MoU. An important issue facing the expatriate workers rose out of the March 2018 Kuwaiti decision to allow the renewal of contracts of expatriate 92  ONGC Teri Biotech Limited, ‘Bioremediation of Oil Spill Site in Gujarat Oil Field in India (Western India)’, http://www.otbl.co.in/Bioremediation.php 93  Gulf Business. ‘Kuwait mulls new quota system for expat communities—report’. 94  Reserve Bank of India (RBI). https://www.rbi.org.in/script/BS_PressReleaseDisplay. aspx?prid=44722 95  GoI, MEA. ‘Question no.1163 MoU between India and Kuwait’, 28 November 2019, https://mea.gov.in/rajya-sabha.htm?dtl/32114/question+no1163+mou+between+india+ and+kuwait

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engineers only after their registration with Kuwait Society of Engineers and issuance of an NOC by them in this regard.96 This became a major concern for nearly 15,000 Indian engineers employed in the Emirate as some faced difficulties in obtaining the necessary documentation.97 The issue figured in the Indian parliament and in June, External Affairs Minister S.  Jaishankar informed the lawmakers that the issue had been raised at appropriate diplomatic and political forums and a delegation of the Ministry of Human Resource Development visited Kuwait to discuss the matter in March. In this regard, “An action plan was prepared by MHRD which, inter alia, envisages sharing of the list of National Assessment and Accreditation Council (NAAC) approved technical institutes as well as sharing of top 200 National Institutional Ranking Framework (NIRF) technical institutes/universities for last three years excluding NBA accredited institutes with concerned Kuwaiti authorities.”98 Challenges As in the past, Kuwait’s National Assembly continues to keep the monarchy and government on their toes, but this has not necessarily improved governance or democratization. The failure of Kuwaiti diplomacy to resolve the Qatari crisis and heal the GCC fault line has been a significant setback for Al-Sabah. Kuwait is facing the inevitable succession question over the poor health of Emir Sabah and Crown Prince Nawaf. Among the GCC countries, Kuwait has received the least Indian attention since Modi came to power in 2014. The impact is reflected in the dwindling bilateral trade and FDI. New Delhi’s approach is puzzling for observers since there are no apparent reasons for the neglect.

96  The Hindu BusinessLine. ‘Centre Promises help to Indian engineers in Kuwait’, 4 April 2018, thehindubusinessline.com/economy/centre-promises-help-to-indian-engineers-inkuwait/article23436989.ece 97  Kevin Mendosa. ‘Future of Indian Engineers at stake due to new Kuwait rule’, The Times of India, 13 October 2018, timesofindia.indiatimes.com/india/future-of-indian-engineersat-stake-due-to-new-kuwait-rule/articleshow/66194083.cms 98  GoI, MEA. ‘Starred Question no.70 residency related issues of engineers in Kuwait’, 27 June 2019, https://mea.gov.in/rajya-sabha.htm?dtl/31500/question+no70+residency+rel ated+issues+of+engineers+in+kuwait

CHAPTER 6

Oman

Key Information Ruling family: Al-Said; Ruler: Sultan Haitham Bin Tariq al-Said (since 11 January 2020); Crown Prince: Not nominated; National day: 18 November; Parliament: 83-member (including Chairman) nominated Majlis al-Dawla, 86-member elected Majlis al-Shoura; Last parliamentary election: 25 October 2019; Major group in parliament: NA; National carrier: Oman Air. Socio-economic Indicators Area: 309,500 sq. kms; Population: 4.8 million (UNDP, 2019); Native: 55 per cent; Expats: 45 per cent; Religious groups: Muslim 85.9 per cent (75 per cent Ibadi Muslim; 25 per cent Shia and Sunni); Christian 6.5 per cent; Hindu 5.5 per cent; Buddhist 0.8 per cent; Other 1.3 per cent; Youth: 18.26 per cent (2018 est.); Annual population growth rate: 3.4 per cent (World Bank, 2018); Life expectancy at birth: 77.6 years (UNDP, 2019); Major population groups: Arab, Baluchi, South Asian and African (distribution not available); Literacy rate (ages 15 and above): 96.1 per cent (UNDP, 2019); National currency: Oman Rial (OMR); GDP (current prices): US$79,276.72 million (World Bank, 2018); Foreign trade: Exports-US$41.7 billion; Imports-US$25.7 billion; (World Integrated trade solution); Military expenditure: 8.2 per © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_6

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cent of GDP (World Bank, 2018); Sovereign Wealth Fund: US$24.8 billion (SWF institute); Government debt: 47.5 per cent of Nominal GDP (CEIC, 2018); GNI per capita: US$37,039 (at 2011 PPP); GDP per capita: US$36,831 (at 2011 PPP) (UNDP, 2019); Oil reserves: 5.4 billion barrels; Gas reserves: 23.5 tcf (BP, 2018); HDI rank: 47/189 (UNDP, 2019); Infant mortality rate: 9.7 deaths/1,000 live birth (UNDP, 2019); UN Education Index: 0.732 (UNDP, 2019); Labour force: 2.7 million (UNDP, 2019); Unemployment rate: 3.1 per cent (UNDP, 2019); Urban population: 84.5 per cent (UNDP, 2019); Rate of urbanization: 5.25 per cent; Last national census: 2010; World Press Freedom Index rank: 132 out of 180 countries (RSF, 2019); Ease of Doing Business Rank: 68 out of 190 countries (World Bank, 2019); Corruption Perception Index Rank: 56 out of 180 countries (Transparency International, 2019); Foreign direct investment (inward): US$4,191 million (UNCTAD, 2019); Individual using Internet (per cent of population): 80.2 (UNDP, 2019); Net migration rate (per 1,000 population, 2015–20): 18.1 (UN World Population Prospects, 2019); Forest area (per cent of land area): 0 (UNDP, 2019); International tourism, number of arrivals: 2,301,000 (World Bank, 2018); Carbon dioxide emissions (tonnes per capita): 14.1 (UNDP, 2019); Gender Development Index: 0.943 (UNDP, 2019); Gender Inequality Index: 0.304 (UNDP, 2019); Global Terrorism Index: Rank 138 out of 163 countries (Vision of Humanity, 2019). India Related Indian Cultural Centre: NO; Number of Indians: 664,227 (October 2018, National Centre for Statistics and Information); Number of places of worship for Indians: 3 temples, 5 gurdwaras and 7 churches; Indian schools: 19; Indian banks: State Bank of India (1), Bank of Baroda (4); Currency exchange rate: 1 OMR = INR 196.54 (March 2020); Last visit to India by the ruler: Sultan Qaboos al-Said, April 1997; Last Indian prime minister to visit: Narendra Modi, February 2018. * * * India and Oman share a multi-dimensional and robust relationship encompassing trade, commerce, defence, security, political and diplomatic ties. The history of Indo-Oman ties goes back to ancient and medieval times

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because of the flourishing trade links between the coastal regions of Oman and Southwest India. After India’s independence, diplomatic relations were established in 1955 and the bilateral ties took off in the 1990s. Oman was the first Persian Gulf country to respond to India’s outreach after it embarked on economic liberalization in 1991. The bilateral ties were elevated to a strategic partnership in 2008 and Oman was among the first countries to reach out to the new government in India in 2014. Though delayed, Prime Minister Narendra Modi’s visit to Oman in February 2018 brought to light the warmth in ties. In December 2019, External Affairs Minister S. Jaishankar visited Muscat, the first after the re-election of the Modi government in May, underlining the importance India attaches to the Sultanate.

Domestic Developments Oman is one of the most stable countries not only in the Persian Gulf but the entire Middle East. Under Sultan Qaboos, who ruled for almost 50 years (July 1970–January 2020), the Sultanate overcame political and economic hurdles towards rapid progress and development. His leadership brought peace and stability to the country and prosperity to the people. Sultan Qaboos was also recognized and admired for his prudent foreign policy. In the highly contentious, conflict-ridden and divisive regional politics of the Middle East, the Sultan was able to maintain Oman’s strategic neutrality and independence.1 Political Developments Since 2014, the health condition of Sultan Qaboos became a major concern for the people of Oman and the wider region.2 Without a male heir to the throne, the most important political concern was to find a successor and ensure smooth succession. For his part, until the very end, Sultan Qaboos did not nominate or name his successor.3 This had led to 1  Hayder al-Khafaji. ‘The Sultanate of Oman and its policy of neutrality towards Iran’, Al-Bayan Centre, 24 February 2018, http://www.bayancenter.org/en/2018/02/1441/ 2  Vivian Nereim. ‘The Only Sultan I’ve ever known’, Foreign Policy, 13 November 2014, https://foreignpolicy.com/2014/11/13/the-only-sultan-ive-ever-known/ 3  Betham McKernan. ‘Sultan of Oman dies and is succeeded by cousin’, The Guardian, 11 January 2020, https://www.theguardian.com/world/2020/jan/11/sultan-of-oman-diesstate-media-announces

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speculations, mainly by the regional and international media, about prominent younger family members of the Qaboos family. There were concerns over internal rivalry among different branches of the Al-Said family for the mantle. In the end, the speculations were dispelled as the accession of the new Sultan, Haitham Bin Tariq al-Said, a first cousin of Sultan Qaboos, was handled with poise and dignity after the Sultan’s demise on 10 January 2020. Despite his deteriorating health conditions, Sultan Qaboos remained in control of the political situation until the end and managed the succession issue with sagacity. As per his plan, which became public knowledge in 2018, if the family council fails to arrive at a consensus, it should access the name of his nominee left in a sealed cover.4 However, the family council chose to open the sealed letter before nominating Haitham, Minister of Heritage and Culture since 2002, who was named by Sultan Qaboos.5 Since achieving independence in 1971, Oman follows a closed political system, but Sultan Qaboos had adopted an incremental process of political participation since the 1990s. The bicameral Majlis, the consultative council, has a nominated upper house of 83-member Majlis al-Dawla (State Council) and an 86-member elected lower house Majlis al-Shura (Consultative Council). Oman has been holding elections to choose members of the municipal councils. The last municipal elections were held in December 2016 and the four-year term of the elected Majlis al-Shura came to an end in 2019. Fresh elections for the 86-member (the number of elected members was increased from 85 in 2015 to 86 in 2019) were held on 27 October.6 This was the fourth election since the first one, which was held in 2007. In the latest elections, a total of 767 candidates, including 43 women, had filed their nominations.7 Since Oman does not allow political parties or organizations, all the candidates contested as independents. The number of candidates was marginally more than the 596 who had contested 4  Patrick Wintour. ‘Oman readies baroque succession process as Sultan’s health worsens’, The Guardian, 22 December 2019, https://www.theguardian.com/world/2019/dec/22/ oman-readies-baroque-succession-process-as-sultans-health-worsens 5  McKernan. ‘Sultan of Oman dies and is succeeded by cousin’. 6  Times of Oman. ‘Final results of elections declared in Oman’, 28 October 2019, https:// timesofoman.com/article/2133914/oman/final-results-of-elections-declared-in-oman 7  Times of Oman. ‘Voters in Oman to get official leave on Shura election day’, 22 October 2019, https://timesofoman.com/article/2105176/oman/government/voters-in-omanto-get-official-leave-on-shura-election-day

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the 2015 elections. The number of women candidates doubled to 40 from 20  in the previous election.8 A total of 713,335 citizens  (375,801 men and 337,534 women) were eligible to vote, an increase from 611,906 eligible ones in 2015.9 The total voter turnout was 349,680 which comprise 49.02 per cent of the total eligible voters10 and was lesser than the 56.66 per cent voter turnout in 2015.11 In the results announced by the Interior Ministry on 29 October, 84 men and two women were declared elected.12 On 4 November, the outgoing president of the Majlis al-Shura, Khalid Bin Hilal al-Mawali, was re-elected for a third term. On 8 November, Sultan Qaboos appointed the 83 members of the Majlis al-­ Dawla, including 15 women.13 Foreign Policy Oman has been pursuing an active and independent foreign policy under Sultan Qaboos. Muscat was recognized as one of the most reliable go-­ betweens in intra-Gulf disputes. Oman has been a significant interlocutor in the disputes between Iran and the GCC states. The role Sultan Qaboos played in facilitating secret talks between Iran and the Obama Administration eventually culminated in the historic Joint Comprehensive Plan of Action (JCPOA) in June 2015.14 However, in the increasingly contentious regional politics, even Oman found it challenging to create a conducive atmosphere for resolving regional crises or lowering tensions over the continued boycott of Qatar, the civil war in Yemen and the rising tensions between Iran and the US.15 Increasingly, Oman has been more open to dealing with Israel. Historically, Muscat never shared the regional animosity towards Israel, 8  Inter-Parliamentary Union. ‘Oman-Majlis A’ Shura (Consultative Council)’, http:// archive.ipu.org/parline-e/reports/2378_E.htm 9  Times of Oman. ‘Voters in Oman to get official leave on Shura election day’. 10  Times of Oman. ‘Final results of elections declared in Oman’, 28 October 2019, https:// timesofoman.com/article/2133914/oman/final-results-of-elections-declared-in-oman 11  Inter-Parliamentary Union. ‘Oman-Majlis A’ Shura’. 12  Ibid. 13  Merza al-Khuwaldi. ‘15 Women in New Omani State Council’, Asharq al-Awsat, 8 November 2019, https://aawsat.com/english/home/article/1981786/15-women-newomani-state-council 14  Marral Shamshiri-Fard. ‘Why Oman loves Iran’, Foreign Policy, 16 January 2020, https://foreignpolicy.com/2020/01/16/sultan-qaboos-oman-loves-iran-shah/ 15  For details, see Persian Gulf 2019, pp. 139–140.

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especially over the Camp David Accord of 1979. In line with this pattern, Sultan Qaboos hosted Israeli Prime Minister Benjamin Netanyahu in Muscat in October 2018 but the public announcement was made only after the Israeli leader left Oman. The following month, Israeli Transport Minister Israel Katz travelled to the Sultanate to discuss the feasibility of a transnational railway to connect Arab Gulf states with Israel through Jordan.16 As part of its push to make the Middle East peace plan depicted by some as ‘Deal of the Century,’ the White House was seeking support and endorsement from Oman. To discuss the possibilities, President Trump’s advisor and son-in-law, Jared Kushner, along with Jason Greenblatt—the then Special Representative for International Negotiations—travelled to Muscat in February 2019 and met with Sultan Qaboos.17 Brian Hook, the US State Department’s special representative for Iran, also accompanied the team to discuss Washington’s policy towards Iran.18 Economic Situation Despite Oman’s smaller oil resource as compared to the other GCC countries, its economic growth remains strongly linked to the oil sector and the oil and gas revenues. The economic growth rates had been dismal in 2019 with lower oil and gas revenues. There has been negative growth in oil and non-oil GDPs in the third quarter of 2019 over that in 2018 and the GDP growth rate was −2.6 per cent.19 The total GDP at current prices was about US$79.25 billion in 2018 against US$70.57 billion in 2017, with 12.3 per cent growth rate but the growth of the non-oil GDP was only 2.27 per cent (Table 6.1). In 2018, the shares of the industrial and service sectors were about 18.89 per cent and 46.86 per cent, respectively. The oil sector was about 16  The Times of Israel. ‘Transport chief to visit Oman to push rail link plan between Israel and Gulf’, 5 November 2018, https://www.timesofisrael.com/transportation-minister-setfor-rare-visit-to-oman-to-present-regional-rail-plan/ 17  US Embassy in Oman. ‘Readout of meeting between Administration Officials and Sultan Qaboos bin Said al Said’, 26 February 2019, https://om.usembassy.gov/readout-ofmeeting-between-administration-officials-and-sultan-qaboos-bin-said-al-said/ 18  Ibid. 19  Sultanate of Oman. National Information for Statistics & Information (NISI), Monthly Statistical Bulletin. March 2020, vol 31, p.  4, https://www.ncsi.gov.om/Elibrary/ LibraryContentDoc/bar_March%202020_0f7a0628-f2e1-42f2-8ed1-ca22b5bc72c3.pdf

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Table 6.1  Oman: Oil and non-oil GDP, 2016–18 (US$ million)

GDP (at current prices) Oil GDP Non-oil GDP

2016

2017

2018 (provisional)

65,460.98 (−4.3) 17,791.54 (−22.9) 48,159.28 (1.7)

70,576.74 (7.81) 20,986.16 (20.1) 52,492.96 (4.0)

79,253 (12.3) 28,680.86 (36.67) 53,686.36 (2.27)

Figures in the bracket are per cent growth over the previous year Sources: National Information for Statistics & Information, Oman, Monthly Statistical Bulletin March 2020, https://www.ncsi.gov.om/Elibrary/LibraryContentDoc/bar_March%202020_0f7a0628-f2e142f2-8ed1-ca22b5bc72c3.pdf; Monthly Statistical Bulletin September 2018, https://www.ncsi.gov.om/ Elibrary/LibraryContentDoc/bar_bar_bar_SEPT2019_291249d3-0897-427b-b1f6-2a5c9624af44.pdf

Table 6.2  Oman: Sector-wise contribution to the GDP and growth rates, 2018 Economic activity

Share in the GDP (per cent)

Y-o-y growth rates (end of September 2018–19)

Industrial activities (includes refining) Public administration and defence Wholesale and retail trade Construction Financial services Transport and communications Non-oil sector Total services Oil sector

18.89

−6.5

11.96

−1.8

8 6.31 6.22 5.48 64 46.86 36

−6.0 −5.8 1.6 −2.4 −2.1 −0.8 −2.9

Source: National Information for Statistics & Information, Monthly Statistical Bulletin, March 2020, https://www.ncsi.gov.om/elibrary/librarycontentdoc/bar_march%202020_0f7a0628-f2e1-42f2-8ed1ca22b5bc72c3.pdf

36 per cent of the GDP, but its negative growth had led to the negative growth of many sectors of the non-oil economy (Table 6.2). To diversify the economy, the Ninth Development Plan (2016–20) focused on logistics, manufacturing, tourism, fisheries and mining. Sohar, 200 kilometres west of Muscat, is one of the largest industrial complexes in the Middle East. Duqm has a special economic zone. The Raysut

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industrial city attracted about US$1 billion in investment in 2019.20 The master plan for mega Khazaen Economic City was approved and the first construction project worth US$24 million was awarded in 2019. It is the largest public-private-partnership project that is coming up in Baraka, north of Muscat.21 The first phase will include Oman’s first dry dock, free zone, logistic, industrial, residential, commercial and entertainment complexes.22 To ease the business operations and to facilitate business liquidation, Oman plans new bankruptcy laws that would come into force from 1 July 2020 and facilitates the restructuring of the debts.23 It also hosted the Middle East and North Africa Innovation Summit in September 2019 to follow the examples of its neighbours towards boosting venture capital funding and tech start-ups.24 In the service sector, two new ministries were created during 2019, namely, the Ministry of Technology and Communications and Ministry of Art Affairs.25 The former would replace Information Technology Authority and take over the telecom policies and legislation of the Ministry of Transport and Communications.26 Omantel and Ooredoo were the two

20  Sam Bridge, ‘Over $1bn investments attracted to Oman industrial city’, Arabian Business, 31 August 2019, https://www.arabianbusiness.com/banking-finance/426073over-1bn-investments-attracted-to-oman-industrial-city 21  Aarti Nagraj. ‘Construction contract worth $24m awarded for Oman’s mega Khazaen project’, Gulf Business, 28 August 2019, https://gulfbusiness.com/ construction-contract-worth-24m-awarded-omans-mega-khazaen-project/?utm_ campaign=GB_Daily_Newsletter_28_08_2019&utm_medium=email&utm_source=Eloqua 22  Aarti Nagraj. ‘Pics: Masterplan approved for first phase of Oman’s mega economic city Khazaen’, Gulf Business, 16 July 2019, https://gulfbusiness.com/pics-masterplanapproved-first-phase-omans-mega-economic-city-khazaen/?utm_campaign=GB_Daily_ Newsletter_20_07_2019&utm_medium=email&utm_source=Eloqua 23  Bernd Debusmann Jr. ‘Oman to introduce new bankruptcy regulations in 2020’, Arabian Business, 20 October 2019, https://www.arabianbusiness.com/politicseconomics/430903-oman-to-introduce-new-bankruptcy-regulations-in-2020Omansetups 24  Times of Oman. ‘Middle East, African nations to come to Oman for MENA Innovation summit’, 8 September 2019, https://timesofoman.com/article/1890928/oman/government/middle-east-african-nations-to-come-to-oman-for-mena-innovation-summit 25  Gavin Gibbon. ‘Oman sets up two ministries’, Arabian Business, 15 October 2019, https://www.arabianbusiness.com/politics-economics/430468-oman-sets-up-twonew-ministries 26  Ibid.

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mobile operators providing telecom services in Oman and in 2019, Vodaphone became the third telecom service provider.27 New tax exemptions were given to tourism-related projects in the Musandam Governorate.28 In the aviation sector, Oman Aviation Group, which includes Oman Air, Oman Airports and Oman Aviation Services, aimed to raise US$6 billion to finance the expansion of state-owned Oman Air and Oman Airports by 2030. The Sultanate issued a request for proposals from local and international banks.29 It also launched new destinations for its low-cost air carrier Salam Air.30 Despite all diversification efforts, the economic stimulus remains heavily dependent on oil revenues which constituted 76.23 per cent of total government revenues in 2019 (Table  6.3) as against 68.2 per cent in 2016.31 The oil and gas revenues fell by 7.37 per cent in 2019 over the previous year, while the non-oil revenues marginally increased by 3.85 per cent. Total government revenues were US$27.07 billion in 2019 against US$28.47 billion in 2018. The total government expenditure fell in 2019 by 3.94 per cent; it was US$33.97 billion in 2019 as against US$35.36 billion a year earlier. The current expenditure was about 64.62 per cent, while the capital expenditure was 35.38 per cent in 2019. There were expectations that the revenue for 2019 would touch US$30.2 billion32 up from US$28.47 billion a year earlier. The budgetary deficits declined by 53 per cent in the first half of 2019, the lowest level in

27  Ben Mack. ‘Vodafone launching mobile network in Oman’, Gulf Business, 5 September 2019, https://gulfbusiness.com/vodafone-launching-mobile-network-in-oman/?utm_ campaign=GB_Daily_Newsletter_06_09_2019&utm_medium=email&utm_ source=Eloqua 28  Sam Bridge. ‘Oman ruler reveals tax breaks to boost Musandam tourism’, Arabian Business, 19 June 2019 https://www.arabianbusiness.com/travel-hospitality/422448oman-ruler-reveals-tax-breaks-to-boost-musandam-tourism 29  Gulf Business. ‘Oman aviation seeks up to $6bn to finance airline, airport expansion’, 23 April 2019, https://gulfbusiness.com/oman-aviation-seeks-6bn-finance-airline-airportexpansion/ 30  Aidana Yergaliyeva. ‘Salam Air to open direct flights between Omani capital and Almaty, Nur-Sultan’, The Astana Times, 18 October 2019, https://astanatimes.com/2019/10/ salam-air-to-open-direct-flights-between-omani-capital-and-almaty-nur-sultan/ 31  Oman. NISI. Monthly Statistical Bulletin. March 2020, vol 31, p. 38, https://www.ncsi. gov.om/Elibrary/LibraryContentDoc/bar_March%202020_0f7a0628-f2e1-42f2-8ed1ca22b5bc72c3.pdf 32  MEES, vol. 62 no. 48, 29 November 2019, p. 12

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Table 6.3  Oman: Public finance, 2018–19 (US$ million) Projected in budget 2018

Actual 2018

Projected in budget 2019

Actual 2019

Oil and gas revenuesa

17,628

22,274.72

19,357

Other revenues

7,072

6,194.24

6,903

Total government revenues Total government expenditure Surplus/deficit

24,700

28,468.96

26,260

32,500

35,357.92

31,525

−7,800

−6,899.1

7,280

20,633.6 (−7.36) 6,432.66 (3.85) 27,066.26 (−4.92) 33,965.36 (3.94) −6,888.96 (−0.15)

Source: National Information for Statistics & Information, Oman, Monthly Statistical Bulletin March 2020, https://www.ncsi.gov.om/Elibrary/LibraryContentDoc/bar_March%202020_0f7a0628f2e1-42f2-8ed1-ca22b5bc72c3.pdf; Ministry of Finance, State’s General Budgets, 2019, 2018, https:// www.mof.gov.om Figures in the bracket are annual rate of growth over the previous year; aNet of transfer to the reserve fund

the last five years.33 However, the revenues from the crude oil exports have been depressed throughout the year, as the average official selling price of oil had been US$63.58 per barrel in 2019 against the US$69.66 reached in 2018.34 The year ended with a deficit of US$6.88 billion, almost the same level as 2018. Oman made the first foray into the international market by issuing US$3 billion bonds.35 The government debts increased to US$49 billion, equivalent to 58.1 per cent of GDP. In the last few years, Oman has managed to boost revenues by LNG exports. The slugging economic growth and high unemployment compelled Oman to delay imposing VAT, though no date has been officially given but plans are for 2021.36 In line with the other GCC countries’ taxes on 33  Bernd Debusmann Jr. ‘Oman’s budget deficit drops to lowest in 5 years’, Arabian Business, 26 August 2019, https://www.arabianbusiness.com/politics-economics/426533omans-budget-deficit-drops-to-lowest-in-5-years 34  MEES, vol. 62 no. 48, 29 November 2019, p. 12. 35  Gulf Business. ‘Oman issues $3bn bonds in its first foray in the international debt markets this year’, 28 July 2019, https://gulfbusiness.com/oman-issues-3bn-bonds-first-forayinternational-debt-markets-year/?utm_campaign=GB_Daily_Newsletter_28_07_ 2019&utm_medium=email&utm_source=Eloqua 36  Gulf Business. ‘Oman says on track to implement VAT’, 1 August 2019, https://gulfbusiness.com/oman-says-track-implement-vat/

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unhealthy products, it levied 100 per cent excise taxes on tobacco, alcohol, pork meat and energy drinks and 50 per cent tax on carbonated beverages with effect from June 2019.37 Besides generating economic growth, Oman had to tackle rising unemployment; the jobless rate among the Omani nationals increased to 26.5 per cent in 2019–20. The national unemployment rate by the end of February 2020 was 3.7 per cent, while it was 13.2 per cent for the females. The unemployment rates were the highest among university graduates and in the age group of 15–30 years. Nation-wide protests broke out on 1 January 2019 in Dhofar, Salalah and Muscat over the growing employment situation and demand for more jobs.38 Similar protests had taken place a year earlier.39 The government responded by establishing a National Centre for Employment (NCE) that would come into effect from 1 January 2020 towards replacing the expatriate workforce with the Omani nationals.40 The Omanization of the labour force in recent years has yielded limited results, partly because the nationals are reluctant to take up the unskilled and semi-skilled jobs in the private sector. Table  6.4 shows that the employment of the Omanis had increased by 18,263 in the private sector in 2016–18. About 30 per cent of the expatriate workers in the private sector are employed in the construction sector; 14 per cent were employed in household activities; 14 per cent in the wholesale retail and repair activities; and 12 per cent in the manufacturing sector in 2019.41 Only about 9.64 per cent of the expatriate employees in the private sector were executives and professionals. Fee has been levied on the practitioners in the health sector for the renewal of their licenses and other services offered by

37  Aarti Nagraj. ‘Oman to levy 100% tax on tobacco, alcohol, energy drinks from June 15’, Gulf Business, 9 June 2019, https://gulfbusiness.com/oman-levy-100-tax-tobacco-alcoholenergy-drinks-june-15/ 38  Middle East Eye. ‘Omani government promises to address unemployment after nationwide protests’, 3 January 2019, https://www.middleeasteye.net/news/omani-governmentpromises-address-unemployment-after-nationwide-protests 39  Ibid. 40  Bernd Debusmann Jr. ‘Oman to establish Nation centre for Employment’, Arabian Business, 3 March 2019, https://www.arabianbusiness.com/politics-economics/414486oman-to-establish-national-centre-for-employment 41  Oman. NISI, Monthly Statistical Bulletin. March 2020, vol 31, p. 22, https://www.ncsi. gov.om/Elibrary/LibraryContentDoc/bar_March%202020_0f7a0628-f2e1-42f2-8ed1ca22b5bc72c3.pdf

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Table 6.4  Oman: Employment structure in the government and private sector, 2016–18

Omanis in government sector Expatriates in government sector Total government sector employment Omanis in private sector Expatriates in private sector Total private sector employment Family sector (expatriates)

2016

2017

2018

195,937 37,624 233,561 233,869 1,504,936 1,738,805 283,043

195,680 36,383 232,063 238,688 1,502,808 1,741,496 292,881

195,810 35,783 231,590 252,132 1,504,936 1,757,068 294,560

Source: National Information for Statistics & Information, Oman, Monthly Statistical Bulletin March 2020, https://www.ncsi.gov.om/elibrary/librarycontentdoc/bar_march%202020_0f7a0628f2e1-42f2-8ed1-ca22b5bc72c3.pdf

the Ministry of Health.42 The fees paid by the non-Omanis is much higher (at times double) than those paid by the Omanis. To combat growing unemployment, in 2018, a series of bans were placed on the recruitment of expatriates in several sectors.43 Consequently, according to the National Centre for Statistics and Information, a total of 60,807 expatriates left the workforce between December 2017 and November 2018. A ban of six months was imposed in 2019 on the private entities from hiring expatriates in the construction and cleaning jobs.44 Despite these measures, about 2,200 Omani citizens reportedly lost their jobs from about 18 main companies in 2019.45

42  Zainab Mansoor. ‘Oman levies service fee on healthcare professionals’, Gulf Business, 17 November 2019, https://gulfbusiness.com/oman-levies-service-fee-healthcareprofessionals/?utm_campaign=GB_Daily_Newsletter_18_11_2019&utm_medium= email&utm_source=Eloqua 43  Gulf Business. ‘Oman sees unemployment among citizens falls after expat hiring bans’, 5 December 2018, https://gulfbusiness.com/oman-sees-unemployment-among-citizens-fallexpat-hiring-bans/ 44  Zainab Mansoor. ‘Oman bans work visas for expats in certain sectors’, Gulf Business, 12 November 2019, https://gulfbusiness.com/oman-bans-work-visas-for-expats/?utm_ campaign=GB_Daily_Newsletter_13_11_2019&utm_medium=email&utm_source=Eloqua 45  Zainab Mansoor. ‘More than 2,200 Omanis lost their Jobs in 2019’, Gulf Business, 3 December 2019, https://gulfbusiness.com/2200-omanis-lost-jobs-2019/?utm_campaign= GB_Daily_Newsletter_04_12_2019&utm_medium=email&utm_source=Eloqua

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External Sector: The oil and gas constituted about 68.4 per cent of the total merchandise exports in 2019. The total oil and gas export revenues declined by 2.8 per cent by the end of December 2019 over the previous year. These revenues declined from US$27.27 billion in 2018 to US$26.48 billion in 2019 (Table 6.5). The Sultanate exported about US$4.46 billion worth of LNG in 2019.46 The total non-oil exports and re-exports declined over the previous year. The imports had been increasing over the years but fell in 2019. The total merchandise imports declined by 8.8 per cent at the end of December 2019 over the same period a year earlier. About 28–29 per cent of the total imports by value came by road from the neighbouring countries47 and  Oman posted a positive trade balance in 2017–18 (Table 6.5). The main composition of non-oil exports comprised organic chemicals (4.20 per cent), iron and steel (4.1 per cent), plastic and articles thereof (2.5 per cent), among others. The main import categories are machinery Table 6.5  Oman: External trade, 2016–19 (US$ million)

Oil and its products exports Non-oil exports Re-exports Total merchandise exports Total export of goods and services Total imports of goods and services Net trade balance

2016

2017

2018

2019 (provisional)

15,493.33 8,961.38 – 24,454.71 31,038.28 (−20.6) 31,200.26 (−15.1) −161.98

20,963.24 7,984.05 5,485.06 28,947.29 36,952.76 (19.1) 34,949.98 (12) 2,002.78

27,265.42 9,690.98 4,792.06 41,748.46 46,171.84 (24.49) 35,286.94 (1) 10,884.9

26,488.54 8,416.46 3,806.92 38,711.92 – 23,499.58* (8) –

*Merchentile exports Sources: National Information for Statistics & Information, Oman, Monthly Statistical Bulletin March 2020, https://www.ncsi.gov.om/Elibrary/LibraryContentDoc/bar_March%202020_0f7a0628-f2e142f2-8ed1-ca22b5bc72c3.pdf; National Information for Statistics & Information, National Accounts 2018, https://www.ncsi.gov.om/Elibrary/LibraryContentDoc/bar_National%20accounts_f8822999-8 df7-4126-9e7e-718ff13253f0.pdf

46  Oman. NISI, Monthly Statistical Bulletin March 2020, vol 31, pp. 6–7, https://www. n c s i . g o v. o m / E l i b r a r y / L i b r a r y C o n t e n t D o c / b a r _ M a r c h % 2 0 2 0 2 0 _ 0 f 7 a 0 6 2 8 f2e1-42f2-8ed1-ca22b5bc72c3.pdf 47  Ibid.

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(mechanical and electrical) (21 per cent), vehicles and parts thereof (11.3 per cent), mineral fuels (7.1 per cent), aircraft and parts thereof (5.45 per cent) and articles of iron and steel (5.45 per cent). Table 6.6 shows the direction of trade and the dominant share of countries in the Persian Gulf in Oman’s non-oil exports and re-exports. China is the largest source of imports for Oman. While the total imports from China and the UAE declined in 2019, those from India and the US marginally increased and that from Japan increased significantly.48 The total foreign exchange reserves (gold, reserves with IMF, asset abroad and securities) as of January 2020 was about US$16.34 billion, which declined from US$19.5 billion registered in January 2018.49 Using the latest financial transactional mode, Oman Oil and Orpic group, along with HSBC Bank Oman, executed the first blockchain trade finance transaction in the country in 2019.50 Table 6.6  Oman: Direction of trade, 2019 Top five oil export destination

Top five non-oil export destination (2019)

Top five re-export destination (2019)

Top five sources of imports (2019)

China (78.41) Japan (7.51) India (4.76) South Korea (3.39) –

UAE (18.77) Saudi Arabia (18.05) India (9.94) China (6.77)

UAE (29.38) Qatar (22.21) Iran (14.78) US (3.17)

China (13.90) UAE (12.16) US (8.85) India (8)

Qatar (6.70)

UK (3.14)

Japan (6.61)

Figures in the bracket are share in per cent Sources: National Information for Statistics & Information, Oman, Monthly Statistical Bulletin March 2020, https://www.ncsi.gov.om/Elibrary/LibraryContentDoc/bar_March%202020_0f7a0628-f2e142f2-8ed1-ca22b5bc72c3.pdf

 Ibid.  Central Bank of Oman, Monthly Statistical Bulletin, January 2020, p. 6, https://cbo. gov.om/sites/assets/Documents/English/Publications/MonthlyBulletins/ MonthlyStatisticalBulletinJan2020.pdf 50  Zainab Mansoor. ‘Oman’s ‘first’ blockchain trade deal conducted’, Gulf Business, 20 November 2019, https://gulfbusiness.com/omans-first-blockchain-trade-deal-conducted/ 48 49

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Energy Sector: Oman has limited proven oil reserves of 5.4 billion barrels (by the end of 2018), which is 0.3 per cent of the global reserves.51 Its oil production was about 970,000 b/d and exports 850,000 b/d in 2019 (Table 6.7). The production of refined oil products has also been limited at 204,000 b/d. Oman has proven gas reserves of 11.73 tcf.52 The Sultanate has LNG complex in Qalhat from which it exported 10 million tonnes in 2018. It is currently offering 52 LNG cargoes for exports for 2021–25.53 It is among the top ten global LNG exporters and had increased the number of cargoes available in the spot market in 2019.54 It has several long-term LNG supply contracts with South Korea and Spain.55 Oman is ramping up the exploration and production of gas from the field discovered in 2018.56 It had signed an exploration and production sharing agreement with Total and Occidental Oman. Italy’s ENI and Table 6.7  Oman: Energy production and trade, 2016–19

Crude oil production (thousand b/d) Crude oil exports (thousand b/d) Petroleum products production thousand b/d) Mineral fuel imports* (thousand tonnes) Natural gas production (mcm/d)

2016

2017

2018

September 2019

1,004.3 880 127 727 3,960

971 806 130 533 3,966

978 793 214 633 3,794

970.94 850 204 – 3,600

*International Trade Centre, List of Products Imported by Oman, 27 Mineral Fuel, https://www.trademap.org/tradestat/Product_SelCountry_TS.aspx?nvpm=1%7c512%7c%7c%7c%7c27%7c%7c%7c4%7c1% 7c1%7c1%7c2%7c1%7c1%7c1%7c1 Sources: National Information for Statistics & Information, Oman, Monthly Statistical Bulletin March 2020, https://www.ncsi.gov.om/Elibrary/LibraryContentDoc/bar_March%202020_0f7a0628-f2e142f2-8ed1-ca22b5bc72c3.pdf; National Information for Statistics &Information, Data Portal, Oil and Gas, https://data.gov.om/OMOLGS2016/oil-and-gas

51  British Petroleum. BP Statistical Review of World Energy, 2019, 68th Edition, https:// www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2019-full-report.pdf 52   Gas Exporting Countries Forum (GECF). ‘Oman’, https://www.gecf.org/countries/oman 53  MEES, vol. 62 no.50, 13 December 2019, p.6. 54  Gulf Business. ‘Oman increases spot market LNG sales as production rises’, 2 June 2019, https://gulfbusiness.com/oman-increases-spot-market-lng-sales-production-rises/ 55  Ibid. 56  Dania Sadi. ‘Interview: Oman expects to discover more gas amid $20billion of projects’, S&P Global, 25 July 2019, https://www.spglobal.com/platts/en/market-insights/latestnews/natural-gas/072519-interview-oman-expects-to-discover-more-gas-amid-20-bilof-projects

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British Petroleum had entered into a gas exploration and production sharing agreement with the government.57 Chinese CNPC contract (since 2002) in the aging Omani oil field (Block 5) was extended for 15 years in 2019.58 The other significant development included the merger of state-­ owned Oman Oil (OOC) and Oman Oil Refineries and Petroleum (ORPIC) and the launch on 17 December of a new brand OQ under which the companies and their subsidiaries would operate.59 After the merger, OQ would offer 20–25 per cent of the shares to private investors in 2020 and would become the second state-backed oil company in the GCC to be publicly listed after Saudi ARAMCO.60 To infuse new capital and technology in the power sector, state-owned Oman Electricity Transmission Company (OETC) signed an agreement to sell 49 per cent of its shares to the State Grid Corporation of China for US$1 billion. The State Grid is the largest transmission company in the world with overseas assets in the Philippines, Portugal, Italy, Brazil and Greece.61 Noteworthy strides were made with the region’s first large-scale 50 MW wind farm project at Dhofar that became operational in 2019.62 It has been developed by the Emirati Masdar-led consortium that includes GE of the US and TSK of Spain and with full funding from Abu Dhabi Fund for Development. It is a 13-turbine project and the first turbine had been installed.63 ACWA Power (Saudi Arabia) and Gulf Investment Corporation (Kuwait) and Alternative Energy Project Company had won 57  Sam Bridge. ‘Energy giants Eni, BP ink Oman gas exploration deal’, Arabian Business, 1 August 2019, https://www.arabianbusiness.com/energy/425173-energy-giants-eni-bpink-oman-gas-exploration-deal 58  Gulf Oil and Gas. ‘Bp & Eni sign exploration Agreement in Oman’, 31 July 2019, https://www.gulfoilandgas.com/webpro1/MAIN/Mainnews.asp?utm_source= gognewsletter&utm_medium=email&utm_campaign=vol20191732_01&id3=324570 9&id=70234 59  MEES, vol. 62 no.51/52, 20 December 2019, p. 7. 60  Zainab Mansoor. ‘Oman Oil Company to sell 20–25% stake by end of 2020’, Gulf Business, 5 December 2019, https://gulfbusiness.com/oman-oil-company-sell-20-25stake-end-2020/?utm_campaign=GB_Daily_Newsletter_05_12_2019&utm_ medium=email&utm_source=Eloqua 61  MEES, vol. 62 no.51/52, 20 December 2019, p. 7. 62  Gavin Gibbon. ‘Oman’s 50MW Dhofar wind farm starts generating electricity’, Arabian Business, 14 August 2019, https://www.arabianbusiness.com/energy/425731-omans50mw-dhofar-wind-farm-starts-generating-electricity 63  Gulf Business. ‘Masdarinstals first turbine at Oman’s Dhofar wind farm’, 26 December 2018, https://gulfbusiness.com/masdar-instals-first-turbine-omans-dhofar-wind-farm/

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a US$400 million bid to build a solar power station for the Oman Power and Water Procurement Company (OPWP).64 The OPWP had announced plans to launch two solar projects with a combined capacity of 1.1 GW and had invited proposals.65 Social Issues Oman has a relatively free social system with women and minorities enjoying more rights compared to their counterparts in the neighbourhood. However, political and media freedom has been curtailed in the Sultanate and socio-political activists have been arrested over  mildest criticisms of the government or the ruling family. Oman has from time-to-time allowed expression of discontent through protests, but these are never allowed to go out of hand.66 The country has a multi-ethnic and multi-religious population and freedom to practice faith is allowed. Several non-Islamic places of worship, including churches, gurdwaras and Hindu temples, are present. In 2019, Oman had an HDI rank of 47 with a score of 0.834; the GDI ratio was 0.943, while the GII ratio was 0.304.67

Bilateral Ties India and Oman share strong bilateral ties and were strengthened by the visit of Prime Minister Modi in February 2018. It laid the foundation for a greater defence and security partnership, especially in the maritime domain.68 Oman’s strategic location at the intersection of the Persian Gulf and the Arabian Sea and its proximity to the Indian Ocean in the trade

64  Gulf Business. ‘Kuwait-Saudi Consortium wins $400m Oman solar power station bid’, 18 March 2019, https://gulfbusiness.com/kuwait-saudi-consortium-wins-400m-omansolar-power-station-bid/ 65  Sam Bridge. ‘Oman reveals plan to build 1.1 GW solar projects’, Arabian Business, 18 July 2019, https://www.arabianbusiness.com/energy/424137-oman-reveals-plan-to-buildfor-11gw-solar-projects 66  Human Rights Watch. ‘Oman: Events of 2018’, 2019, https://www.hrw.org/worldreport/2019/country-chapters/oman 67  United Nations Development Programme (UNDP). ‘Oman’, 2019, http://hdr.undp. org/en/countries/profiles/OMN 68  Business Standard. ‘Modi’s Gulf Visit: India, Oman signs 8 agreements as PM meets Sultan Qaboos’, 12 February 2018, business-standard.com/article/current-affairs/modi-s-gulf-visitindia-oman-signs-8-agreements-as-pm-meets-sultan-qaboos-118021200010_1.html

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route between India and the western Indian Ocean makes it significant for India’s maritime security and crucial sea lines of communication (SLoCs). This is one of the reasons why the prime minister signed an addendum to the India-Oman defence agreement for gaining access to the Duqm Port for the Indian naval ships for maintenance.69 Politics and Security The visit of External Affairs Minister (EAM) Jaishankar to Oman in December 2019 gave further boost to the bilateral ties. The minister met with Deputy Prime Minister Fahd Bin Mahmoud al-Said and Deputy Minister Responsible for Foreign Affairs Yusuf Bin Alawi as well as other ministers and held wide-ranging talks on various issues of bilateral, regional and international matters.70 During the visit, the EAM also met with the Deputy Minister for Defence Affairs Bader Bin Saud al-Busaidi and both sides signed an agreement for cooperation in the field of maritime ­transport.71 The visit provided an opportunity for India and Oman to enhance bilateral diplomatic and political understanding on strengthening security cooperation against common threats, including terrorism. According to the Indian Ministry of External Affairs, this was the “first visit of External Affairs Minister to Oman after the new governments in India took over in May 2019” and “provide an opportunity to hold indepth discussions with the political leadership on a wide range of bilateral, regional and global issues.”72 Both countries have many joint working groups (JWGs) focusing on issues of mutual interest, including one on science and technology that held its first meeting in September 2019.73 The JWG on Manpower, which was first established in 2008, held its 7th meeting in New Delhi in 69  The Diplomat. ‘India gains access to Oman’s Duqm port, putting the Indian Ocean geopolitical contest in the spotlight’, 14 February 2018, https://thediplomat. com/2018/02/india-gains-access-to-omans-duqm-port-putting-the-indian-oceangeopolitical-contest-in-the-spotlight/ 70  GoI. MEA. ‘Visit of External Affairs Minister to Sultanate of Oman (December 23–25, 2019), 21 December 2019, https://mea.gov.in/press-releases.htm?dtl/32233/visit+of+ex ternal+affairs+minister+to+sultanate+of+oman+december+2325+2019 71  Ibid. 72  Ibid. 73  GoI. MEA. ‘Brief on India-Oman Bilateral Relations’, 31 January 2020, http://mea. gov.in/Portal/ForeignRelation/India-Oman_Bilateral_January2020.pdf

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February. The JWGs on Health and Agriculture hold regular meetings. In the defence and security arena, Oman is India’s foremost partners in the region and all three branches of the two militaries—army, navy and air force—hold regular joint exercises. The Omani military cadets and officers have also been trained in Indian military schools and colleges in the past and the cooperation in this area is expected to continue. Trade and Commerce India was Oman’s third largest non-oil export destination with a share of 9.94 per cent and fourth largest source of imports with a share of 8 per cent in 2019 (Table 6.6). However, India has lost out in Oman’s imports of highvalue items like electrical and mechanical machinery in the last few years. The India-Oman joint ventures (50:50), namely, Bina Refinery and Oman India Fertilizer Company (OMIFCO) at Sur in Oman, were the hallmarks of their robust relations. Both appear to lose some of the enthusiasm as Oman did not participate in the first round capacity expansion of the refinery and is yet to decide its participation in the second round.74 The 15-year Urea Off-Take Agreement between the two countries, wherein India imports 1.6 million tonnes of granulated urea and 0.255 million tonnes of ammonia at prices lower than the international prices, is set to expire in 2020. There are plans for the capacity expansion of the OMIFCO facilitated by the prospective supplies from the new gas field but urea imports are set to decline in medium to long term with the commissioning of new manufacturing capacity under India’s investment policy 2012. Besides, there is a larger preference for NPK (nitrogen, phosphorous and potassium) variety of fertilizer for agro-climatic reasons and India imported more NPK fertilizers from Saudi Arabia in 2018 affecting Indo-Omani fertilizer trade. The bilateral trade reflects waxing and waning economic relationship and needs a big push. The bilateral trade was US$3.86 billion in 2015–16, which increased to about US$6.70 billion in 2017–18, only to decline to US$5 billion in 2018–19 (Table 6.8). However, it is poised to increase in 2019–20, as the Sultanate’s share in India’s total trade between April and September 2019–20 has already exceeded previous benchmarks and was 0.71 per cent as against 0.59 per cent during the whole of 2018–19. 74  Hydrocarbon Processing. ‘Consortium may buy stake in India’s Bina Oil refinery’, 30 July 2019, https://www.hydrocarbonprocessing.com/news/2019/07/consortium-may-buystake-in-indias-bina-oil-refinery

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There had been a significant decline (of 35.30 per cent) of imports from Oman in 2018–19 over the previous year; it dropped from US$4.26 billion to US$2.75 billion, with a consequent fall in the Omani share in India’s total imports. The total exports to Oman had been consistently declining since 2016, mostly due to the decline in the Indian export of petroleum products (Tables 6.8 and 6.9) and as a result, India’s trade balance with Oman turned negative since 2017. India buys oil from Oman in the spot market. The total value of India’s oil imports from Oman decreased from US$732.51 million in 2014–15 to US$390.56 million in 2016–17 partly due to a steep fall in the oil price (Table  6.9). Even though India’s total oil imports increased from US$96.95 billion in 2015–16 to US$103.16 billion in 2016–17, imports from Oman decreased by 33.20 per cent during the period. India exported US$1.26 billion worth of petroleum products to Oman in 2016–17, which was 46.28 per cent of the total exports to Oman and 3.89 per cent of India’s total export of petroleum products (Table 6.9). The export of petroleum products to Oman has consistently been declining even though Table 6.8  India-Oman bilateral trade, 2014–20 (US$ million) 2014–15

2015–16

Total exports to 2,379.44 2,190.96 Oman Growth rate (per −15.39 −7.92 cent) Per cent share in 0.77 0.84 India’s total exports Total imports 1,752.24 1,674.71 from Oman Per cent growth −40.63 −4.43 Per cent share in 0.39 0.44 India’s total imports Total bilateral 4,131.69 3,865.66 trade with Oman Per cent growth −6.44 Per cent share in 0.54 0.60 India’s total trade

2016–17

2017–18

2,728.3

2,439.46 2,246.31 1,743.16

24.53

−10.58

0.99

0.80

2018–19

−7.92 – 0.68 0.66

1,290.50 4,264.29 2,759 −22.94 0.34

230.44 0.92

2019–20 April–January (provisional)

2,961.02

−35.30 – 0.54 0.74

4,018.79 6,703.76 5,005.30 4,704.82 3.96 0.61

66.81 0.87

−25.34 – 0.59 0.71

Source: Adapted from Government of India, Department of Commerce, Export-Import Databank

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Table 6.9  India-Oman oil trade, 2016–19 (US$ million) 2016–17

2017–18

2018–19

Oil imports from Oman 390.56 2,880.79 1,685.15 Rate of growth of oil imports (per cent) −33.20 637.61 −41.50 Oil imports as per cent of total imports from Oman 30.26 67.56 61.08 Oil imports as per cent of India’s total oil imports 0.38 2.18 1.00 Petroleum exports to Oman 1,262.58 1,014.39 535.97 Rate of growth of petroleum products exports (per cent) 24.06 −19.66 −47.16 Petroleum products exports as per cent of total exports 46.28 41.58 23.86 to Oman Petroleum products exports to Oman as per cent of 3.89 2.64 1.12 India’s total petroleum products exports Source: Adapted from Department of Commerce, Government of India, Export Import Databank

India’s total exports and Oman’s total imports of the commodity is increasing. This implies significant Omani trade diversion away from India in favour of China.75 In 2017, state-owned Indian Oil Company acquired 17 per cent stakes of Shell in the Mukhaizna oil field, which is the single largest producing oil field in Oman76 and could feed Indian refineries with additional one million metric tonnes of oil. The LNG imports from Oman have become a new driver of the energy ties. India’s share in Omani LNG exports is about 10 per cent and constituted about 22.22 per cent of the total imports from Oman in 2018–19 and are valued at about US$613.11 million (Table  6.10). The rate of growth of LNG imports had been high since 2017. Oman was the fifth largest LNG supplier to India with a share of 5.80 per cent in the total LNG imports in 2018–19. As Table  6.11 shows, India’s exports to Oman comprise petroleum products (23.86 per cent), agricultural and edible items (17.17 per cent) and machinery (mechanical and electrical) (14.02 per cent). Of these, the exports of petroleum products, articles of iron and steel, aluminium and copper, as well as organic chemicals had negative rates of growth in 75  ITC, List of Products Imported by Oman, 27 Mineral Fuel, https://www.trademap. org/tradestat/Product_SelCountry_TS.aspx?nvpm=1%7c512%7c%7c%7c%7c27%7c%7c%7c 4%7c1%7c1%7c1%7c2%7c1%7c1%7c1%7c1 76  The Economic Times. ‘Indian Oil acquires Shell’s 17 Per cent Oman oilfield’, 5 April 2018, https://economictimes.indiatimes.com/industry/energy/oil-gas/indian-oil-acquiresshells-17-per-cent-oman-oilfield/articleshow/63631677.cms?from=mdr

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Table 6.10  India’s LNG imports from Oman, 2014–19 (US$ million) 2014–15 2015–16 Values in US$ million 55.06 Growth (per cent) Per cent share in total LNG imports 0.6 Per cent share in total imports from 3.14 Oman

217.94 295.83 3.25 13.01

2016–17 2017–18 2018–19 102.99 −52.75 1.72 7.98

205.57 99.61 2.53 4.82

613.11 198.25 5.81 22.22

Source: Adapted from Department of Commerce, Government of India, Export Import Databank

Table 6.11  Composition of India’s exports to Oman, 2018–19 (US$ million) HS code 27 1–24

Commodity

Mineral fuels Agricultural and edible items 84–85 Machinery (electrical and mechanical) 89 Ships boats and floating structures 72, 73 Iron and steel and articles thereof 50–63 Apparels and textiles 69 Ceramic products 29 Organic chemicals

Value 2018–19

Share in total exports to Per cent growth Oman (per cent) (2018–19)

535.97 385.77

23.86 17.17

−47.16 20.29

314.92

14.02

21.34

276.46

12.31

Very high

161.98

7.21

−24.21

126.54 58.19 57.57

5.63 2.59 2.56

18.73 6.4 −6.72

Source: Adapted from Department of Commerce, Government of India, Export Import Databank

2018–19. A few high-value items machinery, pharmaceutical and vehicles and parts thereof had double-digit growth rates. The US$2 billion fertilizer joint venture at Sur (Oman) made India the largest export market for the fertilizer exports of Oman. India’s fertilizer imports from Oman reached a high value of US$468 million in 2017–18, which was 10.04 per cent of the total import of fertilizers in that year.77 However, in 2018–19 it declined to US$394 million, accounting for only five per cent of the total imports of the commodity. At the same time,

 GoI. Department of Commerce. Import Commodity-wise all countries; fertilizers, HTTPs

77

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India’s total imports of fertilizers increased from US$4.67 billion in 2017–18 to US$6.66 billion in 2018–19, with more imports from China, Saudi Arabia and the UAE than from Oman.78 Part of the decline was due to the increased import of the NKP variety of fertilizers, while the joint venture plant produces urea fertilizers. Nevertheless, fertilizer imports from Oman increased to US$641.33 million between April–January 2019 and is poised to exceed the earlier levels. India’s agro-scientists favour NPK variety of fertilizers as compared to the nitrogenous urea for reasons of environment and soil health. India imports 100 per cent of its potash requirement for the production of fertilizers. At the same time, Oman’s Gulf Mining group is looking for a strategic partner for its Oman Potash Project in the central region of the Sultanate. As Table  6.12 shows, India’s imports from Oman comprise mineral fuels (61.08 per cent); fertilizers (14.31 per cent); aircraft, spacecraft and parts (7.02) and construction material (4.81 per cent). All the major categories of imports from Oman had registered a high negative growth rate in 2018–19, except construction materials and ships, boats and floating structures. Investments: Cumulative FDI from Oman between January 2000 and September 2019 was US$521 million (Table 6.13). The Sultanate is the 31st largest investor in India in terms of total cumulative investments with

Table 6.12  Composition of India’s imports from Oman, 2018–19 (US$ million) HS code

Commodity

Value 2018–19

Share in total imports Per cent from Oman growth

27

Mineral fuels, mineral oil and their distillates, etc. Fertilizers Aircraft spacecraft and parts thereof Construction materials Ships boats and floating structures Plastics and articles thereof

1,685.15

61.08

−41.2

394.8 193.65

14.31 7.02

−15.82 −43.82

132.57 105.32

4.81 3.82

5.66 214.17

38.02

1.38

−31.8

31 88 25 89 39

Source: Adapted from Department of Commerce, Government of India, Export Import Databank

 Ibid.

78

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a share of 0.12 per cent. Among the GCC countries, it ranks second after the UAE. Between January and September 2019, US$29.08 million came from Oman as FDI, which was 0.08 per cent of the total FDI inflow during the period.79 Oman India Joint Investment Fund II (OIJF), a 50–50 joint venture fund (private equity), was established by India’s State Bank of India and State General Reserve Fund of Oman (SGRF) with a target corpus of US$300 million. OIJF commenced operation in 2011 with initial seed capital of US$100 million, which was fully invested in about seven companies across different sectors in India. It is focused on investing in midmarket segment in India. In November it announced an investment of about US$11 million in the Punjab-based Capital Small Finance Bank for a 9.9 per cent stake.80 India-Oman Bilateral Investment Treaty (signed in 1997) is under revision and Indo-Oman Avoidance of Double Taxation Treaty has been signed between the two countries. Indian investment in Oman is estimated at US$7.5 billion, with about 3,500 Indian companies operating in the Sultanate.81 Port Duqm has a number of important joint venture projects in the pipeline, namely US$1.2 billion Sabacic Oman (the largest Sabacic acid plant in the Middle East) and US$748 million Little India tourism complex. Besides, there are Table 6.13  FDI from Oman into India, 2017–19 (US$ million)

FDI flows

2017

2018

22.93

34.67

2019 (Jan–Sept) 29.08

Cumulative (Jan 2000–Sept 2019) 521

Sources: Department for Promotion of Industry and Internal Trade, GOI, Statement of Country-wise/ Year-wise FDI Equity from January 2000 to September 2019, https://dipp.gov.in/sites/default/files/ Table_No_3_SEP_19.pdf; Department for Promotion of Industry and Internal Trade, GOI, Foreign Direct Investment in India—Annual Issue 2018, https://dipp.gov.in/sites/default/files/ Chapter_3.2_0.pdf

79  GoI. Department for Promotion of Industry and Internal Trade, Statement of Countrywise/Year-wise FDI Equity During Calendar Years 2019, From January 2019 to September 2019, https://dipp.gov.in/sites/default/files/Table_No_7_SEP_19.pdf 80  Business Standard. ‘Oman India Joint Investment Fund II buys 9.9% in Capital SFB for 84 crores’, 26 November 2019, https://www.business-standard.com/article/finance/omanindia-joint-investment-fund-ii-buys-9-9-in-capital-sfb-for-rs-84-cr-119112600936_1.html 81  Times of Oman, ‘Indian firm’s investment in Oman pegged at $7.5 billion’, 14 December 2019, https://timesofoman.com/article/2388594/oman/indian-firms-investment-in-omanpegged-at-75-billion

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India-Oman joint ventures in third countries as well. India’s Accord group and Oman’s Ministry of Oil are jointly investing US$3.85 billion in a refinery project in Sri Lanka, next to the Chinese-operated port at Hambantota.82 This is the largest foreign investment in the Island country. The strategic location of Oman’s ports along the Strait of Hormuz and its LNG export potential make the country a valuable player in India’s energy security calculus. The economic relations with Oman in terms of joint ventures have achieved important milestones; yet it has not translated into a stable growth in bilateral trade, which has wavered under the shadow of Delhi’s relations with other wealthier Arab neighbours like the UAE and Saudi Arabia. The challenge is to tailor investment projects that promote growth and skill-building of the Omani nationals. Economically Oman is fairly connected with its neighbours, especially the UAE, Saudi Arabia and Qatar and has been able to side-step the regional rifts and is a suitable location for the Indian companies in building a network of regional affiliates. Cultural Relations and Expatriates Through millennia of people-to-people contacts, India and Oman have developed close cultural contacts. Many Omani students travel to India to seek education while many Indians find work in Oman. In 2010, the two countries first signed an MoU on cultural cooperation, which is automatically renewed every five years.83 In June 2019, the chairman of National Records and Archives of Oman led a delegation to India. In August, the Director-General of National Museum of Oman visited India under the ICCR’s Distinguished Visitor’s programme. The Indian expatriates in Oman are estimated at 700,000 and comprise the second largest expatriate community after the Bangladeshis.84 They constitute about 35.90 per cent of the total expatriate population and 82  The Economic Times. ‘Lanka breaks ground for oil refinery with investments from Indian firm & Oman’, 25 March 2019, https://energy.economictimes.indiatimes.com/news/oiland-gas/lanka-breaks-ground-for-oil-refiner y-with-investments-from-indianfirm-oman/68554799 83  GoI.  MEA. ‘Brief of India-Oman Bilateral Relations’, 31 January 2020, http://mea. gov.in/Portal/ForeignRelation/India-Oman_Bilateral_January2020.pdf 84  Oman, NISI, Monthly Statistical Bulletin. March 2020, vol 31, p. 21, https://www.ncsi. gov.om/Elibrary/LibraryContentDoc/bar_March%202020_0f7a0628-f2e1-42f2-8ed1ca22b5bc72c3.pdf

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12.92 per cent of the total population in Oman at the end of February 2020. Between February 2019 and February 2010, the number of Indian expatriates reduced by 8.7 per cent. The share of Oman in India’s total inward remittances is about 3 per cent.85 Approximately 22.23 per cent of Indians died in Oman from traffic accidents and suicides-related deaths in 2018.86

Challenges Oman has managed the succession challenge quite well and has continued to maintain a balanced regional and foreign policy approach. While not joining the boycott of Qatar, it has also not tried too hard for a rapprochement between the warring GCC members. The Sultanate does not ignore any of the regional powers and nor does it befriend one at the cost of others. The neutrality would be tested in the coming years as regional fault lines sharpen. Oman needs powerful allies outside the region and this means India will have to abandon its guarded approach but to adopt a policy of meaningful and comprehensive engagement with the new Sultan, both politically and economically.

85  Reserve Bank of India. ‘India’s Inward Remittances Survey 2016–17’. 9 August 2018. https://www.rbi.org.in/script/BS_PressReleaseDisplay.aspx?prid=44722 86  Open Data Government Platform India, Cause-wise Analysis of Causes of Deaths of Indians in Oman from 2016–18, https://community.data.gov.in/cause-wise-deathof-indian-nationals-in-oman-during-2016-to-2018/

CHAPTER 7

Qatar

Key Information Ruling family: Al-Thani; Ruler: Tamim Bin Hamad Bin Khalifa al-Thani (since 25 June 2013); Crown Prince: Abdullah Bin Hamad Bin Khalifa al-Thani (since 11 November 2014); National day: 18 December; Parliament: 45-member nominated Majlis al-Shura; Last parliamentary election: NA; Major group in parliament: NA; National carrier: Qatar Airways. Socio-economic Indicators Area: 11,586 sq. kms; Population: 2.8 million (UNDP, 2019); Natives: 11.6 per cent; Expats: 88.4 per cent (2015 est.); Religious groups: Citizens (Sunni 90–95 per cent; Shia 5–10 per cent); Residents (Muslim 67.7 per cent; Hindu 13.8 per cent; Christian 13.8 per cent; Buddhist 3.1, other religion less than one per cent) (2010 est.); Youth: 12.12 per cent (2018 est.); Population growth rate: 2.1 per cent (World Bank, 2018); Life expectancy at birth: 80.1 years (UNDP, 2019); Major population groups: Arab 40 per cent; Indian 18 per cent; Pakistani 18 per cent; Iranian 10 per cent; Others 14 per cent; Adult literacy rate (ages 15 and above): 93.1 per cent (World Bank, 2018); National currency: Qatari Rial (QAR); GDP: US$191.36  billion (World Bank, 2018); Foreign trade: Exports—US$73.985  billion; Imports: US$31.696  billion; © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_7

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Military expenditure: NA; Sovereign Wealth Fund: US$328  billion (SWF Institute); Government debt: 52.6 per cent of GDP; GNI per capita: US$110,489 (2011 PPP); GDP per capita: US$112,532 (2011 PPP) (UNDP, 2019); Oil reserves: 25.2  billion barrels; Gas reserves: 872.1  tcf (BP, 2018); HDI rank: 41/189; Infant mortality rate: 6.5 deaths/1,000 live birth (UNDP, 2019); UN Education Index: 0.661 (UNDP, 2019); Labour force: 2.1  million (World Bank, 2019); Employment to population ratio (ages 15 and older): 86.8 per cent (UNDP, 2019); Unemployment rate: 0.1 per cent (UNDP, 2019); Urban population (per cent of total population): 99.1 per cent (UNDP, 2019); Rate of urbanization: 2.41 per cent (2015–20 est.); Last national census: 2010; World Press Freedom Index rank: 128 out of 180 Countries (RSF, 2019); Ease of Doing Business Rank: 77 out of 190 Countries (World Bank, 2019); Corruption Perception Index rank: 30 out of 180 Countries (Transparency International, 2019); Foreign direct investment (inward): US$2.18  billion (UNCTAD, 2019); Individual using Internet (per cent of population): 99.7 (UNDP, 2019); Net migration rate (per 1,000 population, 2015–2020): 14.7 (UN World Population Prospects, 2019); Forest area (per cent of land area): 0 (UNDP, 2019); International tourism, number of arrivals: 1,819,300 (World Bank, 2018); Carbon dioxide emissions (tonnes per capita): 29.8 (UNDP, 2019); Gender Development Index: 1.043 (UNDP, 2019); Gender Inequality Index: 0.202 (UNDP, 2019); Global Terrorism Index rank: 133 out of 163 countries (Vision of Humanity, 2019). India Related Indian cultural centre: Doha (Inaugurated in 2000); Number of Indians: 697,500 (approximately); Number of places of worship for Indians: Catholic Church (opened in 2008); Indian schools: 14; Indian banks: State bank of India; ICICI Bank; HDFC Bank; Indian Overseas Bank; Currency exchange rate: 1 QAR = INR 20.89 (March 2020); Last visit to India by the ruler: Emir Tamim Bin Hamad al-Thani, March 2015; Last Indian prime minister to visit: Narendra Modi, June 2016. * * *

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Qatar is India’s largest source for LNG imports, while India is among the top destinations for Qatar’s gas exports. The peninsula state’s ability to withstand the boycott by its Arab neighbours since 2017 and find regional friends in times of crisis underlined its economic strengths and tenacity. India recognizes the importance of Qatar as a leading global gas producer and a potential ally in its developmental policies and maintains strong energy-driven relations with it. However, despite its preference for a united GCC, New Delhi has eschewed any efforts in resolving the crisis as the intra-GCC divide has not affected India’s immediate interests in the Persian Gulf region.

Domestic Developments Like its GCC neighbours, Qatar is a hereditary monarchy ruled by the Al-Thani family that has basked on the hydrocarbon resources and avoided introducing significant political reforms. As the second richest country in the world in per capita terms (US$128,000  in 2019) after Brunei, the Qatari citizens were satisfied with the welfare system based on rentierism. Thus, Qatar remains the only country in the broader Middle East to escape from popular protests or the Arab Spring. The wealth has been used skilfully by the Al-Thani family to prevent the formation of any political organization or group. It has dismantled the possibilities of an opposition movement from emerging and threatening the status quo. Led by the Emir, the Al-Thani family overlooks all affairs of the Emirate, including the appointment of a government, nomination of a consultative Majlis al-­ Shura and all aspects of economic and social developments. Astutely using its gas wealth, Qatar takes care of the financial needs of its people and, in return, manages to avoid political accountability. Political Developments Qatar, along with the Kingdom of Saudi Arabia, is the only GCC monarchy that continues to avoid an elected parliament. The members of Qatari Majlis al-Shura—consultative assembly—is a nominated body and lacks any legislative powers. Interestingly, in 2003, Qatar had adopted a draft constitution1 through a referendum that came into effect in 2005, which 1  Al-Jazeera, ‘Qatar to adopt first Constitution’, 9 June 2005, https://www.aljazeera. com/archive/2005/06/2008410103215495632.html

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stipulated elections to choose one-third members (15 of the 45) of the Majlis. This, however, has not happened for nearly two decades nor was any official reasoning or explanation offered. The constitution gives certain powers to the Majlis to hold the government accountable, to approve the budget, draft and vote legislations and even to remove ministers through a two-third majority.2 It allows naturalized citizens (with minimum 10 years of residency) the right to vote in the parliament elections but candidacy is limited only to those whose fathers were born in Qatar. No elections have taken place until now and the Majlis al-Shura only has nominated members, with five rounds of nominations since 2006 and the latest one happened in June 2019 when the term of the exiting members were extended for another two years.3 On 31 October 2019, Emir Tamim Bin Hamad al-Thani who assumed office in June 2013 after the abdication of his father, ordered the formation of a committee under the chairmanship of the Prime Minister Abdullah Bin Nasser al-Thani to organize the first elections for the Majlis al-Shura to advise the government.4 This was the first sign of the electoral process but no election date was announced until December 2019. Qatar has provisions for local elections and has a central municipal council whose 29 members are elected for a four-year term. It advises the Ministry of Municipal and Urban Affairs on civic amenities and public services. The sixth elections for the municipal councils were held on 16 April 2019.5 While two members were elected unopposed, another 27, including two women, won among the 94 candidates, that included five women who were in the fray.6 According to the Central Municipal Council Electoral Committee, out of the estimated 150,000 eligible voters, only 27,722 registered to cast their votes and of them only 13,334 turned out

2  Al-Meezan. ‘The Permanent Constitution of the State of Qatar’. 8 June 2005, https:// www.almeezan.qa/LawPage.aspx?id=2284&language=en 3  Gulf Times. ‘Shura Council holds first meeting of 48th session’. 5 November 2019. https://www.gulf-times.com/stor y/646659/Shura-Council-holds-first-meetingof-48th-session 4  Aziz El Yaakoubi and Eric Knecht. ‘Qatar take step toward first Shura Council election: QNA agency’, Reuters, 31 October 2019, https://www.reuters.com/article/us-qatar-politics/qatar-takes-step-toward-first-shura-council-election-qna-agency-idUSKBN1XA1CH 5  The first municipal elections were held in 1999. 6  Ayman Adly. ‘Sixth CMC elections on Tuesday’, Gulf Times, 12 April 2019, https:// www.gulf-times.com/story/628580/Sixth-CMC-elections-on-Tuesday

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to vote.7 This put the total voter turnout at almost 50 per cent of the registered voters but only 8.9 per cent of the total eligible voters. The dismal voter participation indicates general apathy and indifference. At the same time, the intra-GCC crisis has contributed to Qatari nationalism and the popularity of the Emir.8 Foreign Policy A quarter of a century ago, Qatar broke ranks with its Arab monarchies to follow an independent foreign policy when Emir Hamad Bin Khalifa, father of the current Emir, staged a bloodless coup against his father and took over the country in 1995. That move sowed the seeds of frequent frictions between Qatar and Saudi Arabia, as the latter saw Qatari policies to be at variance with the interest of the united GCC.  Qatar’s media empire through the Al-Jazeera Network and its support and patronization of the transnational Muslim Brotherhood exacerbated the differences between Riyadh and Doha.9 During the Arab Spring, their disagreements revolved around approaches towards the rise of Islamism in the region; Saudi Arabia opted for the political status quo in Egypt under President Hosni Mubarak (later under Abdel Fattah al-Sisi), Qatar became supportive of the Muslim Brotherhood and its media increased the coverage of popular discontents within GCC countries and the region.10 The emergence of young leadership—Mohammed Bin Salman (MbS) in Saudi Arabia, Mohammed Bin Zayed (MbZ) in the UAE and Emir Tamim in Qatar—and their personal equations with one another coalesced with their differing views on a host of regional issues, especially vis-à-vis Iran. They culminated in the Riyadh-led boycott of Qatar in June 2017 and the Qatar crisis remains unresolved until now.11 7  Khadiza Begum. ‘Qatar announces central municipal council elections 2019 results’, I Love Qatar, 17 April 2019, https://www.iloveqatar.net/news/general/qatar-announcescentral-municipal-council-election-2019-results 8  Gulf Times. ‘Crisis abets nationalism, patriotism in Qatar’, 4 January 2018, https:// www.gulf-times.com/story/577030/Crisis-abets-nationalism-patriotism-in-Qatar 9  For details, see Persian Gulf 2018, pp. 141–143 & Persian Gulf 2019, pp. 161–163. 10  Eric Trager. ‘The Muslim Brotherhood is the root of the Qatar Crisis’, The Atlantic, 2 July 2017, https://www.theatlantic.com/international/archive/2017/07/muslimbrotherhood-qatar/532380/ 11  BBC News. ‘Qatar Crisis: What you need to know’, 19 July 2017, https://www.bbc. com/news/world-middle-east-40173757

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Doha’s ability to withstand the economic, political and diplomatic boycott underlined the futility of the Saudi action backed by Bahrain, UAE and Egypt. The Arab quartet had expected to force Emir Tamim to abandon the independent policy immediately and come around to the positions of MbS and MbZ and present a united front against Iran and Turkey.12 This did not happen and on the contrary, the crisis paved way for a new regional dynamics and the strengthening of Qatar’s ties with Turkey and the expansion of Turkish military presence in the Persian Gulf.13 On and off, this new combination has exhibited a common front with and not against Iran to undermine the interests of the Gulf Arab monarchies over issues such as the Syrian civil war or the aftermath of the Khashoggi’s murder in October 2018. Some minor developments in 2019 showed that hopes for the resolution of the GCC crisis have not entirely ended. In November, for example, the Saudi, Emirati and Bahraini football teams participated in the Gulf Cup football tournament in Doha.14 Though apolitical, this was the first major visit from these countries to Doha since 2017. In July, Jordan—a close ally of Kingdom of Saudi Arabia—restored diplomatic relations with Qatar after two years and named Zaid Muflih al-Lawzias its ambassador in Doha.15 In a reciprocal gesture, Qatar appointed Saud Bin Nasser al-Thani as its ambassador to Amman. In a significant gesture, in December, King Salman invited Emir Tamim for the GCC summit in Riyadh and this led to speculations of a thaw. The Qatari Emir chose not to attend instead sent Prime Minister Abdullah Bin Nasser al-Thani to represent the Emirate.16 12  Krishnadev Calamur. ‘Qatar Vows to Keep ‘independence of our foreign policy’’, The Atlantic, 8 June 2017, https://www.theatlantic.com/news/archive/2017/06/qatarvows-to-keep-independence-of-our-foreign-policy/529677/ 13  Nyshka Chandran. ‘Middle-East rift could push Qatar closer to Turkey, Iran’, CNBC, 5 June 2017, https://www.cnbc.com/2017/06/05/gulf-crisis-qatar-may-move-closer-toturkey-iran.html; Press TV. ‘In Doha, President Erdogan stresses military ties with Qatar’, 26 November 2019, presstv.com/Detail/2019/11/26/612142/Turkey-Qatar-Erdoganmilitary-base 14  The Times of India, ‘Saudi, UAE, Bahrain to play football in Qatar, signalling thaw’, 13 November 2019, https://timesofindia.indiatimes.com/sports/football/top-stories/saudiuae-bahrain-to-play-football-in-qatar-signalling-thaw/articleshow/72044626.cms 15  Al-Araby, ‘Qatar, Jordan officially restore relations after two years of diplomatic rupture’, 17 July 2019, https://english.alaraby.co.uk/english/news/2019/7/17/qatarjordan-officially-restore-relations 16  Stephen Kalin, ‘Qatari PM attends Gulf summit but no mention of 2-1/2 year now’, Reuters, 10 December 2019, https://in.reuters.com/article/gulf-summit/qatari-pmattends-gulf-summit-but-no-mention-of-2-1-2-year-row-idINKBN1YE0XB

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There were suggestions that both sides were holding informal and indirect conversations to find ways to overcome their differences.17 But as Qatari Foreign Minister Mohammed Bin Abdulrahman al-Thani told the media in December, there was no tangible progress.18 Meanwhile, Qatar has continued its engagements with Iran and Turkey. Amidst the escalating tension between Iran and the US, the Qatari foreign minister visited Tehran in May 2019, and was seen as an attempt to ease the tensions in the Persian Gulf.19 Later, Iranian Foreign Minister Jawad Zarif visited the Emirate twice; first in August soon after meeting Yemeni Houthi leaders in Tehran20 and again in December to attend the Doha Forum. In his address to Doha Forum, Zarif lashed out at the US for its designs in the Persian Gulf and for pursuing a hegemonic policy in the Persian Gulf.21 Earlier in November, Turkish President Recep Tayyip Erdogan visited Doha and held talks with Emir Tamim.22 The two sides reportedly discussed several bilateral and regional issues and committed themselves to strengthen the bilateral ties further.23

17  Al-Jazeera. ‘Qatar FM: “Too early to talk about real progress with Saudi”’, 16 December 2019, https://www.aljazeera.com/news/2019/12/qatar-fm-early-talk-real-progress-saudi191216060536330.html 18  Ibid. 19  Al-Jazeera. ‘Qatar moves to ease Iran-US tensions in the Gulf’, 16 May 2019, https:// www.aljazeera.com/news/2019/05/iran-halts-commitments-2015-nucleardeal-190515060220386.html 20  The National. ‘Iran’s Zarif visits Doha after talks with Houthi officials’, 11 August 2019, https://www.thenational.ae/world/mena/iran-s-zarif-visits-doha-after-talkswith-houthi-official-1.897173 21  Islamic Republic of Iran (IRI). Ministry of Foreign Affairs (MFA). ‘FM Zarif’s Speech at the Doha Forum 2019’, 15 December 2019, https://en.mfa.ir/portal/newsview/568979/fm-zarif%E2%80%99s-speech-at-the-doha-forum-2019 22  Umut Uras. ‘Turkey’s Erdogan meets Qatar’s emir to discuss regional issues’, Al-Jazeera, 25 November 2019, https://www.aljazeera.com/news/2019/11/turkey-erdogan-meetqatar-emir-discuss-regional-issues-191123084505198.html 23  Enes Kaplan. ‘Qatari Emir receives Turkey’s Erdogan in Doha’, Anadolu Agency, 15 November 2017, https://www.aa.com.tr/en/energyterminal/international-relations/ qatari-emir-receives-turkey-s-erdogan-in-doha/14559

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Economic Situation Aided by the increased global gas prices24 Qatar’s economy was able to show its resilience against the economic blockade imposed by the Arab quartet. The GDP at current prices has consistently grown from US$149.12  billion in 2016 to US$188.07  billion in 2018. Table  7.1 shows the high GDP growth rate, but the GDP growth at constant prices was modest. Table 7.2 shows that the mineral and quarry sector (including hydrocarbons) has been the largest economic activity contributing about 36 per cent of the GDP.  The second most important economic activity was construction (14 per cent). Since gas export prices are mostly linked to the oil prices, the year 2019 was sluggish for Qatar. The y-o-y GDP growth rate at current prices was only 1.1 per cent and −3.5 per cent in the first and the second quarters, respectively.25 Similarly, the steep fall in oil prices during 2014–16 imparted a high negative growth rate in the hydrocarbon sector as well as in the manufacturing sector (except 2014), implying a significant correlation between the two. Nevertheless, a larger financial surplus relative to its population has sustained the double-digit growth of the construction sector as Qatar has been preparing for FIFA World Cup 2022. However, the growth of real estate petered out over the years and turned negative in 2018. The financial sector took a plunge in 2014–16 before increasing since 2017. Table 7.1  Qatar: GDP and growth rates, 2016–18 (US$ million) 2016 GDP (at current prices) Rate of growth (per cent) Rate of growth (at constant 2013 prices) (per cent)

2017

2018 (provisional)

149,122.35 164,057.40 188,070.39 6.20 10.00 14.60 2.10 1.60 1.50

Source: Planning and Statistical Authority, Qatar, Qatar in Figures, 2019, p. 30, https://www.psa.gov. qa/en/statistics/Statistical%20Releases/General/QIF/Qatar_in_Figures_34_2019_EN.pdf

24   International Gas Union, Wholesale Price Survey 2019, https://www.igu.org/ publications-page 25  Qatar, Planning and Statistics Authority (PSA), Window on Economic Statistics of Qatar 2019, https://www.psa.gov.qa/en/statistics1/pages/topicslisting.aspx?parent=Economic &child=GeneralEconomicStatistics

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Table 7.2  Qatar: Sectoral contribution to GDP and average growth rates (per cent) Economic activity Non-oil sector Total services Mining and quarry Construction Manufacturing Financial services Wholesale and retail trade, repair of motor vehicles Public administration, defence and compulsory social security Real estate

Share in the GDP, 2018 (provisional) 64 46.86 36.9 14 9.2 7.5 7.0

Average growth rate, 2014–18 6.4 −4.3 20.4 −0.9 6.1 3.1

6.8

–

6.0

8.2

Source: Planning and Statistical Authority, Qatar, Qatar in Figures, 2019, https://www.psa.gov.qa/en/ statistics/Statistical%20Releases/General/QIF/Qatar_in_Figures_34_2019_EN.pdf; Planning and Statistics Authority, Qatar, Window on Economic Statistics of Qatar 2019, https://www.psa.gov.qa/en/ statistics1/pages/topicslisting.aspx?parent=Economic&child=GeneralEconomicStatistics

The US$5.5  billion Msheireb Downtown Doha project (now eight years in construction) is a part of a plan to meet the National Vision 2030, which among others, aims to reduce energy consumption and the country’s carbon footprint.26 Qatar made a record annual production in power generation and water desalination in 2019 and generated 5.67 TWh of electricity.27 The Umm al-Haul plant, Qatar’s second-largest power and desalination plant, which would meet 30 per cent of the power needs and 40 per cent of the water demand, was inaugurated in March 2019.28 Qatar is looking forward to build new power and desalination plants to help host the World Cup 2022. The desalination capacity of the Umm al-Haul plant would be expanded and the construction contact for the planned 2.5 GW, 590,000 mb/d plant near Ras Laffan industrial city, is yet to be awarded.29 The food imports from Saudi Arabia and the UAE were severely affected by the economic blockade and to boost self-reliance, the 26  Heba Kanso. ‘FEATURE – Can Qatar’s low carbon city show a greener Middle East future’, The Economic Times, https://energy.economictimes.indiatimes.com/news/renewable/feature-can-qatars-low-carbon-city-show-a-greener-middle-east-future/68214538 27  MEES, vol. 62 no. 50, 13 December 2019. 28  Ibid., p. 10. 29  Ibid.

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production of milk and dairy goods was substantially increased from 62,061 tonnes in 2017 to 226,408 tonnes a year later.30 During the same period, agricultural production increased from 675,501  tonnes to 1,021,597 tonnes. However, Qatar Airways posted a loss of US$69 million in the financial year 2018–19 as it lost access to 18 cities due to the rift with the four Arab countries even though it launched flights to new destinations.31 Qatar had some success in turning its fiscal deficits into surplus in 2018, both because of increasing total government revenues and reducing expenditure (Fig. 7.1). In contrast to Saudi Arabia, Qatar not only had been projecting a budgetary surplus in the last few years but had achieved a surplus of about US$4.07 billion in 2018. In 2019, the actual revenues were estimated to be US$4 billion more than the projected revenue in the Government Revenues Bugetary surplus/deficit 75,000 59,855

US$ million

56,250 46,131 37,500

Government Expenditure

54,882

56,137 52,065

44,083

18,750 4,072

0 -13,724 -18,750

2016

-10,798

2017

2018

Fig. 7.1  Qatar: Public finance, 2016–18. Source: Planning and Statistical Authority, Qatar in Figures, 2019, https://www.psa.gov.qa/en/statistics/ Statistical%20Releases/General/QIF/Qatar_in_Figures_34_2019_EN.pdf

30  Qatar. PSA. Annual Statistical Abstract 2018, https://www.psa.gov.qa/en/statistics/ Statistical%20Releases/General/StatisticalAbstract/2018/Annual_Statistical_ Abstract_2018.pdf#search=energy 31  Gulf Business. ‘Qatar Airways posts $69m annual loss’, 19 September 2018, https:// gulfbusiness.com/qatar-airways-posts-69m-annual-loss/

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budget.32 There has been a fall in total government revenues in 2017 over the previous year, but it again increased by 27.34 per cent in 2018. The year 2018 witnessed a multi-year hike of the gas prices. Hydrocarbons provide 80 per cent of the total government revenues. Qatar has a low unemployment rate, mostly among the young females. The labour force in 2018 had 2,374,474 persons, of which 79.4 per cent were male and 20.6 per cent were female. The non-Qatari nationals constituted 91.4 per cent of the labour force.33 About 42.1 per cent of the labour force was employed in the construction sector, followed by the wholesale and retail trade and repair sector (12 per cent).34 About 16.2 per cent of the total labour force were employed as senior officials, executives, professionals and technicians, while 21.8 per cent of the total female labour force were professionals.35 External Sector: Since 2017, Qatar has been able to achieve a current account surplus, despite a negative net trade in services, negative incomes from abroad and outflow of US$11–12 billion in remittances (Table 7.3).

Table 7.3  Qatar: Balance of payments, 2016–19 (US$ million) Particular

2016

2017

2018

2019

A. Current Account Goods Exports (FOB) Imports (FOB) Net trade in services Net Income from abroad Current transfers of which worker remittances B. Capital and financial account Overall balance Change in reserves

−8,181.27 24,884.28 56,269.08 31,384.8 −16,084.17 −1,090.26 −15,891.12 −11,631.33 3,736.8 −5,486.4 −5,486.4

6,315.03 36,100.89 66,337.38 30,236.49 −13,484.88 −412.29 −15,888.69 −12,383.01 −25,014.96 −17,569.17 −17,569.17

16,365.78 50,104.44 82,838.7 32,734.26 −13,986.54 −3,680.91 −16,071.21 −11,216.61 −279.45 15,583.32 15,583.32

4,156.38 40,865.85 71,680.41 30,814.56 −16,054.47 −4,333.77 −16,334.73 −11,610.81 5,866.02 9,218.61 9,218.61

Source: Compiled from Central Bank of Qatar, Balance of Payments, Quarterly Reports, http://www. qcb.gov.qa/English/Publications/Statistics/BalanceofPayments/Pages/default.aspx Note: (−) denotes outflow

 MEES, vol. 62 no. 51/52, 20 December 2019, p. 16.  Qatar. PSA. 34  Ibid. 35  Qatar. PSA. Qatar in Figures 2019, https://www.psa.gov.qa/en/statistics/Statistical%20 Releases/General/QIF/Qatar_in_Figures_34_2019_EN.pdf 32 33

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Export revenues increased from US$56.26 billion in 2016 to US$71.68 billion in 2019, while imports remained more or less stable. Partly to neutralize the economic blockade through international partnerships, Qatar had aggressively invested abroad in the second and third quarters of 2017, leading to net outflow in the capital account (Table 7.3). Nevertheless, it has been able to increase its foreign exchange reserves in 2018 and 2019. LNG is by far the largest export contributing to two-third of the segment ‘Natural gas, LPG and condensate’ and contributed about 62 per cent of the total export revenues of Qatar. The share of the hydrocarbon in the total merchandise exports was 86 per cent in 2018; the share of other items of export were plastics and articles thereof (3.50 per cent), fertilizers (1.75 per cent) and aluminium (1.65 per cent). The composition of imports comprises of machinery (electrical and mechanical) (24.96 per cent); aircraft, spacecraft and parts thereof (8.98 per cent); vehicles and parts thereof (6.21 per cent) and articles of iron and steel (4.32 per cent).36 Table  7.4 shows the direction of the trade; unlike other GCC countries, the export destinations and import sources of Qatar are more Table 7.4  Qatar: Direction of trade, 2018 Top five LNG export destinationa

Top export destination

Top five sources of imports

Top five Re-export destinations

South Korea (18.36)

Japan (17.39)

US (19.4)

India (14.75)

South Korea (17.36) India (12.06) China (11.4) Singapore(8.2)

China (12.36)

Oman (16.7) UAE (16.2)

Japan (12.68) China (12.59) Taiwan (6.39)

India (6.27) Germany (6.16) UK (5.7)

UK (9.5) US (7.4) Kuwait (5.8)

Figures in brackets are per cent share a International Gas Union, Annual Report 2019, https://www.igu.org/sites/default/files/node-document-field_file/IGU%20Annual%20Report%202019_23_0.pdf; ITC.  Trade Statistic, https://www. trademap.org/tradestat/Country_SelProductCountry_TS.aspx?nvpm=1%7c634%7c%7c%7c%7cTOTA L%7c%7c%7c2%7c1%7c1%7c4%7c2%7c1%7c2%7c4%7c1

Sources: Planning and Statistical Authority, Qatar, Qatar in Figures 2019, https://www.psa.gov.qa/en/ statistics/Statistical%20Releases/General/QIF/Qatar_in_Figures_34_2019_EN.pdf 36  International Trade Centre (ITC), List of products imported by Qatar, https://www. trademap.org/tradestat/Product_SelCountry_TS.aspx?nvpm=1%7c634%7c%7c%7c%7cTO TAL%7c%7c%7c2%7c1%7c1%7c1%7c2%7c1%7c1%7c1%7c

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distant and diverse. The share of the US in the total imports of Qatar has increased from 11.4 per cent in 2014 to 19.4 per cent in 2018, while the share of India was 6.3 per cent in 2018 as against 3.8 per cent in 2014.37 The Qatar Investment Authority (QIA), the sovereign wealth fund arm, has US$328 billion worth of assets38 which include investments in Volkswagen, Barclays, Harrods, Heathrow, Credit Suisse, Glencore, Tiffany & Company, Canary Wharf and Total.39 Qatar made US$4.37 billion worth of outward FDIs in 2019 against US$3.47 billion a year before. The outwards portfolio investments were US$10.32  billion in 2019 against US$18.16 billion in 2018. However, only US$2.14 billion of FDI came into the country in 2018 and it marginally increased to US$2.74 billion in 2019. Most of the foreign investments in the Emirate are in the form of investments in bonds and securities, followed by portfolio investments. On the other hand, of late, Qatar has substantially modified  its overseas investments in favour of portfolios and FDI, implying more active and participatory investments. Energy Sector Qatar has one of the largest reserves of non-associated gas in the world in North Field that it shares with Iran. The proven natural gas reserves were 23.84 tcm in 2018.40 After completing the successful appraisal of its North Field, it has announced staggering reserve upgrades of 49.83 tcm, which was more than double the latest estimates by OPEC and BP.41 The new Qatari reserve estimates overtake those of Iran (about 31.9 tcm) and Russia (38.9 tcm) and place Qatar as the holder of the world’s largest gas reserves.42 Its proven oil reserves are relatively modest at 25.2 billion barrels at the end

 Qatar. PSA. Annual Statistical Abstract 2018.  Sovereign Wealth Fund Institute (SWFI). ‘Qatar Investment Authority (QIA)’, https:// www.swfinstitute.org/profile/598cdaa60124e9fd2d05bc5a 39  QIA. ‘Investment policy and the list of main investment in line with the’, https://www. qia.qa/Investments/InvestmentsApproach.aspx 40  Gas Exporting Countries Forum (GECF), Annual Statistical Bulletin 2019, p.  73, https://www.gecf.org/_resources/files/events/launch-of-the-gecf-annual-statistical-bulletin-2019/gecf-asb-2019.pdf 41  MEES, vol. 62 no. 48, 29 November 2019, p. 2. 42  Ibid. 37 38

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of 2018.43 The country banks on the expansion of the North Field and has also been snapping up international assets at a rapid pace.44 For decades, Qatar had been the undisputed global leader in the LNG export market and accounted for 25 per cent of the global market in 2018. In the last two years, Australia has been close at heels and is poised to overtake Qatar in maintaining the largest LNG liquefaction capacity with the commercial start of the Ichthys LNG facility.45 To maintain its lead, Qatar has given up its self-imposed moratorium on the development of North Field and had announced an aggressive LNG production capacity expansion to 110 mtpa by 2024 and this move came immediately after the Saudi-led economic blockade. In the last week of November 2019, Qatar Petroleum announced plans to boost LNG production capacity to 126 mtpa by 2027. The country has about 65 LNG carrier fleet with a total capacity of 7.410  bcm.46 It has 14 liquefaction trains with a total capacity of 77.4 mtpa and plans four more liquefaction trains with an additional capacity of 33 mtpa by 2025. Table 7.5 shows the production and trade of natural gas in Qatar. Despite the economic blockade Qatar continues to export piped gas to the Table 7.5  Qatar: Production and trade of natural gas, 2011–2018 (bcm) 2011 Natural gas production LNG exports (gas equivalent) Gas exported through pipelines

2012

2013

2014

2015

2016

2017

2018

150.02 163.03 171.06 173.40 175.92 172.17 171.40 175.42 102.60 102.98 103.41 102.32 104.53 105.20 104.23 104.41 19.20

19.22

19.90

20.09

19.75

20.00

21.96

22.36

Source: Gas Exporting Countries Forum, Doha, Annual Statistical Bulletin, 2019, https://www.gecf. org/_resources/files/events/launch-of-the-gecf-annual-statistical-bulletin-2019/gecf-asb-2019.pdf

43  British Petroleum. ‘BP Statistical Review of World Energy’, 68th edition, 2019, https:// www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2019-full-report.pdf 44  Jamie Ingram, Qatar Bank on North Field Leverage to Boost aggressive overseas Expansion, MEES, vol. 62, no. 44, 1 November 2019. 45  International Gas Union (IGU), Annual Report 2019, https://www.igu.org/sites/ default/files/node-document-field_file/IGU%20Annual%20Report%202019_23_0.pdf 46  GECF, Annual Statistical Bulletin 2019, p.  73, https://www.gecf.org/_resources/ files/events/launch-of-the-gecf-annual-statistical-bulletin-2019/gecf-asb-2019.pdf

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UAE through the Dolphin Gas Project operated by Dolphin Energy. Its export capacity is 33 bcm per year. About 23 mtpa of existing LNG contracts would expire by 2024 and about 30  mtpa would expire between 2024 and 2027.47 Hence, Qatar would be seeking more LNG buyers in the increasingly competitive market. With effect from 1 January 2019, Qatar left the OPEC after being a member for over 50 years. Though diminishing oil reserves was the stated reason, the announcement came amidst the growing tensions within the GCC and was seen as a consequence of it.48 Qatar Petroleum joined its peers in Saudi Arabia, the UAE and Kuwait to cash on the availability of cheap shale gas in the US Gulf Coast. It entered into a joint venture agreement with Chevron Philips to build a petrochemical complex in Texas’s Gulf coast. It has been developing a 16  mtpa LNG export terminal with the US oil major Exxon Mobil.49 Qatar becomes one of the first countries to supply very low sulphur fuel oil (VLSFO) from Ras Laffan industrial city port ahead of the 0.5 per cent sulphur limit in the marine fuels limit set by the International Maritime Organization (IMO) that came into force on 1 January 2020.50 Though the Arab boycott did not affect its energy industry, Qatar had to double down on self-reliance. Qatar Petroleum signed about US$2.4 billion worth of preliminary deals with the oil service firms Schlumberger and Bakers Hughes to boost the local supply chain for the energy industry.51 During the year, Qatar announced the launch of world’s largest Energy Bank, with the capital of US$10 billion, to provide banking investment services in the fields of oil, gas, petrochemicals and the renewable energy industry and in accordance with Islamic Sharia rules and regulations.52  MEES, vol. 62 no.48, 29 November 2019, p. 3.  Sanne Wass. ‘Analysis: The consequences of Qatar’s Opec exit’, Global Trade Review, 8 January 2019, https://www.gtreview.com/news/mena/analysis-the-consequencesof-qatars-opec-exit/ 49  Ibid. 50  MEES, vol. 62 no. 43, 25 October 2019, p. 10. 51  Heba Kanso. ‘FEATURE: Can Qatar’s low – Carbon city show a greener Middle-East future?’, The Economic Times, 1 March 2019, https://energy.economictimes.indiatimes. com/news/renewable/feature-can-qatars-low-carbon-city-show-a-greener-middle-eastfuture/68214538 52  Hukoomi. Qatar e-Government Portal. ‘Qatar launches World’s largest energy bank with $10bn capital’, 20 March 2019, https://portal.www.gov.qa/wps/portal/media-center/ news/news-details/qatarlaunchesworldslargestenergybankwithdollartenbncapital 47 48

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Society Like other countries in the Arabian Peninsula, Qatar is a closely knit tribal society guided by customary laws and Islamic Sharia. This has resulted in some practices that are not in sync with modern understandings of human rights, gender equality and rights of the migrant workers. Despite immense economic development due to the abundance of natural gas, the sociopolitical change has been extremely slow. Political reforms have continued with the snail’s pace. In recent years, some social openings have taken place in the region regarding the rights of women and the need to changes and improve the lives of migrant labour and this is also reaching Qatar. In 2017, Doha entered into technical cooperation with the International Labour Organization (ILO) to find ways to improve the condition of migrant labour. Doha has been taking legislative measures to improve the employment conditions of migrants, whereby they would be allowed to change jobs and exit the country without the permission from the employer, which was not possible under the current kafala system.53 Qatar, promised to improve the worker’s rights ahead of the World Cup 2022 and set up a committee in this context. However, its preparations continued to come under fire over violations of the workers’ rights as well as for reported deaths of the workers due to the harsh working conditions.54 Besides, some of the discriminatory practices in civil issues, pertaining to marriage, divorce, inheritance and citizenship laws, continue to persist.55 Qatar faces criticism over its human rights record and lack of internal media freedom, despite the growing regional popularity of Al-Jazeera.56 In 2019, Qatar had an HDI score of 0.848 and ranked 41 in the world; and it achieved a GDI score of 1.043 and a GII score of 0.202.57

53  Human Rights Watch (HRW). ‘Qatar: Events of 2019’, 2020, https://www.hrw.org/ world-report/2020/country-chapters/qatar 54  Matt Stater. ‘Qatar 2022 World cup organisers admit ‘high number of workers’ death is a tragedy’, Independent, 4 June 2019, https://www.independent.co.uk/sport/football/ world-cup/qatar-2022-world-cup-deaths-workers-report-a8943096.html 55  Ibid. 56  The Arab Weekly, ‘Qatar orders closure of Doha centre for media freedom’, 1 May 2019, https://thearabweekly.com/qatar-orders-closure-doha-centre-media-freedom 57  United Nations Development Programme (UNDP). ‘Qatar  – Human development Indicators’, 2019, http://hdr.undp.org/en/countries/profiles/QAT

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Bilateral Ties With energy trade as the backbone, both countries enjoy strong ties. Qatar is India’s largest gas supplier, while India is among Qatar’s top global markets. As a result, the two sides have rapidly strengthened relations in other areas through regular political contacts and diplomatic exchanges. A degree of understanding in security and counter-terrorism cooperation has also been reached in the last five years, highlighted by the visits of Emir Tamim (March 2015) and Prime Minister Narendra Modi (June 2016). Political and Defence Relations Though no major political visits were exchanged during 2019, Prime Minister Modi and Emir Tamim held a telephonic conversation on 2 March and discussed a number of important bilateral and multilateral issues including counter-terror cooperation and Indian participation in the 46th OIC Council of the Foreign Ministers meeting.58 Later, in September, the two leaders met on the side-lines of the UN General Assembly session in New  York and “discussed bilateral relations and regional and international issues of mutual interest.”59 The intra-GCC tension appeared to have precluded any visits between the two since mid-2017. However, many ministerial visits took place during the year. In September, India’s Minister of Petroleum and Natural Gas Dharmendra Pradhan visited Qatar and met Qatari Minister of State for Energy Affairs Saad al-Kaabi and “reviewed bilateral energy ties.”60 The Indian minister also met Qatari Prime Minister Abdullah Bin Nasser al-­ Thani and “discussed bilateral relations and issues of mutual concern.”61 Earlier, in May, Minister of State for External Affairs V K. Singh had visited Doha “to attend the 16th Ministerial Meeting of the Asia Cooperation

58  Dipanjan Roy Chaudhury. ‘Qatar Emir telephones Indian PM to discuss counter-terror steps; OIC meet’, The Economic Times, 2 March 2019, https://economictimes.indiatimes. com/news/politics-and-nation/qatar-emir-telephones-indian-pm-to-discuss-counter-terror-steps-oic-meet/articleshow/68236130.cms?utm_source=contentofinterest&utm_ medium=text&utm_campaign=cppst 59  GoI.  MEA. ‘India-Qatar Bilateral relations’, 31 January 2020, http://mea.gov.in/ Portal/ForeignRelation/India-Qatar_January_2020.pdf 60  Ibid. 61  Ibid.

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Dialogue (ACD).”62 In January, a delegation from Qatar had visited Mumbai to attend the Global Aviation Summit.63 In recent years, both have enhanced their cooperation in the area of defence. India continues to offer training slots to Qatari military officers and cadets in its defence institutions. Further, the two sides regularly exchange visits by naval and coast guard ships. India participates in the biennial Doha International Maritime Defense Exhibition and Conference (DIMDEX). In 2018, both sides extended the bilateral defence cooperation agreement, which was signed in 2008 for another five years.64 Within this ambit, the fifth meeting of the India-Qatar Joint Defence Cooperation Committee (JDCC) was held in Doha in November 2019.65 In the same month, the first India-Qatar naval exercise Za’ir al-Bahr (Roar of the Sea) took place in Doha with the participation of “Indian Navy Guided Missile Stealth Frigate INS Trikand and Patrol Aircraft P8-I.”66 Trade and Commerce India was the third-largest trade partner of Qatar in 2018. India is the Emirate’s third-largest export destination and third-largest source of imports with the shares of 12.05 per cent and 6.27 per cent in Qatar’s exports and imports, respectively (Table 7.4). The total bilateral trade has consistently increased (though at a decreasing rate since 2017) from US$8.4 billion in 2016–17 to US$12.33 billion in 2018–19 (Table 7.6). The rate of growth of India’s imports from Qatar (mostly LNG with a share of 50 per cent) had been consistently high, while the growth of Indian exports to Qatar has been slow (even negative in 2016–17) and inconsistent. The value of India’s energy imports from Qatar increased from US$6.76 billion in 2016 to US$9.27 billion in 2018 (Table 7.7). About 49.95 per cent of the total imports from Qatar is LNG (Table 7.8) and India was the fourth largest LNG importer with a global share of 7.1 per  Ibid.  Ibid. 64  GoI.  MEA. ‘India-Qatar Bilateral relations’, 31 January 2020, http://mea.gov.in/ Portal/ForeignRelation/India-Qatar_January_2020.pdf 65  Ibid. 66  Press Information Bureau (PIB). GoI.  Ministry of Defense (MoD). ‘Joint exercise between the Qatari Emiri Navy and the Indian Navy Forces (the roar of the sea)’, 18 November 2019, https://pib.gov.in/PressReleasePage.aspx?PRID=1591973 62 63

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Table 7.6  India–Qatar bilateral trade, 2014–20 (US$ million) 2014–15

Total exports to Qatar Per cent growth Per cent share in India’s total exports Total imports from Qatar Per cent growth Per cent share in India’s total imports Total bilateral trade with Qatar Per cent growth Per cent share in India’s total trade Trade balance

2015–16

2016–17

2017–18

2018–19

April– January 2019–20

1,611.11

1,016.46

1,054.98

902.13

784.56

1,471.88

8.87

−14.49

−13.07

87.61

9.46

–

0.34

0.34

0.29

0.49

0.49

0.39

14,604.71

9,022.16

7,646.22

8,409.02

10,721

7,856.64

−7.02

−38.22

−15.25

21.13

27.50

–

3.26

2.37

1.99

1.80

2.08

1.99

15,659.69

9,924.29

8,430.72

9,880.90

−36.63

2.63

16.49

9.76

1.54

1.28

1.28

1.46

2.06

12,332.86 8,873.10

1.33

−13,549.73 −8,120.03 −6,861.66 −6,937.14 −9,109.89 −6,840.18

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp

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Table 7.7  India–Qatar energy trade, 2016–19 (US$ million) 2014–15 Energy Imports from Qatar Per cent Share in India’s Energy Imports Per cent Share in India’s Imports from Qatar Export of Petroleum Products to Qatar Per cent Share in India’s total Petroleum Products Exports Per cent Share in India’s Exports to Qatar

2015–16

2016–17

2017–18

2018–19

13,415.31 7,942.43 6,762.10 7,207.82 9,270.34 8.58 8.19 6.55 5.45 5.52 91.86

88.3

88.44

85.75

86.46

60.88

43.12

48.00

61.01

63.08

0.11

0.14

0.15

0.16

0.13

0.11

0.14

6.12

4.15

3.92

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp

Table 7.8  India’s LNG imports from Qatar, 2014–19 2014–2015 2015–2016 2016–2017 LNG imports from 7,660.80 Qatar (value in US$ million) Rate of growth (per cent) India’s total import of 9,230.83 LNG (US$ million) Per cent share of Qatar 82.99 in India’s total LNG imports (per cent) Per cent share of LNG 52.45 imports in total imports from Qatar

2017–2018 2018–2019

4,545.29

3,410.75

4,119.18

−40.67

−24.96

20.77

6,710.46

6,004.74

8,121.29

5,354.94

30 10,558.24

67.73

56.8

50.72

50.72

50.38

44.61

48.99

49.94

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp

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cent in 2018 after Japan, China and South Korea.67 The LNG imports from Qatar constituted about 2 per cent of India’s total imports and 3.19 per cent of the total energy imports 2018–19. Qatar is India’s largest exporter of LNG supplying 11.6 million tonnes in 201868 and its share in India’s total LNG imports was 50.72 per cent in 2018–19, which has declined from 82.99 per cent share in 2014–15. India has a 10-year long-term contract with Qatar Petroleum to lift 10 mtpa of gas.69 Table 7.8 shows that the share of Qatar in India’s total LNG import has declined since 2014 from 82.99 per cent as New Delhi has been diversifying its requirements with imports from countries like Nigeria, Angola and Australia (Table 1.12). The building of competitive pressures prompted Qatar to re-negotiate the price in 2015 under the long-term contract (in lieu of buying additional one million tonnes of LNG) and waive the penalty for lower off-take by India. However, the gas imports from long-term contracts with Qatar were expensive as Australia, Russia and the US offer cheaper rates.70 Qatar, of late had been reluctant to lower the price of gas under the existing contracts even though the same in the spot market is nearly half.71 The landed price of LNG under the long-term contracts with Qatar is US$9–10/mmbtu, while the power sector, which is the second-largest consumer of natural gas in India, needs a landed price of less than US$5/mmbtu.72 Indian companies normally buy LNG at oil-linked prices while a few are tied to the Henry hub prices.73 Even though more companies globally are preferring short-term contracts with lower volumes and flexible terms, the Indian companies anticipate rising gas demand in the country and hence 67  IGU, Annual Report 2019, https://www.igu.org/sites/default/files/node-documentfield_file/IGU%20Annual%20Report%202019_23_0.pdf 68  Ibid. 69  The Economic Times. ‘India’s Petronet explores buying LNG under 10-year contract’, 26 February 2020, https://energy.economictimes.indiatimes.com/news/oil-and-gas/ indias-petronet-explores-buying-lng-under-10-year-contract/74313964 70  The Economic Times. ‘India wants Qatar to lower as price; Qatar says no to reopening existing contracts’, 27 January 2020, https://economictimes.indiatimes.com/industry/ energy/oil-gas/india-wants-qatar-to-lower-gas-price-qatar-says-no-to-reopening-existingcontracts/articleshow/73666940.cms?from=mdr 71  Ibid. 72  Ibid. 73  The Economic Times. ‘India’s Petronet explores buying LNG under 10-year contract’, 26 February 2020, https://energy.economictimes.indiatimes.com/news/oil-and-gas/ indias-petronet-explores-buying-lng-under-10-year-contract/74313964

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have been pursuing long-term contracts. As part of its sustainable energy strategy, India aims to increase the share of gas to 15 per cent (from the present 6.2 per cent) in its total energy consumption by 2030.74 Qatar Gas CEO Khalid Bin Khalifa al-Thani, during the Petrotech conference held in New Delhi in February 2019, urged the Indian government to include natural gas in the Goods and Services Tax (GST) regime.75 While the GST, which came into force on 1 July 2017, unified dozens of central and state levies, crude oil, natural oil, diesel and aviation fuel were kept out of it. This is appearing to be a limiting factor for foreign investors interested in India’s rapidly expanding energy sector.76 The main composition on India’s exports to Qatar comprised of agricultural and edible items (24.43 per cent), metals and articles thereof (16.86 per cent), machinery (electrical and mechanical) (10.92 per cent), chemicals (8.64 per cent) and precious and semi-precious stones (5.67 per cent) (Table  7.9). Tobacco, sugar and sugar confectioneries, beverages and spirits registered negative rate of growth in 2018–19 over the previous year. About 45 Indian companies in the food and hospitality sector Table 7.9  Composition of India’s exports to Qatar, 2018–19 (US$ million) HS Code

Commodity

Value

1–24 72–74

Agricultural and edible items Copper, iron and steel and articles thereof Electrical machinery and equipment etc. Chemicals Precious and semi-precious stone etc. Apparels and textiles

393.62 24.43 271.62 16.86

85 28–29 71 50–63

Per cent share

96.38 10.92

Rate of growth (per cent) 27.96 5.01 8

139.47 91.32

8.64 5.67

59.62 27.74

76.55

5.14

49.63

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp

 Ibid.  The Economic Times. ‘Petrotech 2019: Qatar seeks inclusion of natural gas in GST’, 10 February 2019, https://energy.economictimes.indiatimes.com/news/oil-and-gas/ petrotech-2019-qatar-seeks-inclusion-of-natural-gas-in-gst/67930172 76  Ibid. 74 75

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Table 7.10  Composition of India’s imports from Qatar, 2018–19 (US$ million) HS code Commodity 71 28–29 39 31

Value

Per cent share Rate of growth (per cent)

Mineral fuels 9,270.34 86.46 Chemical 609.8 5.68 Plastics and article thereof 266.37 2.49 Fertilizers 116.62 1.09

28.62 17.24 −17.68 28.62

Source: Department of Commerce, GOI, Export-Import Data Bank; https://commerce-app.gov.in/ eidb/Icomcnt.asp

participated in the Hospitality Qatar 2019.77 Table 7.10 shows that main items of India’s imports from Qatar in 2018–19 were mineral fuels (86.46 per cent), chemical (5.68 per cent), plastic and articles thereof (2.49 per cent) and fertilizers (1.09 per cent). There exists a huge potential for joint ventures in these items with a buy-back arrangement that could be leveraged in negotiating further trade and investment deals with Qatar. Investments: Qatar made a cumulative FDI of US$87.27  million in India between January 2000 and December 2019. With a share of 0.16, its rank is 52nd among the FDI investors in India. In 2019, between January and September, US$59.12 million worth of investments came into India, registering a quantum jump from US$4.05 million made in 2018 (Table 11.8). Among the prominent investments in the year were the acquisition of a 25.10 per cent stake in Adani Electricity Mumbai78 and the learning app BYJUS.79 Qatar’s investment in Adani electricity is the first foreign investment in power distribution in India. The power distribution sector has been heavily regulated and  with huge debts, power sector reforms have largely failed to deliver. 77  The Peninsula Qatar. ‘45 Indian companies to take part in ‘Hospitality Qatar 2019’ expo’, 7 November 2019, https://thepeninsulaqatar.com/article/07/11/2019/45Indian-companies-to-take-part-in-%E2%80%98Hospitality-Qatar-2019%E2%80%99-expo 78  The Economic Times. ‘Adani Transmission sells 25.1 per cent stake in arm AEML to QIA for Rs 3,220 crore’, 11 February 2020, https://economictimes.indiatimes.com/industry/ energy/power/adani-transmission-sells-25-1-per-cent-stake-in-arm-aeml-to-qia-forrs-3220-crore/articleshow/74077527.cms 79  The Economic Times. ‘Qatar Investment Authority leads $150 million investment round in BYJU’S’, 10 July 2019, https://economictimes.indiatimes.com/small-biz/startups/ newsbuzz/qatar-investment-authority-leads-a-150-million-investment-round-in-byjus/articleshow/70153452.cms

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While the Qatar Investment Authority and India’s National Investment Infrastructure Fund (NIIF) had signed an MoU in 2016 to facilitate Qatari investment in the Indian infrastructure, the progress is cautiously slow. More than 6,000 Indian companies have joint ventures in Qatar and a few wholly-owned Indian companies are participating in FIFA world cup related projects.80 Expatriates With an estimated 750,000 population, Indians are the largest expatriate community in Qatar and are engaged in a wide variety of blue- and white-­ collar professions. Qatar’s share in the total inward remittance into India is about 6.5 per cent.81 About 1,883 complaints were received by the Indian mission in Qatar from workers, mostly related to work conditions like unpaid wages, denial of legitimate labour rights and benefits, renewal of their residency permits, grant of overtime allowance, weekly holidays, longer working hours, refusal to grant exit/re-entry permits to visit their homes, accident/death compensation and not  providing medical and insurance facilities.82

Challenges and Opportunities Though India is the second-largest LNG export market for Qatar, the economic relations are not diversified enough to yield significant leverage in trade negotiations. Qatar views the Indian market with interest but its cautious investments began only in the last two years. Likewise, the Indian industry has been active in Qatar but is well below its potential. The future trade and investment deals have to sidestep the existing rift in Qatar’s relations with Saudi Arabia and the UAE, while the same can yield significantly competitive deals.

80  Satyendra Pathak. ‘Number of Indian firms operational in Qatar exceeds 6,000: Ambassador’, Qatar Tribune, 11 April 2017, http://www.qatar-tribune.com/news-details/ id/58882 81  Reserve Bank of India. ‘India’s Inward Remittances Survey 2016–17’, 9 August 2018, https://www.rbi.org.in/script/BS_PressReleaseDisplay.aspx?prid=44722 82  GoI. MEA. ‘Question No.637 Death of Indian Workers abroad’, 20 November 2019, https://mea.gov.in/lok-sabha.htm?dtl/32058/question+no637+death+of+indian+work ers+abroad

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The biggest challenge is to align existing long-term LNG contracts with Qatar with prevailing market prices. This could be done by picking up additional volumes (as done in the past) for the stranded gas-based power sector. India had been trying to get Qatari investments in the power sector. The biggest challenge is that the power sector is highly regulated, with most of the power distribution companies are still under the state-­ controlled power utilities. However, the private power companies in the metros, with the cost-plus framework (in line with the regulatory benchmarks), have prompted a re-look from the foreign investors. India needs to include the hydrocarbons in the GST to reduce the tax burden on the sector and to make it more attractive for Gulf investment. Its ability to withstand the boycott by bigger neighbours has made Qatar stronger. It has not only managed the crisis internally but has been able to build relations with regional powers, Iran and Turkey, swiftly. This has put the Emirate in a much stronger position vis-à-vis the GCC neighbours. For India, though the crisis has not affected the bilateral ties, it underlines the difficulty of diplomacy in a divided region and made India careful in not seeking a role in resolving the crisis.

CHAPTER 8

Saudi Arabia

Key Information Ruling family: Al-Saud; Ruler: King Salman Bin Abdulaziz al-Saud (since 23 January 2015); Crown Prince: Prince Mohammad Bin Salman al-­ Saud (since 21 June 2017); National day: 23 September; Parliament: 150-member nominated Majlis al-Shura; Last parliamentary election: NA; Major group in parliament: NA; National carrier: Saudia. Socio-economic Indicators Area: 2,149,690 sq. kms; Population: 33,699,950 (World Bank, 2018); Native: 63 per cent; Expats: 37 per cent; Religious Groups: Citizens (Sunni 85–90 per cent; Shia 10–15 per cent); Youth (age 15–24): 13 per cent; Population growth rate: 1.8 per cent (World Bank, 2018); Life expectancy at birth: 75 (UNDP, 2019); Major population groups: Arabs 90 per cent; Afro-Asian 10 per cent; Adult literacy rate: 94.4 per cent (UNDP, 2019); National currency: Saudi Rial (SAR); GDP (Current, US$): 786.522 billion; Foreign trade: Exports-US$294.53 billion; Imports-US$135.21 billion (World Integrated trade solution); Military expenditure: 8 per cent of GDP (World Bank, 2018); Sovereign Wealth Fund: US$320 (SWF institute); Government debt: 19 per cent of GDP (CEIC, 2018); GNI per capita: US$49,338 (at 2011 PPP), GDP per capita: US$48,996 (at 2011 PPP) (UNDP, 2019); Oil reserves: © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_8

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297.7 billion barrels (BP, 2018); Gas reserves: 208.1 tcf (BP, 2018); HDI rank: 36/189 (UNDP, 2019); Infant mortality rate: 6.3 deaths/1,000 live birth (UNDP, 2019); UN Education Index: 0.794 (UNDP, 2019); Labour force: 14.6 million (World Bank, 2019); Employment-to-population ratio: (15 years and older): 53.2 per cent (UNDP, 2019); Unemployment rate: 5.9 (UNDP, 2019); Urban population: 83.8 per cent (UNDP, 2019); Rate of urbanization: 2.17 per cent (2015–20 est.); Last national census: 2011; World Press Freedom Index: 172 out of 180 Countries (RSF, 2019); Ease of Doing Business: 62 out of 190 Countries (World Bank, 2019); Corruption Perception Index: 51 out of 180 Countries (Transparency International, 2019); Foreign direct investment (inward): US$3,209 million (UNCTAD, 2019), Individual using Internet (per cent of population): 93.3 (UNDP, 2019); Net migration rate (per 1,000 population, 2015–2020): 4.1 (UN World Population Prospects, 2019); Forest area (per cent of land area): 0.5 (UNDP, 2019); International tourism, number of arrivals: 153,340 (World Bank, 2018); Carbon dioxide emissions (tonnes per capita): 16.3 (UNDP, 2019); Gender Development Index: 0.879 (UNDP, 2019); Global Terrorism Index: Rank 30 out of 163 (Vision of Humanity, 2019). India Related Indian cultural centre: NA; Number of Indians: 2.6 million (MEA, 2019); Number of places of worship for Indians: None; Indian schools: 40; Indian banks: None; Currency exchange rate: 1 SAR = INR 20.09 (March 2020); Last visit to India by the ruler: King Abdullah, January 2006, Crown Prince Mohammed Bin Salman February 2019; Last Indian prime minister to visit: Narendra Modi, October 2019. * * * The growing Indo-Saudi ties received a major boost in 2019 with the visits of Saudi Crown Prince Mohammed Bin Salman to India in February and Prime Minister Narendra Modi to the Kingdom in October. In between, both the leaders met during the G-20 Summit in Osaka. New Delhi and Riyadh could de-hyphenate the Crown Prince’s visit to India from his trip to Pakistan amidst spiralling tension between the two South Asian neighbours, underlined their level of political maturity and

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diplomatic finesse. As India and Pakistan were on the verge of another conflict following the Pulwama suicide attack on the Indian paramilitary forces, Riyadh used shuttle diplomacy to keep the channels of communication open between the two neighbours. The highpoint of the October visit of Prime Minister Modi was his address to the third Future Investment Initiative (FII) forum in Riyadh, where he flagged his initiatives to attract investments into India.

Domestic Developments Strains within the ruling Al-Saud family, festering tensions with Iran and the falling oil prices shaped the Kingdom’s policies and fortunes during 2019. It faced attacks on its vital oil installations, including Aramco facilities in Abqaiq and Khurais, from elements linked to Iran. The growing regional tension saw the deployment of the American military personnel for the first time since their withdrawal after the 1990–91 Kuwait crisis. Uncertainties over internal political and economic problems led to a series of cabinet reshuffles, which raised questions over the long-term stability of the Kingdom. Furthermore, the fallout of the Khashoggi murder (October 2018) and arrests of several women and human rights activists during the year continued to cast its shadow on Riyadh’s relations with the outside world, especially the US. Political Developments The situation within the Kingdom has remained under control despite pressures and speculations about internal differences within the royal family over the functioning of the Crown Prince Mohammed Bin Salman, popularly referred to as MbS. Several crucial decisions attributed to him, such as the ongoing war in Yemen, murder of Khashoggi and detention of important princes, fuelled international speculations about divisions within the royal family.1 Unconfirmed reports about fresh detentions or deaths of lesser-known princes kept these rumours alive.2 1  BBC News. ‘Saudi Arabia detained three senior members of Royal Family’, 7 March 2020. https://www.bbc.com/news/world-middle-east-51778781; Middle East Monitor. ‘Arab Media reports deep crack within Saudi royal family’, 6 September 2018. https://www.middleeastmonitor.com/20180906-arab-media-reports-deep-cracks-within-saudi-royal-family/ 2  David D.  Kirkpatrick, Ben Hubbard and Eric Schmitt. ‘Round up of Saudi Royals Expands with detention of a 4th Prince’, The New York Times, 7 March 2020. https://www.

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In January 2019, the government announced that US$106 billion was recovered as penalty from the princes and high-profile figures such as Waleed Bin Talal and Miteb Bin Abdullah, who were detained since November 2017 over corruption charges.3 This ended one of the high dramas within the ruling family and was widely interpreted as a royal purge to smoothen the succession of MbS. The release of detained princes was accompanied by some of them losing their prime positions and social standing. The monarchy took steps to manage the political fallouts of the Khashoggi affair. The trial of 11 Saudi nationals charged for the murder came to a close in December 2019; eight were found guilty of involvement, while three were released either due to lack of evidence or were found not guilty. Of those found guilty, five—Fahad Shabib Albalawi, Turki Muserref Alshehri, Waleed Abdullah Alshehri, Maher Abdulaziz Mutreb and Salah Mohammed Tubaigy—were sentenced to death. The remaining three were sentenced to 24 years in prison. The Riyadh Criminal Court, where the trial took place, concluded that the murder was not planned and was a spur-of-the-moment decision after heated exchanges between the interrogators and Khashoggi turned violent. The court verdict, however, differed considerably from investigations conducted by various agencies, including the CIA. The general consensus was that the murder was premeditated and that the Crown Prince might have been directly involved in ordering the murder as he was in touch with the intelligence officers in Riyadh, who were handling the agents sent to Istanbul to interrogate Khashoggi.4 For his part, Turkish President Recep Tayyip Erdogan sought to use the controversy to corner MbS and score diplomatic points.5 The issue escalated when on 19 June, the UN Human Rights Council’s (UNHCR) Special Rapporteur on Extrajudicial, Summary or Arbitrary killings came out with a 101-page report which nytimes.com/2020/03/07/world/middleeast/saudi-arabia-mohammed-bin-salman.html 3  Tom DiChrishtopher. ‘Saudi Arabia says it raised $106 billion from ‘anti-corruption’ drive that swept up royals’, CNBC, 30 January 2019. https://www.cnbc.com/2019/01/30/ saudi-arabia-says-it-raised-106-billion-from-anti-corruption-drive.html. 4  Julian E.  Barnes. ‘C.I.A.  Concludes That Saudi Crown Prince Ordered Khashoggi Killed’, The New York Times, 16 November 2018. https://www.nytimes.com/2018/11/16/ us/politics/cia-saudi-crown-prince-khashoggi.html 5  Al-Jazeera. ‘Erdogan: Khashoggi murder serious threat to World Order’, 30 September 2019. https://www.aljazeera.com/news/2019/09/erdogan-khashoggi-murder-threatworld-order-190930092212780.html

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held the Kingdom of Saudi Arabia responsible for “premeditated extrajudicial execution” of Khashoggi.6 For its part, the Kingdom sought to counter the negative image. In an interview with CBS News programme 60  Minutes, the Crown Prince claimed he was not involved. When questioned by anchor Norah O’Donnell if he ordered the murder of Khashoggi, MbS replied: “Absolutely not. This was a heinous crime. But I take full responsibility as a leader in Saudi Arabia, especially since it was committed by individuals working for the Saudi government.”7 When probed further, he said that the investigations were being carried out and that he, as a leader would make sure that such heinous crimes are not committed in the future. The interview, which came weeks before the trial ended in the Riyadh court, was seen as a public relations exercise to rehabilitate the Crown Prince in the US and leave behind the stain of the murder. Despite these controversies, the Saudi leadership weathered the storm. Overruling the assessment of the intelligence agencies and rejecting the CIA report that implicated MbS for the crime, President Donald Trump refused to censure the Kingdom or the Crown Prince. Giving a clean-chit to Riyadh, he said “I hate the crime, I hate the cover-up. I will tell you this: The crown prince hates it more than I do and they have vehemently denied it.”8 At the same time, the controversy has dampened the foreign travels of MbS, especially to the US and European Union countries and after April 2018, he did not visit the US until the end of 2019. On the domestic front, the Kingdom has been witnessing a series of cabinet shuffles since Salman became the King in January 2015 and the process intensified after MbS was made the Crown Prince in June 2017 (Table  8.1). Though carried out in the name of King Salman, these changes reflected the growing influence and control of the Crown Prince. 6  UN Human Rights Council. ‘Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development’. Geneva: OHCHR, 19 June 2019. https://doi.org/10.1163/2210-7975_HRD-9970-2016149 7  Norah O′ Donnel. ‘Mohammad bin Salman denies ordering Khashoggi murder, but says he takes responsibility for it’, CBS News, 29 September 2019, https://www.cbsnews.com/news/ mohammad-bin-salman-denies-ordering-khashoggi-murder-but-says-he-takes-responsibilityfor-it-60-minutes-2019-09-29/ 8  Josh Dawsey. ‘Trump brushes aside CIA assertion that crown prince ordered killing, defends him and Saudi Arabia’, The Washington Post, 23 November 2018. https://www. washingtonpost.com/politics/trump-brushes-aside-cia-assertion-that-crown-prince-ordered-killing-defends-him-and-saudi-arabia/2018/11/22/d3bdf23c-ee70-11e896d4-0d23f2aaad09_story.html

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Table 8.1  Saudi Council of Ministers as of 31 December 2019 Name

Position

Since

King Salman Bin Abdulaziz al-Saud Crown Prince Mohammed Bin Salman al-Saud

Prime Minister

January 2015

First Deputy Prime Minister and Minister of Defence

Abdulaziz Bin Saud Bin Nayef Bin Abdulaziz al-Saud Abdullah Bin Bandar Bin Abdulaziz al-Saud Faisal Bin Farhan Bin Abdullah Bin Faisal al-Saud Abdullatif Bin Abdulaziz al-Shaikh Abdulaziz Bin Salman al-Saud Bandar Bin Ibrahim al-Khorayef Mohammed al-Tuwaijri

Minister of Interior

June 2017 (First Deputy PM) January 2015 (Defence) June 2017

Minister of National Guard

December 2018

Minister of Foreign Affairs

October 2019

Minister of Islamic Affairs, Dawah and Guidance Minister of Energy

June 2018

Minister of Industry and Mineral Resources Minister of Economy and Planning Minister of Justice Minister of Education Minister of Haj and Umrah Minister of Commerce and Investment Minister of Transport Minister of Health Minister of Culture

September 2019

Waleed al-Sammani Hamad al-Shaikh Muhammad Saleh Benten Majid al-Qassabi Saleh al-Jasser Tawfiq al-Rabiah Badr Bin Abdullah Bin Mohammed Bin Farhan al-Saud Ahmed al-Rajhi Mohammed al-Jaddan Abdulrahman al-Fadli Majid al-Hogail Abdullah al-Sawahah

Minister of Human Resources and Social Development Minister of Finance Minister of Environment, Water and Agriculture Minister of Housing Minister of Communication and Information Technology

September 2019

June 2017 February 2015 December 2018 May 2016 May 2016 October 2019 May 2016 June 2018

June 2018 November 2016 April 2016 February 2015 October 2017

Source: Royal Decrees, Saudi Press Agency, https://www.spa.gov.sa/listnews.php?lang=en&cabine t=1#page=1

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A significant development happened in September when Khalid al-Falih, who was regarded as one of the important non-royal members of the Saudi government, was relieved of his duties as Minister of Energy, Industry and Mineral Resources and Chairman of the Board of Aramco, the richest oil company in the world.9 The ministry was split into two; Prince Abdulaziz Bin Salman—half-brother of the Crown Prince—was appointed to head the Ministry of Energy and the well-known business leader Bandar al-Khorayef was given the charge of newly formed Ministry of Industry and Mineral Resources.10 Until the change, Abdulaziz was the deputy to Falih and this was the first time a royal member was given the responsibility of the important oil sector.11 However, the Chairpersonship of the Aramco was given to technocrat Yasir al-Rumayyan who already heads the Saudi sovereign wealth fund, called the Public Investment Fund (PIF). Interestingly, in January 2020, Falih was rehabilitated and was named as the head of the newly formed Ministry of Investment.12 Along with other changes, in August, the King appointed Fahd al-Essa as the new chief of the royal court, an important position of power and access to the monarch.13 Essa is considered a close aide of the Crown Prince and has served in the royal court for a long time before being moved to the Defence Ministry as Director-General in 2014 when Crown Prince Salman first held that ministry. Many less prominent ministerial positions and human rights council and anti-corruption commission witnessed new appointments. In October, another reshuffle led to the appointment of Prince Fahd al-Farhan as foreign minister, replacing Ibrahim al-Assaf, who briefly held that position since December 2018.14 9  John Defterios. ‘The most powerful man in oil is out—here’s what comes next’, CNN, 9 May 2016. https://web.archive.org/web/20160509102941/http://money.cnn. com/2016/05/08/investing/saudi-arabia-oil-opec-minister/ 10  The Guardian. ‘Saudi Arabia shakeup brings in new oil minister and royal court chief’, 31 August 2019. https://www.theguardian.com/world/2019/aug/31/saudi-arabiaannounces-new-oil-minister-royal-court-chief-prince-mohammed 11  MEES, vol. 62 no. 37, 13 September 2019, p. 9. 12  Vivian Nereim. ‘Axed Saudi Oil Boss al-Falih Returns as Investment Minister’, Bloomberg, 25 February 2020. https://www.bloomberg.com/news/articles/2020-02-25/axed-saudioil-boss-al-falih-returns-as-investment-minister 13  Arab News. ‘Fahd bin Mohammed al-Essa, chief of the Saudi Royal Court’, 7 September 2019. https://www.arabnews.com/node/1551121/saudi-arabia 14  Ahmed Al Omran. ‘Saudi Arabia appoints Prince Faisal bin Farhan as foreign minister’, Financial Times, 24 October 2019, https://www.ft.com/content/56962466f5d4-11e9-a79c-bc9acae3b654

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The savvy Adel al-Jubeir, who was demoted following the diplomatic crisis over the Khashoggi affair, continue to manage the day-to-day running of the Foreign Ministry. Following a fire incident in a newly inaugurated railway station in Jeddah, prominent businessman Saleh al-Jasser was named transport minister. Earlier in February, Princess Reema Bint Bandar was named the Saudi envoy in Washington, a woman ambassador for the first time in Saudi history. The daughter of the former Saudi ambassador to the US Prince Bander Bin Sultan, Princess Reema, replaced Prince Khalid Bin Salman, the younger full-brother of MbS. Indeed, Reema also became the second Arab woman to serve as ambassador to the US, after Houda Erza Ebrahim Nanoo who was the Bahraini ambassador to the US during 2008–13. Upon returning home, Khalid—whom Princess Reema succeeded, was named deputy to the Crown Prince in the Defence Ministry.15 Foreign Policy The Saudi foreign policy faced a host of challenges during 2019. The Khashoggi crisis led to severe international criticisms over the human rights situation and the functioning of the monarchy. It was the most severe diplomatic challenge the Kingdom faced since the 11 September terror attacks. It threatened to spill over into a diplomatic row with Turkey, which used the crime to put Riyadh under pressure and isolate in regional politics.16 As mentioned earlier, the UN report was not flattering to the Saudis and until then, only Israel had come under such scathing attacks by the world body. The bigger problem was the scrutiny the Khashoggi affair brought on the Yemen conflict as Saudi Arabia had to face continued international criticisms for the human rights violations in Yemen and for causing the worst humanitarian crisis in recent history.17 Partly spurred by President 15  Reem Krimly. ‘Princess Reema bint Bandar: Saudi Arabia’s first female ambassador’, Al-Arabiya, 24 February 2019. https://english.alarabiya.net/en/features/2019/02/24/ Princess-Reema-bint-Bandar-Saudi-Arabia-s-first-female-ambassador.html 16  Ali Younes. ‘Will Khashoggi’s disappearance affect Turkish-Saudi ties?’ Al-Jazeera, 9 October 2018. https://www.aljazeera.com/news/2018/10/jamal-khashoggi-case-impactturkey-saudi-ties-181008185529274.html 17  Sudarshan Raghavan. ‘Saudi role in devastating Yemen war comes under new scrutiny after Khashoggi’s killing’, The Washington Post, 1 November 2018, https://www.washingtonpost.com/world/saudi-role-in-devastating-yemen-war-comes-under-new-scrutiny-afterkhashoggi-murder/2018/10/29/fabc8f68-dbad-11e8-8bac-bfe01fcdc3a6_story.html

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Trump’s lenient view on the Khashoggi crisis, the US Congress adopted a bipartisan resolution in April 2019, demanding an end to the US involvement in the Yemeni War. Though it was vetoed by the President, the US scaled down its involvement following the Khashoggi affair.18 In July, President Trump used his veto again when a series of bipartisan congressional moves sought to block the sale of weapons to Saudi Arabia worth billions of dollars.19 While the Kingdom breathed a sigh of relief due to the support of the Trump Administration, the Yemeni crisis continue to fester due to the inability of the Saudi-led coalition to either push back the Houthi rebels on the ground or make any headway in peace negotiations. The year began on a hopeful note with the signing of the Stockholm Agreement in December 2018, which provided for the exchange of prisoners and a ceasefire in the important port city of Hodeida.20 However, as the year progressed, hopes faded as both sides continued to miss deadlines and shied away from fulfilling their commitments. By September, the violence in Yemen escalated and a year after the deal, the situation in Yemen was more complicated and less promising.21 The Yemeni crisis also exposed the Saudi differences with its most steadfast ally, the UAE. Frustration and disappointment over the prolongation of the crisis resulted in Abu Dhabi supporting the secessionist movement, Southern Transition Council (STC).22 The Abdrabbuh Mansur Hadi-led government backed by Riyadh has been at odds with the STC over dividing Yemen. The situation came to a head with the power struggle between the two reaching a flashpoint in August with the STC 18  Mark Landler and Peter Baker. ‘Trump Vetoes Measure to Force End to U.S. Involvement in Yemen War’, The New  York Times, 16 April 2019, https://www.nytimes. com/2019/04/16/us/politics/trump-veto-yemen.html 19  Michael D Shear, and Catie Edmondson. ‘Trump Vetoes Bipartisan Resolutions Blocking Arms Sales to Gulf Nations’, The New  York Times, 24 July 2019, https://www.nytimes. com/2019/07/24/us/politics/trump-veto-arms-saudi-arabia.html 20  Peter Salisbury. ‘What does the Stockholm agreement mean for Yemen?’ The Washington Post, 22 December 2018, https://www.washingtonpost.com/news/monkey-cage/ wp/2018/12/21/what-does-the-stockholm-agreement-mean-for-yemen/ 21  Ibrahim Jalal. ‘Yemen’s Stockholm Agreement one year on: Imaginary progress?’ Middle East Institute, 22 January 2020, https://www.mei.edu/publications/ yemens-stockholm-agreement-one-year-imaginary-progress 22  VOA News. ‘Saudi Arabia struggles to hold Yemen coalition together as allies Face off’, 3 September 2019, https://www.voanews.com/middle-east/saudi-arabia-struggleshold-yemen-coalition-together-allies-face

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operatives seizing the Aden government and raising demands for autonomy in the South. After months of indirect talks, the Hadi government and STC signed a deal in November to end the power struggle.23 Despite this, the situation is far from resolved and an uneasy calm prevails between the two sides. At the regional level, the Saudi rivalry with Iran persisted during 2019 as the two regional giants are wary of each other’s intentions. Riyadh blames Tehran for the internal strife and the fuelling of militias and terrorist groups in the Arab countries. The Kingdom has been suspicious of Iran’s regional intentions and views Tehran’s involvement in Syria, Iraq and Lebanon as a threat.24 For its part, Iran accuses the Kingdom of fuelling radicalism in the region through the spread of Wahhabi ideas and considers the Islamic State of Iraq and Syria (ISIS) as an offshoot of the Wahhabi teachings. It takes offense to Saudi Arabia and its regional allies facilitating the continued military presence of the US in the Persian Gulf, which Tehran considers as a prime security threat.25 Security Issues The security situation in Saudi Arabia continued to be vulnerable due to the fallouts of the power struggle with Iran and the Yemeni conflict. Responding to the ‘maximum pressure’ strategy of the Trump Administration, the Islamic Republic has upped its threats to disrupt the free movement of oil in the Persian Gulf. In May, four commercial vessels—two Saudi and one Norwegian oil-tankers and one Emirati bunkering ship—were damaged in a sabotage incident.26 The incident took place in the Emirati waters off the coast of Fujairah and an Emirati report

23  Marwa Rashad. ‘Yemen government and separatists sign deal to end power struggle in south’, Reuters, 5 November 2019. https://www.reuters.com/article/us-yemen-security/ yemen-government-separatists-sign-saudi-brokered-deal-to-end-power-struggle-in-southidUSKBN1XF1Y5 24  Jonathan Marcus. ‘Why Saudi Arabia and Iran are bitter rivals’, BBC, 16 September 2019, https://www.bbc.com/news/world-middle-east-42008809 25  Simon Mabon. Saudi Arabia and Iran: Power and Rivalry in the Middle East. London: I.B Tauris, 2013. 26  BBC News. ‘Four Ships ‘sabotaged’ in the Gulf of Oman amid tensions’, 13 May 2019, https://www.bbc.com/news/world-middle-east-48245204

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presented to the United Nations blamed Iran for the incident.27 A few weeks later, during the visit of Japanese Premier Shinzo Abe to Tehran, two oil tankers transiting through the Strait of Hormuz were attacked.28 While the US and its regional allies blamed Iran for the attack, the latter argued that these were ‘false flag’ operations to increase tensions in the region.29 In addition to these incidents in the Persian Gulf, Saudi Arabia had to endure several attacks on its territories carried out by the Yemeni Houthi rebels and others. In June, Abha international airport in the southern Baha region close to the Saudi-Yemeni border came under cruise missile attack from the Houthi militias.30 In the past, Houthi rebels claimed responsibility for several attacks on the civilian and military targets in the Kingdom, but gradually these attacks are becoming sophisticated. In May, pump stations on the East-West oil pipeline in the Kingdom were attacked by armed drones, which led to a small fire at the station. A statement by the then Saudi Energy Minister Khalid al-Falih noted that the pipeline is transporting “oil from the Eastern Province to Yanbu port,” and blamed Iran-backed Houthi militia for the “cowardly” terrorist attack.31 In September, a bigger drone attack was carried out in which two Saudi Aramco oil facilities in Abqaiq and Khurais were targeted by 18 armed drones, causing severe damage and disruption.32 Though Houthi rebels claimed responsibility, the Western intelligence agencies believe that the

 BBC News. ‘UAE tanker attacks blamed on ‘state actor’, 7 June 2019, https://www. bbc.com/news/world-middle-east-48551125 28  Patrick Wintour and Julian Borger. ‘Two oil tankers attacked in Gulf of Oman’, The Guardian, 13 June 2019. https://www.theguardian.com/world/2019/jun/13/ oil-tankers-blasts-reports-gulf-of-oman-us-navy 29  Press TV. ‘Tankers in Sea of Oman targeted in false flag ops: Commentator’, 16 June 2019. https://www.presstv.com/Detail/2019/06/16/598633/oil-tankers-Oman-Iran-false-flag 30  Asharq al-Awsat. ‘Arab Coalition Says Houthi Terror Attack Targets Saudi Arabia’s Abha Airport’, 12 June 2019, aawsat.com/english/home/article/1763731/ arab-coalition-says-houthi-terror-attack-targets-saudi-arabia’s-abha-airport 31  Saudi Press Agency (SPA). ‘Saudi Energy Minister says two pump stations on the EastWest pipeline were attacked, confirming sabotage targets global oil supply’, 14 May 2019, https://www.spa.gov.sa/viewfullstory.php?lang=en&newsid=1923830#1923830 32  Jonathan Marcus. ‘Saudi oil attacks: Drones and missiles launched from Iran—US’, BBC News, 17 September 2019, https://www.bbc.com/news/world-middle-east-49733558 27

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missiles emanated from Iran or Iranian waters.33 Saudi Arabia was able to contain the damage and restore production within a few days but  the attack did create a panic in the international oil market. Besides threats from the Yemeni rebels, the security situation within the Kingdom, mainly because of the presence of the remnants of the Al-Qaida or Al-Qaida in the Arabian Peninsula (AQAP) cells and the restive Shia population in the Eastern Province, remains a concern for the Kingdom. Actions by the security forces in Qatif and Awamiya since 2017 against the Shia groups allegedly sympathetic towards Iran have caused tensions.34 Notwithstanding near-complete media blackout, there are reports of people organizing protests against arbitrary detentions and actions by security agencies in the Eastern Province.35 Through its security cooperation with the US, the Kingdom has largely succeeded in flushing out AQAP and ISIS elements. At the same time, armed attacks did continue; in April, for example, the police foiled an armed attack on a government building in Riyadh.36 Though the identity of the attackers was not revealed, the modus operandi was of a jihadi organization. Economic Situation The Saudi economy has been one of the best performing economies of the region despite concerns about a global slowdown and fluctuations in the international oil market. The Kingdom has a substantial private non-oil sector contributing nearly 45.55 per cent to the GDP in 2019 (Table 8.2) but could not decouple itself from the vagaries of the oil market. The growth rate in 2019 was merely 0.8 per cent. The GDP at current prices was US$802.87 billion while it was US$796.35 billion a year earlier. The Kingdom has taken measures to diversify the economy beyond the 33  BBC News. ‘Saudi Oil attacks; Drones and Missiles launched from Iran-US’, 17 September 2019, https://www.bbc.com/news/world-middle-east-49733558 34  Human Rights Watch. ‘Saudi Arabia; Security Forces Seal off Eastern Town’, 13 August 2017, https://www.hrw.org/news/2017/08/13/saudi-arabia-security-forces-seal-eastern-town 35  Catherine Shakdam. ‘Media Blackout as Saudi Arabia Bombs Its own Citizens, Tells Them to leave their Homes or die’, American Herald Tribune, 2 August 2017, https:// ahtribune.com/world/north-africa-south-west-asia/saudi-uprising/1817-saudi-leave-ordie.html 36  Asharq al-Awsat. ‘Saudi Forces Foil Terrorist Attack North of Riyadh, Kill Four Attackers’, 21 April 2019, https://aawsat.com/english/home/article/1688846/ saudi-forces-foil-terrorist-attack-north-riyadh-kill-four-attackers

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Table 8.2  Saudi Arabia: Oil and Non-oil GDP, 2017–19 (US$ million)

GDP (at current prices) Oil GDP Non-oil GDP Private sector non-oil GDP

2017

2018

2019

697,193.46 (6.77) 198,531.54 (23.48) 492,349.86 (1.47) 336,813.93 (1.62)

796,353.39 (14.22) 266,193.00 (34.08) 524,934.54 (6.62) 351,231.12 (4.28)

802,879.02 (0.82) 250,111.26 (−6.04) 547,037.28 (4.21) 365,666.94 (4.41)

Figures in the bracket are per cent growth over the previous year Source: KSA. General Authority for Statistics. Gross Domestic Product by institutional factors’, https:// www.stats.gov.sa/en/52

petroleum sector and has taken steps under the ambit of Saudi Vision 2030 to open and promote various sectors. It has enabled the Kingdom generate a positive image for international investments and, in the medium-tolong term, is expected to provide alternative sources for fiscal revenue and livelihood for the people.37 The non-oil GDP at current prices was US$547.04 billion in 2019, an increase of 4.21 per cent over the previous year. Due to increase in oil prices in 2018, the GDP growth at current prices was 14.22 per cent, while the same at constant prices was just 2.43 per cent.38 The real GDP growth in the Kingdom has been declining since 2015 but increased in 2018. The sectoral distribution of the GDP in Table 8.3 shows that the economy is dominated by the hydrocarbon sector. Its share was 31.5 per cent of the GDP at current prices in 2019 and the share has been broadly increasing since 2015 when it was 24.6 per cent. The average growth rate of the different sectors masks the concurrent peaks and dips in growth rates with increase and decrease in oil revenues, often with a time lag. The manufacturing sector contributed 12.5 per cent to the GDP and out of which petroleum refining was 3.50 per cent. The manufacturing sector had significant growth in 2017 and 2018 at 6.64 per cent  and 13.39 37  KSA. Saudi Vision 2030, 2017, https://vision2030.gov.sa/sites/default/files/report/ Saudi_Vision2030_EN_2017.pdf 38  The World Bank. ‘GDP (Constant 2010 US$)- Saudi Arabia’, 2018, https://data. worldbank.org/indicator/NY.GDP.MKTP.KD?locations=SA

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Table 8.3  Saudi Arabia: Sectoral Contribution to GDP and Growth Rates, 2019 (per cent) Economic Activity

Contribution to GDP at current prices 2019

Average annual growth rate 2017–19

Agriculture Petroleum and natural gas production Manufacturing a. Petroleum refining Construction Wholesale and retail trade, hospitality Transport storage and communication Finance, insurance, Real estate and business services a. Real estate activities Government services

2.23 31.15

0.74 17.28

12.54 3.50 5.50 10.02

6.28 17.76 0.97 2.62

6.12

4.28

12.62

–

7.06 19.40

3.15 5.89

Source: KSA, General Authority for Statistics, GDP by kind of activity at current prices from 1970–2019, https://www.stats.gov.sa/en/52

per cent, respectively, but growth turned negative in 2019. The power and water sector growth rates were 21.28 per cent in 2018, but turned negative in 2019. The construction and some service sectors, which had negative or low rates of growth in the last few years, picked up in 2019 after a year of high oil revenues. Fig. 8.1 shows the correlation between the GDP and non-oil GDP growth rates with the fluctuations of the oil prices and hence the flow of oil revenues. The high growth rate coincided with the periods of high oil prices and the oil sector growth rates were significantly high at 23.48 and 34.08 per cent during 2017 and 2018, respectively.39 The non-oil GDP growth follows the same pattern with a time lag. The diversification plan of the Saudi Vision 2030 focuses on banking, finance, tourism and travel as the key sectors and the year witnessed some progress. The contribution of services to the GDP had been 48.69 per cent in 2018. The Kingdom has about 30 local and foreign banks serving over 30 million of its citizen and resident population. It has been seeking 39  KSA.  Saudi Arabia Monetary Authority (SAMA), Annual Statistical Survey 2018, http://www.sama.gov.sa/en-US/EconomicReports/Pages/YearlyStatistics.aspx’

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Fig. 8.1  Saudi Arabia: Oil and Non-Oil GDP Growth Rates and Oil Prices. Source: Compiled from KSA.  General Authority for Statistics. Gross Domestic Product by institutional factors, https://www.stats.gov.sa/en/823; OPEC. Annual Statistical Bulletin 2019; OPEC. Bulletin 2020

to merge financial lenders to optimize the scale of operations and the Saudi-British Bank and Awaal Bank were merged to form the third-largest bank in the Kingdom and the seventh largest in the GCC with an asset of over US$68 billion.40 However, Saudi’s biggest Bank, the National Commercial Bank has pulled out of its merger talks with the Riyadh Bank.41

40  Gulf Business. ‘Revealed: Top 10 banks in Saudi Arabia’, 24 September 2019, https:// gulfbusiness.com/revealed-top-10-banks-saudi-arabia/?utm_campaign=GB_Daily_ Newsletter_28_09_2019&utm_medium=email&utm_source=Eloqua 41  Gulf Business. ‘Saudi’s biggest bank NCB ends merger talks with Riyad Bank’, 17 December 2019, https://gulfbusiness.com/saudis-biggest-bank-ncb-ends-merger-talksriyadbank/?utm_campaign=GB_Daily_Newsletter_17_12_2019&utm_medium= email&utm_source=Eloqua

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According to the World Travel and Tourism Council, tourism in Saudi Arabia supported 8.5 per cent of the total employment in 2018.42 The Kingdom has been developing a slew of tourism and entertainment projects to move away from the oil-dependent economy. It started issuing tourist visas on 27 September and made several unprecedented relaxations to attract foreign tourists such as dropping of the dress code for foreign women43 and allowing unmarried foreign couples to share hotel rooms. Within the first few days, the issuance of the tourist visas, about 25,000 foreign tourists visited the Kingdom.44 A new visa system for Haj and Umrah pilgrims was introduced through the online portal Maqam, which attracted one million pilgrims during the year.45 The Diriyah Gate Project, the birthplace of the Saudi state and a UNESCO heritage site, has got a US$17 billion investment package that included the building of 20 hotels, eight museums and a golf course.46 The site, which placed a critical role in the birth of the first Saudi state in 1774, attracted about a million tourists during the year.47 Trial operations have started for the new airport in Arar, the capital of Northern Border Province, capable of handling over a  million passengers and more than

42  World Travel and Tourism Council (WTTC), ‘Travel & Tourism crucial to Saudi Arabia’s economy’, 25 March 2019. https://www.wttc.org/about/media-centre/press-releases/ press-releases/2019/travel-and-tourism-crucial-to-saudi-arabias-economy/ 43  Gulf Business. ‘Saudi starts granting online tourist visas, drops dress code for foreign women’, 29 September 2019, https://gulfbusiness.com/saudi-starts-granting-onlinetourist-visas-drops-dress-code-for-foreign-women/?utm_campaign=GB_Daily_ Newsletter_29_09_2019&utm_medium=email&utm_source=Eloqua 44  Ben Mack. ‘Revealed: how many visitors are flocking to Saudi Arabia amid tourism push’, Gulf Business, 9 October 2019, https://gulfbusiness.com/revealed-manyvisitors-flocking-saudi-arabia-amid-tourism-push/?utm_campaign=GB_Daily_ Newsletter_10_10_2019&utm_medium=email&utm_source=Eloqua 45  Gulf Business. ‘Saudi mulls permitting women to perform Hajj without male guardian— report’, 21 October 2019, https://gulfbusiness.com/saudi-mulls-permitting-womenperform-hajj-without-male-g 46  The Business Times. ‘Saudi Arabia’s ‘birthplace’ catches foreign investor interest’, 22 November 2019, https://www.businesstimes.com.sg/real-estate/saudi-arabias-birthplacecatches-foreign-investor-interest 47  Gulf Business. ‘Saudi’s ‘birthplace’ site catches foreign investor interest—CEO’, 23 November 2019, https://gulfbusiness.com/saudis-birthplace-site-catches-foreigninvestor-interest-ceo/?utm_campaign=GB_Daily_Newsletter_24_11_2019&utm_ medium=email&utm_source=Eloqua

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10,000 flights per year.48 Equipped with advanced luggage handling systems, it would improve air connectivity in the northern region, with low-­ cost carrier flights to Dammam, the headquarters of the Saudi oil industry. During the year, Saudi Arabia adopted seven Guiding Principles for Investment Policymaking in line with Vision 2030 and the UNCTAD Policy Framework.49 These are non-discrimination, investment protection, investment sustainability, enhanced transparency, protection of public policy concerns, ease of entry for employees and the transfer of knowledge and technology. Saudi Arabia seeks to attract foreign investments to fund its ambitious economic diversification project. It seeks market tie-ups in the upstream oil and gas and downstream refining and petrochemical sectors. The total inward foreign investment flows in 2018 was US$53.74 billion and the total cumulative foreign investment by the end of 2018 was US$421.12 billion (Table 8.4). The cumulative FDI in the Kingdom by the end of 2018 was US$234.50 billion. It has marginally increased from US$226.85 billion in 2015 because the FDI inflows were Table 8.4  Saudi Arabia: Inward and Outward Foreign Investments (US$ million) Flows 2016 Inward foreign direct investment Inward foreign institutional investment Other investments Total inward foreign investment Outward foreign direct investment Outwards foreign institutional investment Total outward foreign investment

Flows 2017

Flows 2018

Cumulative at end of 2018

7,545 −3,985 4,088 234,499 16,957 20,543 25,368 95,857 12,967 37,469 10,988 −4,722

4,363 20,921 10,595 18,529

24,292 53,748 20,884 1,779

90,752 421,108 106,377 222,299

25,408 87,466 61,848 557,995

Source: KSA.  Saudi Arabia Monetary Authority, Annual Statistical 2018, http://www.sama.gov.sa/ en-US/EconomicReports/Pages/YearlyStatistics.aspx

48  Aarti Nagraj. ‘Saudi starts trial operations at new Arar airport’, Gulf Business, 30 December 2019, https://gulfbusiness.com/saudi-starts-trial-operations-new-arar-airport/ ?utm_campaign=GB_Daily_Newsletter_31_12_2019&utm_medium=email&utm_ source=Eloqua 49  United Nations Conference on Trade and Development (UNCTAD). ‘World Investment Report 2019’, https://unctad.org/en/PublicationsLibrary/wir2019_en.pdf

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dismal in recent years. In 2018, it was barely US$4.08 billion according to SAMA (but US$3.2 billion according to UNCTAD World Investment Report 2019), much below the record level of US$39 billion achieved in 2008. The Foreign Institutional Investments in the Kingdom have been more in debt securities than equity and investment fund share. The cumulative Saudi outward foreign investment by the end of 2018 was about US$558 billion. The outward FDI has reached a record level of US$20.88 billion in 2018, almost doubling the 2017 level (Table 8.4). In 2018, there had been significant withdrawal of investment in foreign debt securities but the net investment income from abroad in the Kingdom has been positive, though declining since 2016 (Table 8.6). In the third annual Future Investment Summit, dubbed as ‘Davos in the Desert’, held in Riyadh during 29–31 October, investment deals worth more than US$15 billion were signed.50 During the year, the Chinese government’s Silk Road fund acquired a 49 per cent stake in the ACWA power RenewCo subsidiary.51 In the regional context, the desert oasis of Al-Ahsa, a city of a million residents, which was once propped up by the Qatari investment in luxury hotels, is showing signs of decline in investment due to the continuing Qatar crisis.52 The investments have been made to host the guests of the World Cup 2022 in the bordering Saudi City and hence Doha has not liquidated its investments hoping for a thaw in the relations. Saudi Arabia and Oman signed an MoU to support small and marginal enterprises in each other’s country through access to the local market, network and potential investors.53 50  Business Standard. ‘Business deals worth $15 bn signed at key financial summit in Saudi Arabia’, 29 October 2019, business-standard.com/article/pti-stories/business-deals-worthusd-15-billion-signed-at-key-financial-summit-in-saudi-arabia-119102901100_1.html 51  Aarti Nagraj. ‘China’s Silk Road Fun acquires 49% stake in Saudi’s ACWA Power Unit’, Gulf Business, 23 June 2019, https://gulfbusiness.com/chinas-silk-road-fund-acquires49-stake-saudis-acwa-power-unit/ 52  Anuj Chopra. ‘Once propped up by Qatari high-rollers, Saudi city prays for truce’, Yahoo, 9 December 2019, https://news.yahoo.com/once-propped-qatari-high-rollerssaudi-city-prays-103348156.html?utm_source=newsletter&utm_medium=email&utm_ campaign=optimism_but_no_breakthrough_on_qatar_as_gulf_summit_starts&utm_ term=2020-01-11 53  Magnitt. ‘Zubair SEC, BIAC join hands to support SMEs in Oman & KSA’, 9 December 2019, https://magnitt.com/news/51306/zubair-sec-biac-join-hand-to-support-smes-inoman-ksa?utm_source=MAGNiTT+Daily&utm_campaign=9d1ada953c-daily_310719_ COPY_01&utm_medium=email&utm_term=0_59d856919e-9d1ada953c-109225545

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Russian President Vladimir Putin visited Riyadh on 14 October, his first since 2012. During the visit, both countries signed 20 agreements covering oil and gas and other energy industries, space, health services, tax administration, travel and aviation and increasing bilateral trade. Saudi Arabia has already disbursed US$2.5 billion of US$10 billion that it pledged to the Russian Direct Investment Fund.54 The bilateral relations are facilitated by the emerging cooperation between Saudi Arabia and Russia within the framework of OPEC+ since late 2016 to rebalance the oil market. Riyadh has agreed to build a methanol plant in the Eastern Amur region of Russia, bordering China. The government continue to depend on oil exports, which accounted for 67 per cent of the total income in 2018,55 down from 91.8 per cent in 2012. The oil revenues in 2018 were US$162.9 billion, a 40 per cent growth over the previous year and the non-oil revenues were US$78.49 billion (Fig.  8.2). The revenues projected in the budget 2018 were US$208.89 billion, but due to increase in oil prices, the actual total earning reached US$241.49 billion. The project budgetary deficits in the 2018 budget were US$51.90 billion, while the actual deficit was US$46.36 billion. The increase in oil revenues lowered the budgetary deficit in 2018 at −5.9 per cent of GDP against −9.2 per cent in 2017.56 The projected expenditure for 2019 was US$294.93 billion, an increase of 13 per cent over the previous year. The largest allocation was for education with 17.41 per cent share, followed by the military at 17.26 per cent and health and social development at 15.55 per cent. The ratio of current and capital account expenditure for 2018 has been nearly 82:1857 implying low growth stimulus to the economy. The projected budgetary deficit for 2019 was US$38.85 billion.58 Saudi Arabia has been tapping the international debt market to offset the impact of low oil revenues. In January 2019, it raised US$7.5 billion 54  Gulf Business. ‘Saudi, Russia sign multi-million-dollar investment deals during Putin visit’, 15 October 2019, https://gulfbusiness.com/saudi-russia-sign-multi-million-dollarinvestment-deals-putin-visit/?utm_campaign=GB_Daily_Newsletter_15_10_2019&utm_ medium=email&utm_source=Eloqua 55  KSA.  SAMA, Annual Statistical Survey 2018, http://www.sama.gov.sa/en-US/ EconomicReports/Pages/YearlyStatistics.aspx 56  Ibid. 57  Ibid. 58  Aarti Nagraj. ‘Souq relaunches as Amazon.ae in the UAE’. Gulf Business, 1 May 2019. gulfbusiness.com/souq-relaunches-amazon-ae-uae/.

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Fig. 8.2  Saudi Arabia: Oil and Non-Oil Revenues, 2015–18. Source: Compiled from KSA.  Saudi Arabia Monetary Authority, Annual Statistical 2018, http:// www.sama.gov.sa/en-US/EconomicReports/Pages/YearlyStatistics.aspx

in international bond market and in April raised another US$12 billion to help fund the purchase of 70 per cent of SABIC from PIF.59 In July, it made the first foray in the Euro-dominated debt market through the sale of US$3 billion Euro bonds.60 The outstanding external debt at the end of 2018 was US$68 billion, while internal debt was US$81.32 billion and the total public debt as a per cent of GDP at the current price was 19 per cent.61 Significant social pressures exist due to high unemployment rates, and Table  8.5 gives the structure of the labour market. There were about 1,898,927 Saudis in the labour force in 2017, with a share of  MEES. vol. 62, no. 27, 5 July 2019, p. 15  MEES. vol. 62, no. 43, 25 October 2019, p. 10 61  KSA.  SAMA, ‘Annual Statistical Survey 2018, http://www.sama.gov.sa/en-US/ EconomicReports/Pages/YearlyStatistics.aspx 59 60

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19.5 per cent. The Saudi labour force grew at 5 per cent between 2016 and 2017. The share of the Saudi nationals in the public sector employment is nearly 96 per cent, of which nearly 59 per cent are men.62 The share of nationals in the private sector employment has marginally increased from 16.68 per cent to 18.59 during 2016–17 (Table 8.5). At the same time, the share of women in the labour force is increasing and stood at 23.2 per cent in 2018. The number of Saudi women employed in the private sector has increased by 58,078 during 2016–17 (Table  8.5). While the Saudi labour force has increased by 89,612 (4.95 per cent), the expatriate labour has declined by 722,996 (8 per cent) in the same period. The hike in fee levied on the expatriates, nationalization of the labour force and sluggish economic growth are prompting hundreds of thousands of expatriates to leave the Kingdom. The industrial sector is critical to the diversification efforts and for job creation for the nationals. At the same time, the imposition of the expatriate fee has increased the operating cost of firms. As a partial remedy, the Kingdom has wavered off the fees on expatriates employed in the Table 8.5  Saudi Arabia: Employment and Labour Market, 2016–18 Category

2016

2017

2018

Saudi labour force Non-Saudi labour force Total labour force Unemployment rate among Saudis (per cent) Unemployment rate among Saudis males (per cent) Unemployment rate among Saudis female (per cent) Share of Saudi national in government sector employment Per cent share of Saudi national in private sector employment Number of Saudi females in private sector

1,809,315 9,035,270 10,844,585 11.6 5.4 33.7 95

1,898,927 8,312,274 10,211,201 12.8 7.4 33.1 96

– – 12.7 6.6 32.5 96

16.68

18.59

–

547,777

605,855

–

Source: KSA.  SAMA, ‘Annual Statistics 2018, http://www.sama.gov.sa/en-US/EconomicReports/ Pages/YearlyStatistics.aspx

 Ibid.

62

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industrial sector for five years, beginning 1 October 2019.63 The government would bear the cost for licensed industrial units, which hired a higher or equal number of Saudi nationals as compared to the expatriates but were unable to pay the increase in work permits for the expatriates.64 In May, the Kingdom approved a permanent residency programme to attract skilled and affluent people and reportedly granted 73 foreign premium residency to people from 19 countries, including investors, doctors, engineers and financiers.65 External Sector: The share of oil exports in the total exports was 77.4 per cent in 2019. Table 8.6 shows the balance of payment situation of the Table 8.6  Saudi Arabia: Balance of Payment, 2016–19 (US$ million)

Oil exports Non-oil exports Re-exports Total exports Total imports Merchandise trade balance Net trade in services Net investment income from abroad Current account balance Capital account balance

2016

2017

2018

2019

138,298.32 39,518.55 8,057.61 185,874.5 (−9.8) 141,921.9 (−19.8) 43,952.6 −53,676.89 16,467.09

172,802.69 43,071.54 8,733.69 224,607.9 (20.8) 136,200.7 (−4.0) 88,407.2 −61,198.96 11,327.77

235,379.52 54,117.45 8,556.03 298,053 (32.7) 138,778.1 (1.9) 159,274.9 −64,992.66 7,786.41

204,899.51 – – 264,784.88 (−11.16) 146,138.90 (5.3) 118,645.99 – –

−24,140.79 −908.60

10,595.10 −1,871.45

71,489.00 −2,357.85

– –

Figures in the brackets are rates of growth.  Sources: KSA.  Saudi Arabia Monetary Authority, Annual Statistical 2018; KSA, General Authority of Statistics, Balance of Trade 2019

63  Reuters. “Saudi Arabia Waves fees on Expats Working in Industrial Sector”, 24 September 2019, https://www.reuters.com/article/us-saudi-economy-industrial/ saudi-arabia-waives-fees-on-expats-working-in-industrial-sector-idUSKBN1W91WU 64  Gulf Insider. ‘Saudi Allocates $3.1 Billion to Help Companies with Expat fee hikes’, 10 February 2019, https://www.gulf-insider.com/saudi-approves-3-1-billion-help-companiesexpat-fee-hikes/ 65  Gulf Business. ‘Saudi grants first batch of permanent residencies to foreigners’, 12 November 2019, https://gulfbusiness.com/saudi-grants-first-batch-permanentresidencies-foreigners/?utm_campaign=GB_Daily_Newsletter_12_11_2019&utm_ medium=email&utm_source=Eloqua

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Kingdom during 2016–19. After, three years of continuous increase in oil export revenues and consequently total export revenues, both of them declined in 2019. The total exports declined by 11.16 per cent in 2019 from US$298.05 billion in 2018 to US$264.78 billion in 2019. The total imports increased by 5.3 per cent to about US$146.14 billion in 2019. The merchandise trade balance increasing surplus declined to $118.65 billion in 2019. The Kingdom has negative net trade in services, which has increased over the years. Net investment income from abroad had been positive though declining in the last few years. The current account balance, which was negative in 2016, turned positive subsequently with increasing oil export revenues. The current account surplus was about US$71.49 billion in 2018. The outflow of remittances from the expatriate workers had decline from US$38.28 billion in 2015 to US$33.38 billion in 2018, reflecting the effect of Saudization of the job market. Table 8.7 shows the direction of trade for Saudi Arabia and shows the dominant position of China in both exports and imports. China had a share of 18.32 per cent in the Kingdom’s total exports in 2019, while India and Japan were distant second and third at 10.46 and 10.21, respectively. The dominant sources of imports in 2019 were China (18.75 per cent), the US (11.82 per cent), the UAE (7.18 per cent), Germany (4.85 per cent) and Japan (4.54). Tables 8.8 and 8.9 show the main composition of exports and imports of Saudi Arabia. The main items of non-oil exports in 2018 were plastics and articles thereof (7.1 per cent) and organic chemicals (4.9 per cent).

Table 8.7  Saudi Arabia: Direction of Trade, 2019 Top Five Export Destination (2019)

Top Five Sources of Imports (2019)

China (18.32) India (10.46) Japan (10.21) South Korea (7.94) US (5.12)

China (18.75) US (11.82) UAE (7.18) Germany (4.85) Japan (4.54)

Figures in brackets indicate per centage shares. Source: KSA, General Authority of Statistics, Top ten trading partners 2019, https://www.stats.gov.sa/ sites/default/files/dot_en_47.pdf

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Table 8.8  Saudi Arabia: Composition of Exports, 2018 (US$ million) HS Code

Product label

Exported value in 2018

Per cent share

Per cent growth 2017–18

Total 27

All products Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral. Plastics and articles thereof Organic chemicals Ships, boats and floating structures Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals Aluminium and articles thereof

294,535 231,587

78.63

34

20,906 14,303 2,638 2,291

7.1 4.9 0.9 0.8

36 23 47 19

2,259

0.8

223

39 29 89 28

76

Source: ITC. List of products exported by Saudi Arabia, http://www.intracen.org/itc/market-info-tools/ trade-statistics/

Table 8.9  Saudi Arabia: Composition of Imports, 2018 HS Code

Product label

Value

Share country’s Growth cluster imports rate (per cent) 2017–18 (per cent)

Total 84 85

All products Machinery (mechanical) parts thereof Electrical machinery and equipment and parts thereof Vehicles and parts and thereof Pharmaceutical products Ships, boats and floating structures Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral Articles of iron or steel Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical

135,211 15,470 13,677

100 11.44 10.12

7.0 −6.0 −4.0

11,873 5,534 4,338 4,338

8.78 4.09 3.21 3.01

−8.0 7.0 251 17

3,975

2.94

45

3,945

2.92 2.64

−4.0 23

87 30 89 71

27

73 90

Source: ITC. List of products imported by Saudi Arabia, http://www.intracen.org/itc/market-info-tools/ trade-statistics/

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Table 8.10  Saudi Arabia Foreign Exchange Reserves, 2016–2019 (US$ million) Components of Forex

2016

Monetary gold SDR Reserve position in the IMF Foreign currency and deposits abroad Investment in foreign securities Total reserve assets

438.35 7,452.6 1,964.7 165,717.35 366,921.99 542,494.62

2017

2018

438.35 438.35 7,914.43 8,190.01 1,559.46 1,671.30 158,010.0 168,954.34 334,706.43 502,628.67

Source: KSA.  SAMA, Monthly Bulletin February EconomicReports/Pages/MonthlyStatistics.aspx

2020,

323,542 502,796.42

2019 438.35 8,488.22 2,546.03 172,040.02 322,308.24 505,820.85

http://www.sama.gov.sa/en-US/

Among the main items of import were machinery and parts (11.44 per cent); electrical machinery and parts (10.12 per cent); vehicle and parts (8.78 per cent); pharmaceuticals (4.09 per cent) among others. The import of products like organic chemicals, cereals, iron and steel were significant with more than US$2 billion of imports with a high growth rate. The total foreign exchange reserve (forex) at the end of 2019 was about US$505.82 billion, which has declined from US$542.50 billion in 2016. Table  8.10. The decline in oil revenues has led the Kingdom to draw down its forex reserves to finance its budgetary commitments. There has been a decline in the investment in foreign securities over the years. During 2018 the Kingdom provided about US$10.18 billion as foreign aid as against US$13.88 billion in 2014.66 Saudi Arabia was placed on the EU money laundering blacklist on 13 February, which caused an uproar domestically.67 It also got a place in the top ten global business climate improvers in the world in 201968 and made important reforms in eight areas related to the business climate. In June, Saudi Arabia took over the presidency of G-20 and would host the summit in November 2020.

 KSA, SAMA, Annual Statistical Survey 2018, (Balance of Payments Statistics).  MEES. vol. 62 no. 7, 15 February 2019, p. 23. 68  The World Bank. ‘Doing Business 2020: Saudi Arabia Accelerated Business Climate Reforms, Joins Ranks of 10 Most Improved’, 24 October 2019, https://www.worldbank. org/en/news/press-release/2019/10/24/doing-business-2020-saudi-arabia-acceleratedbusiness-climate-reforms-joins-ranks-of-10-most-improved 66 67

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Energy Sector According to Saudi estimates in 2018, the oil reserves stood at 268.03 billion barrels and gas at 320,454 billion standard cubic feet.69 The oil production capacity is 11.85 mb/d after netting Bahrain’s share of 150,000 b/d from the Abu Safah oil field.70 Despite the efforts towards diversification, the share of oil in total exports has been significant and constitutes about 78 per cent. At the same time, it dropped from about 87 per cent in 2011 and the decline since 2014 was mainly driven by the steep fall in oil prices during 2014–16. Table 8.11 shows the production and trade in oil and petroleum products during 2016–18. The energy sector has faced several turbulent issues during 2019. There were three major attacks on key energy infrastructures. The worst was on 14 September when the Abqaiq oil processing facility and Khurais oil field came under drone attack and this disrupted the production of 5.7 mb/d of oil supply and 2 bcm/d of associated gas.71 At that time, the Kingdom was producing 9.8 mb/d and Abqaiq is the largest processing facility; known for its Arab Light Crude grade and Arab Extra Light Crude, it could produce only around 4.5 mb/d, far below its installed capacity of 7 mb/d. In other words, the drone attack drastically reduced the Saudi Table 8.11  Saudi Arabia: Energy Production and Trade, 2016–18

Oil production (mb/d) Oil exports (million barrels) Production of petroleum products (million barrels) Export of petroleum products (million barrels) Natural gas production (bcm)

2015

2016

2017

2018

10.19 2,614.51

10.46 2,731.59

9.96 2,543.44

10.32 2,690.61

905.42

1,034

1,049

1,028

421.48

549.95

657.97

719.49

120

126

129

133

Source: KSA.  Saudi Arabia Monetary Authority, Annual Statistical 2018, http://www.sama.gov.sa/ en-US/EconomicReports/Pages/YearlyStatistics.aspx

69  KSA.  SAMA, Annual Statistics 2018, EconomicReports/Pages/YearlyStatistics.aspx 70  MEES. vol. 62 no. 28, 2 July 2019, p. 2. 71  MEES. vol 62, no. 38, 20 September 2019

http://www.sama.gov.sa/en-US/

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production capacity by over 50 per cent and contributed to market uncertainty and short price rise.72 Riyadh managed the situation by drawing from the domestic reserve stock of 68.1 million barrels that could support 25–32 days of exports. The Abqaiq attack led to the Kingdom stockpiling an additional 15.6 million barrels in October.73 As part of its hedging strategy, in October, Saudi Arabia renewed its three-year lease of the storage facility of 820,000 barrels in Okinawa, Japan. It maintains similar storage facilities in Fujairah (UAE), Sidi Kerir (Egypt) and Rotterdam (The Netherlands).74 The 40 per cent expansion of the East-West pipeline that connects oil production centres in the Eastern Province to refineries and export terminals in the Western Red Sea coast was nearly complete and should increase the capacity from 5 mb/d to 7 mb/d,75 thereby lessening the Saudi reliance on the Strait of Hormuz for its exports. However, the conflict in Yemen has resulted in attacks in the Red Sea maritime routes and caused temporary halting of oil exports in 2018. Saudi Arabia’s domestic refining capacity is 3.1 mb/d and about 2.67 mb/d are from overseas refineries. About 2.04 mb/d of the oversea refining capacity is located in Asia,76 while its largest overseas refinery is in Texas in the US. The Kingdom exported about US$44.26 billion worth of refined petroleum products, which was 18.77 per cent of its total oil exports in 2018. The Kingdom still has to go a long way to be able to export a substantial portion of its oil exports as value-added refined products. In 2019, it picked up 9 per cent and 35 per cent stakes in Chinese Zhoushan and Panjin refineries, respectively, and both would  start production soon.77 The Saudi Aramco has a 25 per cent stakes in the 280,000

72  Yun li. ‘Saudi Oil Production cut by 50% after Drone attack crude facilities’, CNBC, 24 September 2019, https://www.cnbc.com/2019/09/14/saudi-arabia-is-shutting-downhalf-of-its-oil-production-after-drone-attack-wsj-says.html 73  Ibid. 74  Jamie Ingram. ‘Saudi, Japan Extend Crude Storage Deal’, MEES, 13 December 2019, mees.com/2019/12/13/news-in-brief/saudi-japan-extend-crude-storage-deal/93832830 -1dcc-11ea-88f2-1307c39caa7f 75  MEES. vol. 62 no. 33, 16 August 2019, p. 4 76  MEES. vol. 62 no. 27, 5 July 2019, p. 12. 77  Ibid.

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b/d Fujian refinery in China’s Quanzhou province.78 The joint venture in Malaysia is facing production delays79 and prospective one in India is muddled in delays and political controversies. The expansion of the Petro-Rabigh integrated petrochemical and refinery—a joint venture of Saudi Aramco and Sumitomo of Japan—became operational in 2019 in the Red Sea port of Yanbu. Aramco has SADARA petro-chemical joint venture with Dow chemical in the Jubail city. The combined capacity of both the petrochemical plants is 8.19 million tonnes per year of finished products and of which 20 per cent are high-value chemicals that were not produced in the Kingdom before.80 The bulk of the petrochemical production are meant for exports. Saudi Aramco has added overseas gas assets to its portfolio in 2019 and made a long-anticipated debut in the US shale gas assets. It reached an agreement with Sempras LNG of the US to pick up stakes in the major Shale project at Port Arthur on the Texas coast.81 It sold the first LNG cargo from its Saudi Trading Company (STC) office in Singapore to India.82 After delays and controversies, the Initial Public Offering (IPO) of Aramco was floated on 5 December 2019 on the Saudi stock exchange Tadawul with a launch price of SR32 (US$8.64). It briefly hit the US$2 trillion target on the second day of trading before closing at US$1.93 trillion83 and final evaluation was closed at US$1.73 trillion.84 The high-value listing of Aramco boosted the Saudi stock exchange globally and resulted in Morgan Stanley Capital International adding Aramco to its emerging market index.85  Aramco Expats. 2007, ‘Fujian Ventures Officially launched’, 8 April, https://www. aramcoexpats.com/articles/fujian-ventures-officially-launched/ 79  MEES. vol. 62 no. 47, 22 November 2019, p. 6 80  MEES. vol. 62 no. 45, 8 November 2019. p. 16. 81  MEES. vol. 62 no. 21, 24 May 2019, p. 4 82  MEES. vol. 62 no. 21, 7 June 2019, p. 10 83  The Economic Times. ‘Saudi Aramco hits crown prince’s $2 trillion target’, 12 December 2019, https://energy.economictimes.indiatimes.com/news/oil-and-gas/saudiaramco-hits-crown-princes-2-trillion-target/72494385 84  Petroleum Economist (2019/2020). ‘Saudi Aramco IPO’, December–January, p. 12 85  Clara Denina and Simon Jessop. ‘MSCI, S&P Dow Jones, FTSE Russel could fast-track Aramco into indices’, Reuters, 16 November 2019, https://www.reuters.com/article/ussaudi-aramco-ipo-indexes/msci-sp-dow-jones-ftse-russell-could-fast-track-aramcointo-indices-idUSKBN1XP23Q 78

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Towards reducing domestic consumption and making more oil available for exports, Saudi Arabia has been encouraging the consumption of natural gas and the development of renewable energy. It has the largest oil-fired power plants in the world under construction that would burn about 912,000 barrels of oil per day.86 As a policy shift, oil-burning is almost eliminated in the eastern region where gas supplies have reached but similar efforts in other regions, especially the Jazan Province, face infrastructural bottlenecks. The electricity demand has stabilized and during 2018 the peak demand stood at 82 per cent of the total power-­ generation capacity, indicating a comfortable demand–supply balance.87 As part of its renewable energy strategy, in 2019, it set the target of increasing its renewable energy capacity to 59 GW by 2030.88 The French firm EDF and Abu Dhabi firm Masder have agreed to build the first wind farm in Saudi Arabia.89 Slated to be the largest in the Middle East with 400 MW power generation capacity, it will be built on Dumant al-Jandal in the northern Jawf province.90 Sakaka, 300  MW Solar Photovoltaic power plant, has been connected to the national grid in late November and is expected to provide electricity to about 45,000 households in Jawf. AWCA power, the Saudi power company, submitted a record low bid of US$1.70/kWh for electricity for the fifth phase of Dubai’s 900  MW Mohammad Bin Rashid solar park.91 Social Issues Saudi Arabia has faced criticism from various quarters over its human rights record and the lack of freedom for women. Its dismal human rights record was highlighted by the killing of Khashoggi in Istanbul. Besides

 MEES. vol. 62 no. 11, 15 March 2019, p. 12.  MEES. vol. 62, no. 32, 9 August 2019, p. 10 88  MEES. vol. 62 no. 3, 18 January 2019, p. 10 89  MEES. vol. 62, no. 31, 02 August 2019, p. 16 90  Ibid. 91  MEES. vol. 62, no. 48, 29 November 2019, p. 11 86 87

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negative international coverage, it brought diplomatic challenges for the Al-Saud. The issue of gender and human rights activists detained by the Kingdom remains on the fore. In March 2019, the trial of women activists who were arrested the previous year began in a criminal court which rejected allegations of torture against the women. While some of the women were temporarily released reportedly after signing declarations of abstinence in future, four—Loujain al-Hathloul, Samar Badawi, Nassima al-Sadah and Nouf Abdulaziz—who refused to sign remained under detention.92 Concerning women’s rights, small positive steps continued. During the year, for the first time, women teachers started educating young male pupils in the 1,460 state-run schools.93 They can now reach senior ranks in the armed forces, including lance corporals, corporals, sergeants and staff sergeants in all the wings of the armed forces including Royal Saudi Air Defense Forces, Royal Saudi Strategic Missile Forces and Armed Forces Medical Services.94 Emon Shakoor, the youngest Saudi woman to be invited to World Economic Forum founded Blossom, the first accelerator enterprise that aims to scale up women-led start-ups in the Kingdom.95 The most visible progress for women came in February when Princess Reema Bint Bandar was named the Kingdom’s ambassador in Washington. In 2018, the Kingdom lifted the prohibition on the issuance of driving license to women. In July 2019, it began taking steps to repeal the highly discriminatory practice of the guardianship system. The Council of Ministers took steps to end the practice of denying women to travel outside alone without the need to carry a letter of permission from their male guardian. The rule for the issuance of passports was changed to allow women older than 21 years to apply and get a passport without any need

92  Human Rights Watch. ‘Saudi Arabia: Events of 2019’, 2020, https://www.hrw.org/ world-report/2020/country-chapters/saudi-arabia 93  Arabian Business. ‘Gallery: Over 6 million students back to school in Saudi Arabia’, 2 September 2019, arabianbusiness.com/gallery/427037-gallery-over-6-million-studentsback-to-school-in-saudi-arabia 94  Gulf Business. ‘Saudi women can now reach ‘senior ranks’ of armed forces’, 3 October 2019, https://gulfbusiness.com/saudi-women-can-now-reach-senior-ranks-armed-forces/ ?utm_campaign=GB_Daily_Newsletter_05_10_2019&utm_medium=email&utm_ source=Eloqua 95  Saudi Gazette. ‘Young Saudi female represents Kingdom in Global Shapers hub at WEF’, 31 January 2018, http://saudigazette.com.sa/article/527360

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for permission.96 Earlier, women of all ages and boys under 21 were required to produce permission from guardians for the passport application. The changed rule makes the age limit universal for boys and girls at 21. Simultaneously, the civil status law was changed in August, whereby women can apply for marriage or divorce on their own and do not need permission from their legal guardian for registering marriage or filing for divorce in a court.97

Bilateral Ties India and Saudi Arabia have significantly improved their relations in the past few years. Prime Minister Modi and Crown Prince MbS met thrice in 2019. The Crown Prince made his maiden visit to India in February; both leaders met during the G-20 Summit in Osaka in June and in October, Prime Minister Modi made his second visit to the Kingdom, after the earlier one in April 2016. These visits and other meetings have provided the opportunity for better political and diplomatic understanding and a platform for improvement. Political and Security Cooperation The visit of the Crown Prince was his first to India and the first by a Saudi Crown Prince since the 2014 visit of the then Crown Prince and Defense Minister and now King Salman. The Crown Prince was accorded all the protocols befitting the head of state and even beyond and Prime Minister Modi personally received the Saudi leader at the airport. A large delegation accompanied the Prince. Given its sensitivity over coming to India via Pakistan, the Crown Prince flew home from Islamabad before reaching New Delhi.98 During the visit, Bin-Salman called on President Ram Nath 96  HRW. ‘Saudi Arabia: Travel Restrictions on Saudi Women Lifted’, 22 August 2019, https://www.hr w.org/news/2019/08/22/saudi-arabia-travel-restrictions-saudiwomen-lifted 97  Um al-Qura. ‘Cabinet decisions approving the amendment of the travel documents, civil status, and labour and Social security system’, https://www.uqn.gov.sa/ articles/1564686389678699500/ 98  Elizabeth Roche. ‘Saudi Prince Salman flies back home ahead of India visit today’, Livemint, 19 February 2019, https://www.livemint.com/news/india/saudi-prince-salmanflies-back-home-ahead-of-india-visit-today-1550514977674.html

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Kovind, held delegation-level talks with Prime Minister Modi and met Vice-President Venkaiah Naidu and Minister of External Affairs Sushma Swaraj. At the end of the meeting between Prime Minister Modi and Crown Prince Bin-Salman, a joint statement was issued expressing their commitment to enhance cooperation in fighting terrorism and strengthen strategic investments. During the meeting, the prime minister underlined the problem of cross-border terrorism faced by India, especially in the light of the Pulwama attack and said that, according to New Delhi, “terrorists and supporters of terrorism should face all-out pressure from the international community.”99 Echoing the sentiments, the Crown Prince expressed the Saudi readiness to cooperate with India in tackling terrorism, including through intelligence sharing.100 The two leaders noted the possibilities for enhancing commercial ties. Bin-Salman, while addressing the press, said that both countries “have common goals in the energy and agriculture” sectors and they “will diversify this spirit to other sectors.”101 He further stated that commercial relations have been “diversified to the petrochemical sector” and that the Kingdom has since 2016 invested US$44 billion in the Indian market. Prime Minister Modi, while highlighting the significant growth in the commercial ties, stated that the two sides have agreed to enhance further bilateral trade and device a formal mechanism to facilitate Saudi strategic investments in India. He underlined that economic reform measures under the Saudi Vision 2030 and Make in India and Start-Up India programmes are complementary. The Crown Prince also expressed the 99  GoI.  MEA. ‘India-Saudi Arabia Joint Statement during the State Visit of His Royal Highness the Crown Prince of Saudi Arabia to India’, 20 February 2019, https://mea.gov.in/ bilateral-documents.htm?dtl/31072/IndiaSaudi_Arabia_Joint_Statement_during_the_ State_Visit_of_His_Royal_Highness_the_Crown_Prince_of_Saudi_Arabia_to_India 100  The Economic Times. ‘Saudi Arabia to enhance anti-terror cooperation with India: Envoy’, 25 September 2019, https://economictimes.indiatimes.com/news/defence/saudiarabia-to-enhance-anti-terror-cooperation-with-india-envoy/articleshow/71291017. cms?from=mdr 101  The Times of India. ‘Saudi Crown Prince Mohammed Bin- Salman India visit: Full Text of India-Saudi Joint Statement’, 20 February 2019, timesofindia.indiatimes.com/india/ saudi-crown-prince-mohammad-bin-salman-india-visit-full-text-of-india-saudi-arabia-jointstatement/articleshow/68086251.cms

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Saudi’s willingness to invest up to US$100 billion in infrastructure projects in India. During the visit, both countries signed five agreements, including an MoU on investing in the National Investment and Infrastructure Fund established by the Government of India in 2015. MoUs in cooperation in the field of tourism and housing sector were signed. The two sides agreed to establish “Strategic Partnership Council” to monitor progress in bilateral ties in different areas, including politics, security and economy.102 The visit by the Crown Prince was followed by both the leaders meeting during the G-20 meeting in Japan.103 Indeed, since the Brisbane summit in 2014, leaders of both countries have been using the forum to meet and exchange views.104 During the Osaka meeting, Saudi Arabia agreed to increase India’s quota of hajj pilgrims from 175,000 to 200,000105 and the Crown Prince invited the prime minister for the investment summit later in the year. In October, Prime Minister Modi undertook his second visit to the Kingdom to deliver the keynote address in the Future Investment Initiative (FII), in Riyadh on 29 October. Highlighting initiatives such as Make in India and Skill India, the prime minister pitched for investment opportunities in India.106 The prime minister met and held discussed with King Salman, Crown Prince and several other senior ministers.107 The joint

 Ibid.  India Today. ‘PM Modi meets Saudi Prince Salman in Osaka discuss trade, counterterrorism’,28June2019,https://www.indiatoday.in/india/story/pm-modi-meets-saudi-princesalman-osaka-discusses-trade-counter-terrorism-1557717-2019-06-28 104  The only exception was the Frankfurt summit in July 2017 when domestic tension resulted in the Kingdom sending a junior minister for the G-20 meet. 105  Hindustan Times. ‘Saudi Arabia raises India’s Haj quota by 30,000 after PM Modi addresses issue at G-20’, 28 June 2019, https://www.hindustantimes.com/india-news/ saudi-arabia-raises-india-s-haj-quota-by-30-000-after-pm-modi-addresses-issue-at-g20/ story-B5ON2GmXIWrHjLytUJsCFO.html 106  India Today. ‘PM Narendra Modi arrives in Delhi after 2-day visit to Saudi Arabia’, 30 October 2019, https://www.indiatoday.in/india/story/pm-narendra-modi-arrives-indelhi-after-2-day-visit-to-saudi-arabia-1613929-2019-10-30 107  The Economic Times. ‘PM Narendra Modi conferred Saudi Arabia’s Highest Civilian Award’, 3 April 2016, economictimes.indiatimes.com/news/politics-and-nation/pm-narendra-modi-conferred-saudi-arabias-highest-civilian-honour/articleshow/51673806. cms?from=mdr 102 103

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statement noted that the leaders “exchanged views on regional and international issues of mutual interest. They underlined the relations of friendship and partnership embodied in economic, social, cultural and civilizational ties between the people of the two countries and the great common opportunities that provide a strong momentum for the development of relations between the two friendly countries.”108 During Modi’s visit, several bilateral MoUs and agreements were signed, including for formation of the Strategic Partnership Council, to “strengthen the already robust relations between the two countries.”109 The other MoUs/agreements signed during the visit were: 1. MoU on Cooperation in the Field of Renewable Energy; 2. Agreement on Security Cooperation; 3. MoU for Cooperation in the field of combating illicit trafficking and smuggling of narcotic drugs, psychotropic substances and chemical precursors; 4. MoU between Saudi General Authority of Military Industries (GAMI) and Department of Defense Production, Ministry of Defense concerning collaboration in the military acquisition, industries, research, development and technology; 5. MoU for Cooperation in the field of Civil Aviation; 6. MoU between Central Drugs Standard Control Organization (CDSCO), Ministry of Health & Family Welfare and Saudi Food & Drug Authority (SFDA) for cooperation in the field of medical products regulations; 7. Letter of Intent between Small and Medium Enterprises General Authority (Monshaat) of the Kingdom of Saudi Arabia and Atal Innovation Mission (AIM), NITI Aayog, of the Republic of India; 8. Cooperation Program between Foreign Service Institute, MEA and Prince Saud al-Faisal Institute of Diplomatic Studies (IDS) of Ministry of Foreign Affairs of Saudi Arabia;  GoI. MEA. ‘Joint Statement on Visit of Prime Minister of India to the Kingdom of Saudi Arabia’, 29 October 2019, https://www.mea.gov.in/bilateraldocuments.htm?dtl/31982/ Joint_Statement_on_Visit_of_Prime_Minister_of_India_to_the_Kingdom_of_Saudi_Arabia 109  Press Information Bureau (PIB), Prime Minister Office. ‘Strategic Partnership Council Agreement with Saudi Arabia would further strengthen the robust bilateral relations, says Prime Minister Narendra Modi’, 29 October 2019, https://pib.gov.in/newsite/ PrintRelease.aspx?relid=194055 108

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9. MoU between Indian Strategic Petroleum Reserves Limited (ISPRL) and Saudi Aramco; 10. MoU for Cooperation between National Stock Exchange (NSE) and Saudi Stock Exchange (Tadawul); and 11. MoU between National Payments Corporation of India (NPCI) and Saudi Payments.110 The prime minister’s visit was also important in terms of the growing Indo-Saudi defence and security cooperation as both have intensified ties in counter-terrorism and combating radicalism. Furthermore, the militaries of the two countries have started discussions about enhancing defence cooperation through joint exercises, exchange of visits and training. Indian military schools have opened their doors for Saudi cadets and officers. Discussions are ongoing for finding ways for enhancing cooperation in the area of defence manufacturing through either joint ventures or private investments in defence sector manufacturing. In this regard, the MoU between the Saudi General Authority of Military Industries (GAMI) and the Department of Defense Production of the Indian Ministry of Defense acquires significance.111 In addition to the visits by the two leaders, in late March, the Saudi Minister of State for Foreign Affairs Adel al-Jubeir visited New Delhi. It came amidst heightened tensions between India and Pakistan in the wake of the Pulwama attack and the Indian response in the form of Balakot strikes.112 Jubeir came to New Delhi close on the heels of India hosting the Crown Prince and a week after his visit to Islamabad. It raised speculations about Saudi Arabia playing a constructive role in reducing the

110  GoI.  MEA. ‘List of MoUs/Agreements signed during the visit of Prime Minister to Saudi Arabia’, 29 October 2019, https://www.mea.gov.in/bilateraldocuments. htm?dtl/31981/List+of+MoUsAgreements+signed+during+the+visit+of+Prime+Minister+ to+Saudi+Arabia+October+29+2019 111  Business Standard. ‘India, Saudi Arabia ink 12 agreements’, 30 October 2019, https:// www.business-standard.com/ar ticle/news-ani/india-saudi-arabia-ink-12-agreements-119103000039_1.html 112  The Statesman. ‘Saudi minister to visit India today amid Indo-Pak tension’, 11 March 2019, https://www.thestatesman.com/india/saudi-minister-visit-india-today-amid-indopak-tension-1502737928.html

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communication gap between the two South Asian neighbours.113 India maintained that dialogue with Pakistan could not be resumed until Islamabad stops funding, supporting and harbouring terrorist groups.114 At the same, it appreciated the Saudi efforts as a regional and Islamic power and lauded its commitment to fight terrorism both inside its own territory and in the Middle East and South Asia.115 The two sides agreed on the need to “work together for irreversible, verifiable and credible steps against all terrorists without any discrimination.”116 Trade, Business and Investments The most important component of bilateral ties is commercial relations as India and Saudi Arabia share strong trade and business ties. India is among the top markets for Saudi energy supplies and Riyadh is among the top oil suppliers for India. India was the second largest destination for Saudi exports with a share of 10.46 per cent (Table 8.7) and was the 6th largest source of imports with a share of 3.48 per cent in 2019. For India, Saudi Arabia was the fourth largest trading partner in 2018 with a share of 4.03 per cent and the fourth largest exporter with a share of 5.54 per cent (Table 1.6). Total bilateral trade is about US$34 billion in 2018, with a growth rate of 9.76 per cent over the previous year (Table  8.12). The bilateral trade has registered a double-digit growth rate in 2017 and 2018 and its share in India’s overall trade has increased from 3.57 per cent to 4.03 per cent during this period. However, most of the increase in growth rate and share is primarily due to the increase in India’s oil imports while 113  Outlook. ‘Saudi FM Visiting Islamabad wit ‘important message’ Amid Rising India-Pak Tensions’, 28 February 2019, https://www.outlookindia.com/website/story/ world-news-saudi-fm-visiting-islamabad-with-important-message-amid-rising-india-paktensions/326281 114  Dipanjan Roy Chaudhury. ‘India, Saudi Arabia call for dismantling terror infrastructure; to set up JWG on counter-terror’, The Economic Times, 20 February 2019, https://economictimes.indiatimes.com/news/defence/india-saudi-arabia-call-for-dismantling-terrorinfrastructure-to-set-up-jwg-on-counter-terror/articleshow/68086477.cms 115  Ibid. 116  Outlook. ‘India, Saudi Arabia to work for credible steps against terrorists’, 11 March 2019, https://www.outlookindia.com/newsscroll/india-saudi-arabia-to-work-for-crediblesteps-against-terrorists/1494471

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Table 8.12  India–Saudi Bilateral Trade, 2014–20 (US$ million) 2014–15

Total imports from Saudi Arabia (growth in per cent) Imports from Saudi Arabia as per cent of India’s total imports Total exports to Saudi Arabia Share in India’s total exports (per cent) Total bilateral trade (rate of growth, per cent) Share in India’s total trade (per cent)

2015–16

2016–17

2017–18

2018–19

2019–20 (April– January)a

28,107.56 20,321.33 19,972.4 (−22.79) (−27.70) (−1.72)

22,069.96 28,479.21 22,969.00 (21.13) (29.04)

6.27

5.19

4.74

5.53

5,110.28 (−19.92) 1.85

5,410.70 (5.88) 1.78

5,561.72 (2.79) 1.68

5.33

11,161.43 6,381.47 (−8.65) (−42.83) 3.60 2.43

5.70

5,012.07 1.90

9,268.98

26,702.80 25,082.68 27,480.66 34,040.93 27,981.06 (−32.0) (2.63) (16.49) (9.76)

5.18

4.15

3.80

3.57

4.03

4.19

Provisional:

a

Figures in the bracket are per cent change over the previous year Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

India’s exports to Saudi Arabia have remained largely subdued. During April–January 2019–20 there is a significant uptick in the bilateral trade, with the share of Saudi Arabia in India’s total exports, imports and bilateral trade exceeding their previous levels since 2016. This is reflective of the energy infused in the bilateral economic relations from the meetings between the leaders of the two countries in quick succession. Table 8.13 shows that main items of India’s exports to Saudi Arabia comprise of are agricultural commodities (29.71 per cent); apparels and textiles (9.66 per cent); organic chemicals (7.82 per cent); and machinery items, among others. Among the agricultural goods, the cereals are the

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Table 8.13  Composition of India’s Exports to Saudi Arabia, 2018 HS Code

Commodity

Values

Per cent share

Growth rate (per cent) 2017

2–24 29 27 87 84 85 50–63 72–73

Agricultural and edible items Organic chemical Mineral fuels Vehicle and parts Mechanical machinery and parts Electrical machinery and parts Apparels and textiles Iron and steel and articles thereof

1,652.12 493.21 434.68 361.65 308.26 261.23 537.03 321.94

29.71 8.87 7.82 6.50 5.54 4.70 9.66 5.79

21.73 −18.12 −5.29 20.47 −6.6 74.05 −14.46 −17.95

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

largest category. There has been the lowering of garments exports to Saudi Arabia (also the UAE) following the imposition of VAT of 5 per cent in January 2018.117 Among the exports that have high growth rates are pharmaceuticals and ship, boats and floating structures. However, the share of India’s top ten export items constitutes only 45 per cent of its exports to Saudi Arabia (Table  11.5). The main composition of India’s non-oil imports from Saudi Arabia are organic chemicals, fertilizers, plastics and articles thereof (Table  8.14). The import of  pearls, precious and semi-­ precious stones have registered high growth rates recently. The Indian investment in Saudi Arabia has reportedly crossed US$2 billion. Speaking during his India visit Crown Prince claimed that about US$44 billion investments have been made by Saudi Arabia in India since 2016. Most of it apparently are portfolio investments and in debt instruments. However, according to the Department for Promotion of Industry and Internal Trade, the cumulative FDI from Saudi Arabia in India during April 2000 to December 2019 has been a meagre amount of US$315.91 million, which was 0.07 per cent of the total FDI inflows. The 117  India, Reserve Bank of India. Annual Report 2019. rbi.org.in/scripts/annualReportPublications.aspx

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Table 8.14  Composition of India’s Imports from Saudi Arabia, 2018 HS Code

Commodity

Values

Share (per cent)

Growth rate, 2017–18 (per cent)

27 29 31 39

Mineral fuels Organic chemicals Fertilizer Plastics and articles thereof Aluminium and articles thereof

24,508.68 1,082.09 1,044.66 675.7

86.06 3.80 3.67 2.37

37.57 −29.64 105.08 −32.47

259.49

0.91

−12.25

76

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

announcement of US$100 billion of Saudi investment in India made during the Crown Prince’s visit aims to leapfrog mutual business and investment ties. For its part, the Indian government has introduced the e-visa facility to the Saudi national to attract tourists and businesspersons.118 Until now, only a small number of Saudi tourists come to India and the number has been on the decline in the last few years; about 63,835 Saudi tourists visited India in the year 2015, which declined to 52,976 in 2017.119 Energy Ties: Saudi Arabia has traditionally been the largest source of India’s oil imports before it was marginally overtaken by Iraq between April–January 2019–20 (Table 1.10). Besides, it supplies important petroleum products like LPG. India is the second-largest importer of LPG in the world, after China and imports about 200,000 tonnes of LPG every month from Saudi Arabia.120 It caters to about 32 per cent India’s LPG requirement.121 Table 8.15 shows the oil trade with Saudi Arabia. 118  Gulf Business. ‘Saudi starts granting online tourist visas, drops dress code for foreign women’, 29 September 2019, https://gulfbusiness.com/saudi-starts-granting-onlinetourist-visas-drops-dress-code-for-foreign-women/?utm_campaign=GB_Daily_ Newsletter_29_09_2019&utm_medium=email&utm_source=Eloqua 119  Open Government Data (OGD) Platform India, Tourism in India Statistics 2018, data.gov.in 120  The Economic Times. ‘UAE to make up for LPG shortfall from Saudi Arabia’, 24 September 2019, https://energy.economictimes.indiatimes.com/news/oil-and-gas/ uae-to-make-up-for-lpg-shortfall-from-saudi-arabia/71277265 121  The Economic Times. ‘Saudi Arabia to invest $100 billion in India’, 29 September 2019, https://economictimes.indiatimes.com/news/economy/foreign-trade/saudi-arabia-toinvest-usd-100-billion-in-india/articleshow/71358978.cms?from=mdr

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Table 8.15  India–Saudi Oil Trade, 2016–19 (US$ million) 2016–17

Oil imports from Saudi Arabia Rate of growth in per cent Oil imports as per cent of total imports from Saudi Arabia Per cent share of Saudi Arabia in India’s total oil imports Petroleum products exports to Saudi Arabia Per cent share in India’s total export of petroleum products Per cent share in India’s exports to Saudi Arabia

2017–18

2018–19

15,583.08 17,816.06 24,508.68 2.67 14.33 37.57 78.02 80.73 86.06

2019–20 (April– January) 19,715.68 – 85.84

15.11

13.47

14.60

15.26

531.13

458.94

434.68

470.76

1.64

1.19

0.91

0.18

10.39

8.48

7.82

9.38

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

The share of oil in India’s imports from Saudi Arabia has increased from 78.02 per cent in 2016–17 to 86.06 per cent in 2018–19. The Saudi share in India’s total oil imports has marginally declined from 15.11 to 14.60 per cent in the same period (Table 8.15). India’s exports to Saudi Arabia of the petroleum products have drastically reduced. It exported about US$5.5 billion worth of petroleum products and their derivatives in 2014–15, which was nearly 49.91 per cent of total exports to Saudi Arabia in that year. The volume and share of petroleum products export rapidly decline to US$434.68 million in 2018, accounting for only 7.82 per cent of the total Indian exports to the Kingdom.122 On the contrary, Saudi imports of product category have increased from US$747 million in 2016 to US$3.98 billion in 2018.123 In other words, while the Saudi imports of petroleum products were increasing, India’s share is declining. This is partly because the Saudi imports from China have increased from  GoI, Department of Commerce, Export Import Databank,  International Trade Centre, Bilateral trade Between Saudi Arabia and China; Product Mineral Fuels, Mineral Oil and their Distillates, 122 123

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US$24.13 million in 2016 to US$109.58 million in 2018. The growing Saudi investments in Chinese refineries also explain the drop in imports from India. The September attacks on the Saudi oil facilities temporarily affected India’s oil imports from the Kingdom. In the aftermath of the attack, India imported 16 per cent less petroleum from Saudi Arabia and the gap for its LPG imports was filled by two additional consignments from ADNOC supplies.124 The price of naphtha, a key petrochemical feedstock that has been in short supply in India, has also been highly volatile in the aftermath of the drone attack.125 Some positive development took place in 2019 that has the potential to transform the bilateral relations from the existing buyer–seller one. Saudi Aramco along with ADNOC will take 25 per cent stakes each in the proposed US$42 billion and 1.2 mb/d proposed refinery and petrochemical plant in the state of Maharashtra.126 On the Indian side, it was marred by controversies over the site following the protests by local farmers and landowners. It was reportedly relocated to Raigad in the same state. India communicated a revised estimate of US$60 billion for the proposed refinery127 and was further revised upwards to nearly US$70 billion in a meeting between Saudi Arabia and the UAE held in November.128 The revised price tag of the proposed refinery and petrochemical plant makes it one of

 The Economic Times. ‘India scrambles for LPG to meet demand as Saudis defer flow’, 27 September 2019, https://energy.economictimes.indiatimes.com/news/oil-and-gas/ india-scrambles-for-lpg-to-meet-demand-as-saudis-defer-flow/71321511 125  Rachita Prasad. ‘Petrochemical companies may see feedstock supply crunch, margin pressure’, The Economic Times, 24 September 2019, https://energy.economictimes.indiatimes.com/news/oil-and-gas/petrochemical-companies-may-see-feedstock-supplycrunch-margin-pressure/71268822 126  Utpal Bhaskar. ‘Adnoc may pick up 25% stake in Ratnagiri refinery from Saudi Aramco’, Livemint, 21 June 2018, https://www.livemint.com/Industry/ CvT7RhEMIY2QUsimRF2hZI/UAEs-Adnoc-plans-India-investment.html 127  Gulf Business. ‘India raises cost of refinery project with Aramco by 36 percent to $60 bn’, 6 August 2019, https://gulfbusiness.com/146973-2/ 128  The Economic Times. ‘Saudi, UAE discuss $70 billion crude refinery project in India’, 28 November 2019, https://energy.economictimes.indiatimes.com/news/oil-and-gas/ saudi-uae-discuss-70-billion-crude-refinery-project-in-india/72275831 124

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the world’s costliest oil and gas project129 and could dampen the investment spirits. During Prime Minister Modi’s visit to the Kingdom in October, Indian Strategic Petroleum Reserve had signed an agreement with Aramco to lease a part of the 2.5 million tonnes Padur oil storage facility in Karnataka.130 The Middle East unit of Indian Oil and the Saudi Al-Jeri transport company have made a preliminary for downstream sector cooperation including setting up of fuel stations in the Kingdom.131 The Saudi Aramco signed a non-binding agreement for 20 per cent stakes for about US$15 billion in the Reliance Industries Limited’s oil and chemical business. Reliance has the world’s largest and the most complex refinery with integrated petrochemical plant in Jamnagar, Gujarat.132 The deal, if completed, would bring Aramco 364,000 b/d of refining capacity and 6 million tonnes per year of petrochemical capacity. However, the formalization of the deal has been delayed due to financial dis-agreement between Reliance and the Indian government in another oil and gas contract.133 In Saudi Arabia, Larson and Toubro was one of the 16 international companies that were awarded contracts for the US$18 billion development project for the expansion of Marban Berri offshore fields in July 2019.134 The expansion of the offshore oil field is essential to increase the Saudi oil production capacity to 12 mb/d.

 MEES. vol. 62 no. 49, 1 November 2019.  Dipanjan Roy Chaudhury. ‘Indian Strategic Petroleum Reserve ink storage lease pact’, The Economic Times, 30 October 2019, https://economictimes.indiatimes.com/industry/ energy/oil-gas/indian-strategic-petroleum-reserves-aramco-ink-storage-lease-pact/articleshow/71813821.cms 131  Harsh Pant. ‘The reality behind India-Saudi Arabia’s growing ties’, The Economic Times, 3 November 2019, https://economictimes.indiatimes.com/news/politics-and-nation/thereality-behind-india-saudi-arabias-growing-ties/articleshow/71871401.cms?utm_ source=contentofinterest&utm_medium=text&utm_campaign=cppst 132  MEES, vol. 62, no. 35, 30 August 2019., p. 13 133  The Economic Times. ‘Why the govt. asked a court to restrain $15 bn Saudi Aramco-RIL deal’, 24 December 2019, https://energy.economictimes.indiatimes.com/news/oil-andgas/why-the-govt-asked-a-court-to-restrain-15-bn-saudi-aramco-ril-deal/72948682 134  MEES, vol. 62 no. 28, 12 July 2019, p. 2 129 130

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Beyond oil, India and Saudi Arabia signed an MoU for cooperation in the renewable energy in December135 aimed at the development and localization of the renewable energy value chain as well as in the solar energy-­ based residential and commercial buildings. Earlier in February, the Kingdom also signed a framework agreement and became the 73rd country to join India-led International Solar Alliance, headquartered in Gurugram (India). The Saudi Company Al-Fanar is presently executing a 300 MW windmill power project in Kutch district in the Indian state of Gujarat. In 2013, SABIC opened a research and development centre in Bengaluru but its petrochemical unit and R&D Centre in China has tangible deliverables. SABIC’s three petrochemical plants in China manufacture specialty chemicals like engineering thermoplastic resins and compounds, composites, thermosets and additives and offer extensive material processing expertise to the manufacturers.136 Aramco’s proposed 70 per cent stake in SABIC137 offers new opportunities for India-Saudi tie-ups in the downstream sectors and integrated refining and petrochemical ventures. India’s market for petrochemicals, especially the ones used for the automotive plastics and packaging industries, are at a quantum leap. Saudi Trading Company (STC), the trading arm of the Aramco, is also engaged in processing/netting agreement with refiners where crude oil is supplied in exchange for refined products.138 Some of India’s purchase agreement could be similarly modelled. STC opened its second international office (first in Singapore opened in 2017) in Fujairah, which is also the world’s second-largest bunkering hub as well as an important export route being located outside the Strait of Hormuz. India is a potentially attractive destination for the STC office and can work in tandem with Saudi Arabia’s investments in Indian refineries and storage capacities. 135  The Economic Times. ‘Cabinet approves pact with Saudi Arabia for renewable energy cooperation’, 24 December 2019, https://energy.economictimes.indiatimes.com/news/ renewable/cabinet-approves-pact-with-saudi-arabia-for-renewable-energy-cooperation/ 72955837 136  MEES, vol. 62 no. 35, 30 August 2019, p. 7 137  Tom DiChristopher. ‘Saudi Aramco reaches $69.1 billion deal to buy majority stake in petrochemicals firm Sabic’, CNBC, 27 March 2019, cnbc.com/2019/03/27/saudiaramco-reaches-deal-to-buy-majority-stake-in-sabic.html 138  MEES, vol. 62 no. 29, 19 July 2019, p. 7

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Expatriates and Haj India has a large expatriate population in Saudi Arabia and as of December 2018, about 2.8 million Indians are living and working in the Kingdom.139 They provide a major bridge between the two countries and have been an important source of remittance. The share of Saudi Arabia in the total remittances to India is about 11.6 per cent and is the third-largest after the UAE (26.9 per cent) and the US (22.9 per cent).140 In the past few years, the number of Indians in the Kingdom has fallen due to the new labour and economic policies being implemented.141 In 2019, a total of 139,987 Indians participated in the annual Haj pilgrimage and this was 10,000 more than 2018 when 128,690 pilgrims travelled to the Kingdom.142 India sends one of the largest contingents of pilgrims annually to the Kingdom and the two sides have continued to appreciate the role of the respective governments in facilitating and smooth functioning of the pilgrimage.

Challenges Despite consolidating power since becoming Crown Prince in 2017, MbS remains wary of his opponents both within and outside the Royal family. He continues his ruthless approach in dealing with any form of dissent, often courting controversies. The rashness of some of his decision has earned him many enemies and international defame. Some of his critical decisions concerning Yemen and Qatar, have proved costly and counterproductive. The growing regional tensions meant that the Kingdom has to bear the brunt of attacks on its territory, thereby exposing its security vulnerabilities.

139  GoI. MEA. Population of Overseas Indians. http://mea.gov.in/images/attach/NRIsand-PIOs_1.pdf 140  RBI. Press Releases. 9 August 2018. https://www.rbi.org.in/scripts/BS_PressRelease Display.aspx?prid=44722#t2 141  The Economic Times. ‘Saudi Arabia’s Vision for future has little space for Indian Workers’, 24 August 2017, https://m.economictimes.com/nri/visa-and-immigration/saudi-arabiasvision-for-future-has-little-space-for-indian-workers/articleshow/60205541.cms 142  GoI. Haj Committee, http://hajcommittee.gov.in/previous_records.aspx

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Despite these, the Kingdom of Saudi Arabia is an important partner and a potential ally of New Delhi. Bilateral relations have improved significantly in the past five years and the Saudi leadership of the G-20 gives India additional space to enhance its diplomatic leverage. However, the changing regional and national dynamics have also mean that the number of Indian expatriates has come down to less than three million during the year and could be a cause for concern.

CHAPTER 9

UAE

Key Information Political system: Federation of seven emirates ruled by different families; Ruling family: Abu Dhabi (Al-Nahyan); Dubai (Al-Maktoum); Sharjah (Al-Qasimi); Ras al-Khaima (Al-Qasimi); Ajman (Al-Nuaimi); Fujairah (Al-Sharqi); and Umm al-Quwain (Al-Mu’alla); President: Khalifa bin Zayed al-Nahyan (since 3 November 2004); Prime Minister and Vice President: Mohammed bin Rashid al-Maktoum (since 11 February 2006); National day: 2 December; Parliament: 40-member partially elected Federal National Council; Last parliamentary election: 5 October 2019; Major group in parliament: N/A; National carrier: Emirates (Dubai); Etihad Airways (Abu Dhabi); Air Arabia (Abu Dhabi from 2020). Socio-Economic Indicators Area: 83,600 sq. kms; Population: 9.6 million (UNDP, 2019); Native: 12 per cent (approx. 2017 est.); Expats: more than 88 per cent (approx. 2017 est.); Religious groups: Citizens (Sunni 85 per cent; Shia 15 per cent); Resident (Muslim 76 per cent; Christian 9 per cent; Hindu and Buddhist 10 per cent; and Other 5 per cent); Youth: 10.7 per cent; Population growth

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_9

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rate (annual): 1.5 per cent (World Bank, 2018); Life expectancy at birth: 77.8 years (UNDP, 2019); Major population groups: Emirati 11.6 per cent; South Asian 59.4 per cent (includes Indian 38.2 per cent; Bangladeshi 9.5 per cent; Pakistani 9.4 per cent; other 2.3 per cent), Egyptian 10.2 per cent; Philippine 6.1 per cent; others 12.8 per cent (2015 est.); Literacy rate, adult (ages 15 and older): 93.8 per cent (2015 est.); National currency: Emirati Dirham (AED); GDP (Current prices): US$414,178.94 (World Bank, 2018); Foreign trade: Exports- US$387.91  billion; Imports US$244.64 billion (World Integrated Trade Solution); Military expenditure: 4.86 per cent of GDP (2017); Sovereign Wealth Fund: US$1,159.1 billion (SWF institute); Net  Government debt: US$81.13  billion (CEIC, 2019); GNI per capita: US$66, 912 (2011 PPP); GDP per capita: US$66,616 (2011PPP) (UNDP, 2019); Oil reserves: 97.8 billion barrels (BP, 2018); Gas reserves: 209.7 tcf (BP, 2018); HDI rank: 35/189 (UNDP, 2019); Infant mortality rate: 7.8 deaths/1,000 live birth (UNDP, 2019); UN Education Index: 0.744 (UNDP, 2019); Labour force: 6.9 million (World Bank, 2019); Employment to population ratio (ages 15 and older): 80.9 per cent (UNDP, 2019); Unemployment rate: 2.6 per cent (UNDP, 2019); Urban population: 86.5 per cent (UNDP, 2019); Rate of urbanization: 1.71 per cent (2015–2020 est.); Last national census: 2005; World Press Freedom Index: 133 out of 180 Countries (RSF, 2019); Ease of Doing Business: Rank  16 out of 190 Countries (World Bank, 2020); Corruption Perception Index: Rank 21 out of 180 Countries (Transparency International, 2019); Foreign direct investment (inward): US$10.39 billion (UNCTAD, 2019); Individual using Internet (per cent of population): 98.5 (UNDP, 2019); Net migration rate (per 1,000 population, 2015–2020): 4.1 (UN World Population Prospects, 2019); Forest area (per cent of land area): 4.6 (UNDP, 2019); International tourism, number of arrivals: 21,286, 000 (World Bank, 2018); Carbon dioxide emissions (tonnes per capita): 20.5 (UNDP, 2019); Gender Development Index: 0.965 (UNDP, 2019); Gender Inequality Index: 0.113 (UNDP, 2019); Global Terrorism Index: Rank 130 out of 163 countries (Vision of Humanity, 2019). India Related Indian Cultural Centre: Abu Dhabi (Inaugurated in 2009); Number of Indians: 3.4 million; Number of places of worship for Indians: Two Temples; One Gurudwara; 35 Churches; Indian schools: 84; Indian

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banks: State Bank of India; Bank of Baroda (7); Union Bank of India; Punjab National Bank; IDBI Bank; ICICI Bank; Yes Bank; HDFC; Indian Overseas Bank Andhra Bank, Axis Bank, Canara Bank, Corporation Bank, Federal Bank, Oriental Bank of Commerce (RBI); Currency exchange rate: 1 AED = INR 20.55 (March 2020); Last visit to India by the ruler: Crown Prince Muhammad bin Zayed, January 2017; Last Indian prime minister to visit: Narendra Modi, August 2019. * * * The India–UAE relations thrive on mutual trust and understanding. Strong trade and commercial relations are propelled by frequent political, diplomatic and strategic exchanges. The Emirati dynamism in regional affairs and its strong economic performance over the years are attractive for India. Simultaneously, India’s global rise, its market potential and leadership make it alluring for the UAE.  In the last five years the political leadership in both countries have imparted a threshold momentum to the bilateral relations in many crucial spheres. Further, the two sides have maintained regular political and diplomatic engagements to take the bilateral relations forward in a holistic paradigm encompassing science, technology, cleaner energy and space.

Domestic Developments Notwithstanding its small size and population, the UAE emerged as an important regional power, with an influence beyond its immediate environment. The Emirates, under the leadership of Mohammed bin Zayed al-Nahyan—Crown Prince of Abu Dhabi and Deputy Commander of UAE Armed Forces—has been actively engaged in a host of diplomatic and political developments in its neighbourhood. It has emerged as one of the leading forces to counter the growing influence of Iran and the outreach activities of Turkey in the Gulf. It has been at the forefront in countering and contesting the spread of Islamist ideas and groups. Within the Emirates, the UAE has focused on creating a peaceful, stable, cordial, prosperous and multicultural environment for not only its national population but also for its large expatriate population estimated

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at 7.5 million.1 The state of the art infrastructure, extraordinary business opportunities, accessibility and touristic avenues  like recreation, sports, shopping, make the UAE the leading global hubs for trade and commerce.2 As a result, it has succeeded where many other oil-rich countries could only dream, namely the diversification of the economy and lesser reliance on hydrocarbon resources. The oil rent that provided the initial resources for the development at the time of its independence in 1971 is no longer the only source of revenues, investments or economic sustenance and hence, the UAE is considered as one of the most successful models of development in the region.3 Political Developments Despite its diversified economic model and relatively progressive socio-­ cultural milieu, the UAE follows a closed political system. A federation of seven Emirates—Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain—the UAE is governed by the Federal Supreme Council (FSC), which comprises the hereditary rulers of each Emirate. There are four other federal institutions that run the state, namely, Office of President and Vice President, Council of Ministers, Federal National Council (FNC), a partly-elected advisory and consultative body and the Federal Judiciary including the Supreme Court and Courts of First Instance. According to the UAE constitution approved in 1971 and adopted permanently in 1996, the president and vice president are elected by and from among the members of the FSC.  However, according to the norm, since independence, the ruler of Abu Dhabi serves as president and the ruler of Dubai as the vice president. Currently, the ruler of Abu Dhabi Khalifa bin Zayed al-Nahyan, is the Federal President and the ruler of Dubai Mohammed bin Rashid al-Maktoum, is the Federal Vice President. 1  Khaleej Times. ‘UAE population to rise in 2010 to 7.5 million’, 24 January 2010, https:// www.khaleejtimes.com/nation/general/uae-population-to-rise-in-2010-to-7.5million. 2  Abdulfatah Sharaf. ‘A new world trade order is emerging and the UAE is helping define it’, The National, 30 May 2018, https://www.thenational.ae/business/comment/a-newworld-trade-order-is-emerging-and-the-uae-is-helping-define-it-1.735036. 3  Sunil John. ‘UAE has established itself as a successful national model from the region’, Arabian Business, 7 May 2019, https://www.arabianbusiness.com/politics-economics/419484opinion-uae-has-established-itself-as-successful-national-model-from-the-region.

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Due to the health complications faced by Sheikh Khalifa in January 2014, his younger half-brother, Crown Prince of Abu Dhabi Mohammed bin Zayed, functions as his regent and wields power and authority. The day-to-day functioning of the federal government is overseen by the Federal Cabinet or the council of ministers headed by a prime minister. By precedence, the ruler of Dubai serves as the prime minister and the current prime minister is Mohammed bin Rashid al-Maktoum. He chooses cabinet colleagues in consultation with the president and FSC.  All the principal federal offices, including the FSC, the president, vice president, ministries, FNC and the Supreme Court, are situated in Abu Dhabi, the capital of the UAE.  Most of the important ministries, including the finance, home, foreign affairs and defence, are conventionally headed by members of the ruling family of Abu Dhabi and Dubai. Thus, when it comes to authority, these two emirates share power and responsibility. Among the two, given the historical evolution of the Emirates and the financial clout, the ruling family of Abu Dhabi has a greater say and influence in the Emirati affairs. Despite being a closed one, the Emirati political system is not absolutist and power is shared among the ruling families of each emirate. Except for the most important ministries, a majority of the members of the cabinet are technocrats, professionals or members of prominent business families. Hence, through ministries and bureaucracy, the Emiratis can be part of the decision-making process. The government formation remains the prerogative of the FSC and of the President and Vice President. Elections to the 40-member advisory council are not held to form the government; thus, implying that the common Emiratis do not choose their leaders, government or policies. However, in 2006 a small opening was made in the first election to choose 20 of the 40 members of the FNC. The elections are conducted by the National Election Commission (NEC) which follows the Electoral College system, meaning universal suffrage is not practiced in the UAE. Out of the 40-member house, eight seats each are allotted for Abu Dhabi and Dubai, six each for Sharjah and Ras al-Khaimah and four each for Ajman, Fujairah and Umm al-Quwain. In 2006, about 7,000 persons, who made up less than one per cent of the approximate 800,000 citizen population, formed the Electoral College and were eligible to vote.4 The 4  Inter-Parliamentary Union. ‘United Arab Emirates: Majlis Watani Itihadi (Federal National Council)’, 2015, http://archive.ipu.org/parline-e/reports/2333_E.htm.

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size of the Electoral College has increased since then; to nearly 130,000 in 2011, 225,000 in 2015 and 337,000 in 2019; and presently, 50.62 per cent of the voters are women.5 The turnout in the election had marginally increased from 27 per cent in September 2011 to 35 per cent in October 2015 but came down to 34 per cent in October 2019.6 A total of 479 candidates contested in the election held on 5 October 2019. Since political parties or organizations are not allowed, all the candidates contested as independents. Among the candidates, 177 were women and seven of them emerged victorious.7 Notably, only one-woman candidate has won in the previous FNC election held in 2015. As per the new rule announced in 2018, to establish a gender balance, 50 per cent of the FNC seats are to be filled by women and this meant 13 of the 20 nominated members were women.8 Despite the limited legislative and no executive power, the FNC is an important consultative body of the UAE and partial elections and limited electorate is a step in the direction which Emiratis hope9 would eventually open the door for greater political space. The federal judiciary is the remaining pillar of the state. It is a complex system whereby, in addition to the federal courts, each emirate has independent local courts. The Federal Supreme Court is the highest judicial body and is headed by a president, who is appointed by the President of Emirate.10 Though the judiciary largely functions within the ambit of the

5  Samir Salama. ‘UAE FNC elections on October 5: Everything you need to know’, Gulf News, 30 September 2019, https://gulfnews.com/uae/uae-fnc-elections-on-october-5everything-you-need-to-know-1.66790166. 6  UAE. National Election Commission. ‘The National Elections Commission announces the preliminary results for the winners of the 2019 FNC elections’, 06 October 2019, uaenec.ae/ar/news/details/40573. 7  UAE.  National Election Commission. ‘Election Results’, http://www.uaenec.ae/ar/ results. 8  Ramola Talwar Badam. ‘Sheikh Khalifa: UAE’s Federal National Council to be 50 percent women’, The National, 8 December 2018, https://www.thenational.ae/uae/government/sheikh-khalifa-uae-s-federal-national-council-to-be-50-per-cent-women-1.800357. 9  Ismail Sebugwaawo. ‘All you need to know about UAE’s Federal National Council’, Khaleej Times, 22 September 2019, https://www.khaleejtimes.com/uae/abu-dhabi/ vehicle-ban-for-new-years-eve-announced-in-uae. 10  UAE.  Government Portal. ‘Structure of the Judicial System’, 16 December 2019, https://u.ae/en/about-the-uae/the-uae-government/the-federal-judiciar y/ structure-of-the-judicial-system.

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executive, it has been relatively independent and fair,11 except in cases involving political issues, where the judiciary has been biased towards the government and state.12 There are other federal and local courts to adjudicate commercial matters and specialized courts for civil and criminal matters. The judicial decision is based on the constitution and laws and regulations issued by the state and if there is no precedence, the cases are resolved in accordance with the Islamic Sharia.13 The UAE continues to face allegations of political persecution and human rights abuse.14 Since the outbreak of the Arab Spring protests, the Emirate has become more sensitive to political statements or activities. Actions have been taken against people making even the mildest criticism of the government or the political system. Ahmed Mansoor, a human rights activist who was detained in 2017 under the 2012 cybercrime law, remains in custody. A lower court convicted Mansoor for ten years imprisonment and the Supreme Court upheld the conviction in December 2018.15 Besides, other political detainees, such as Nasir Bin-Gaith, Khalifa al-Rabea and Ahmed al-Mulla, who were associated with the Muslim Brotherhood-affiliated Islah Party (banned in 2014) remain in prison despite completing their prison terms. In August 2019, three others— Osamaal-Najjar, Badr al-Buhairi and Othman al-Shehhi—who were serving jail terms were pardoned by the President after they publicly ­ denounced Islah party.16 The issue of abuse and torture of political

11  Elizabeth Broomhall. ‘UAE justice system better than US, study reveals’, Arabian Business, 7 July 2011, https://www.arabianbusiness.com/uae-justice-system-better-thanus-study-reveals-409039.html. 12  Regan Doherty. ‘U.N. expert says UAE judicial system controlled by executive’, Reuters, 5 February 2014, https://www.reuters.com/article/us-emirates-justice-un/u-n-expertsays-uae-judicial-system-controlled-by-executive-idUSBREA141PN20140205. 13  UAE. Government Portal. ‘The Federal Judiciary’, 16 December 2019, https://u.ae/ en/about-the-uae/the-uae-government/the-federal-judiciary. 14  Human Rights Watch. ‘United Arab Emirates: Events of 2019’, 2019, https://www. hrw.org/world-report/2020/country-chapters/united-arab-emirates. 15  Human Rights Watch. ‘UAE: Rights Defender’s Conviction Upheld’, 31 December 2018, https://www.hrw.org/news/2018/12/31/uae-rights-defenders-conviction-upheld. 16  Human Rights Watch. ‘United Arab Emirates’.

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prisoners came to the fore when Alia Abdel Nour, convicted on terrorism charges, died in May allegedly due to lack of medical attention.17 In February 2019, the prosecution began against 11 Lebanese nationals who were detained for over a year on charges of links to Hezbollah. In May five were acquitted, two were sentenced to 10 years imprisonment and four were given a life term.18 In July, Mathew Hedges, a British academic detained for over six months between May and November 2018 before a presidential pardon, complained “against Emirati authorities with the United Nations Working Group on Arbitrary Detention and the UN high commissioner for human rights.”19 Questions on freedom of expression and media freedom continue to haunt the UAE and it ranks 133rd in the Press Freedom Index 2019 of Reporters without Borders, slipping five places from 2018.20 Foreign Policy and Security The UAE has pursued a proactive policy to counter the threat of Islamists or revolutionary Shiite groups gaining control in the Middle East. Along with Saudi Arabia and Egypt, the UAE forms a formidable regional front in the fight against the Muslim Brotherhood-inspired Islamist republicans and Iran-inspired Shia revolutionaries.21 It has been engaged in the war in Yemen to check the influence of the Iran-backed Houthi militias, even though the Saudi-led coalition has failed to push the Houthis out of Sana’a and Hodeida. The failure of the Stockholm Agreement22 signed in December 2018, has complicated the stalemate in the Yemeni conflict. 17  International Campaign for Freedom in the United Arab Emirates (ICFUAE). ‘ICFUAE statement on the death of Alia Abdel Nour’, 07 May 2019, http://icfuae.org.uk/news/ icfuae-statement-death-alia-abdel-nour. 18  Middle East Monitor. ‘UAE court sentences 6 Lebanese to jail in Hezbollah trial’, 15 May 2019, https://www.middleeastmonitor.com/20190515-uae-court-sentences-sixlebanese-to-jail-in-hezbollah-trial/. 19  Human Rights Watch. ‘United Arab Emirates’. 20  Reporters without Borders (RSF). ‘United Arab Emirates’, 2019, https://rsf.org/en/ united-arab-emirates. 21  Reuters. ‘Explainer: Who is targeting the Muslim Brotherhood’, 3 May 2019, https:// www.reuters.com/article/us-usa-trump-muslimbrotherhood-explainer/explainer-who-is-targetingthe-muslim-brotherhood-idUSKCN1S90YX. 22  Osama al-Rawhani. ‘The good and the bad in the new peace agreement on Yemen’, Al-Jazeera, 20 December 2018, https://www.aljazeera.com/indepth/opinion/good-badpeace-agreement-yemen-181218082222574.html.

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The UAE has backed the southern movement led by the Southern Transition Council (STC), which advocates autonomy from the north and this has marked the  fissures with the Saudi position on Yemen. In November, however, the two countries convinced their local allies, the Hadi government and STC, respectively, to put aside their differences and fight the common enemy, the Houthis.23 In addition to Yemen, the UAE has backed the Khalifa Haftar-­ commanded Libyan National Army (LNA) to dislodge the Tripoli-based Government of National Accord (GNA), the internationally recognized legal authority in the war-torn country.24 Along with Egypt, the UAE is believed to be funding and arming the LNA against the GNA, which has leaning towards the ideology of the Muslim Brotherhood. Consequent to the military pressures from LNA, the GNA signed a defence agreement with Turkey in November 2019.25 This brought Turkey and Egypt backed by the UAE politically and financially, close to a military collision in Libya with grave consequences on regional security.26 The UAE also bolstered local leadership in different parts of the Middle East to counter the rise of Iran-backed Shiite militias. This apparently has been ineffective as Iran continued to expand its influential presence in Iraq, Syria, Yemen and elsewhere. There are speculations that the UAE has broken ranks with Saudi Arabia and the US to reach out to Iran towards calming the situation in the Persian Gulf. Unconfirmed reports suggested that the National Security Advisor Tahnoun Bin Zayed, younger brother of Crown Prince Mohammed bin Zayed, undertook a secret mission to Tehran to de-escalate tensions after attacks on Saudi oil installations in

23  Marwa Rashad. ‘Yemen government and separatists sign deal to end power struggle in South’, Reuters, 5 November 2019, https://www.reuters.com/article/us-yemen-security/ yemen-government-separatists-sign-saudi-brokered-deal-to-end-power-struggle-in-southidUSKBN1XF1Y5. 24  Guma El-Gamaty. ‘Qatar, the UAE and the Libya connection’, Al-Jazeera, 12 June 2017, https://www.aljazeera.com/indepth/opinion/2017/06/qatar-uae-libya-connection-170612080219306.html. 25  Al-Jazeera. ‘Libya, Turkey sign deals on security and maritime jurisdictions’, 28 November 2019, https://www.aljazeera.com/news/2019/11/libya-turkey-sign-dealssecurity-maritime-jurisdictions-191128070513292.html. 26  Guma El-Gamaty. ‘Qatar, the UAE and the Libya connection’, Al-Jazeera, 12 June 2017, https://www.aljazeera.com/indepth/opinion/2017/06/qatar-uae-libya-connection-170612080219306.html.

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September.27 In November, the Emirati Minister of State for Foreign Affairs Anwar Gargash issued a statement calling on Iran to come to the negotiations table and work for a new deal with the global powers for the sake of peace and stability in the region.28 Along with its aggressive foreign policy, the UAE has been building military capabilities outside its territory and this reportedly includes a base in Yemen’s Socotra Islands in the Gulf of Aden.29 There are suggestions of an upcoming military base in Djibouti which has become a pivotal maritime security base in the Horn of Africa for global powers to secure and ensure maritime shipping routes.30 Concurrently the UAE, with its soft power capabilities, positions itself as the regional hub for peace and prosperous living. In an op-ed piece published in The National on November 17, Foreign Affairs Minister Gargash observed that the UAE wants “to ensure the progress of our [Emirati] people, we [UAE] remain focused on making substantial contributions to international socio-economic progress and development.”31 As the geopolitical contestation unfold in the Persian Gulf, the Emirati security situation came under increased pressure. The May 2019 sabotage incident against oil tankers off the coast of Fujairah highlighted the vulnerabilities of the oil shipping and exports.32 The attacks on Saudi Aramco installations in September raised questions about the fallouts of the “maximum pressure” policy pursued by the Trump Administration

27  David Hearst. ‘Exclusive: UAE’s secret mission to Iran’, Middle East Eye, 13 October 2019, https://www.middleeasteye.net/news/exclusive-uaes-secret-mission-iran. 28  Reuters. ‘UAE calls for Iran talks with world powers, region’, 10 November 2019, https://www.reuters.com/article/us-emirates-iran/uae-calls-for-iran-talks-with-worldpowers-region-idUSKBN1XK039. 29  Middle East Monitor. ‘Arrival of more UAE mercenaries on Yemen’s Socotra Island’, 6 September 2019, https://www.middleeastmonitor.com/20190906-arrival-of-more-uaemercenaries-on-yemens-socotra-island/. 30  Neil Melvin. ‘The Foreign Military Presence In The Horn of Africa region’, SIPRI, April 2019, https://sipri.org/sites/default/files/2019-04/sipribp1904.pdf. 31  Sheikh Abdullah bin Zayed. ’World peace and human prosperity are the pillars of UAE domestic and foreign policy’, The National, 17 November 2019, https://www.thenational. ae/opinion/comment/world-peace-and-human-prosperity-are-the-pillars-of-uae-domesticand-foreign-policy-1.938406. 32  The National. ‘Two Saudi tankers off Fujairah coast targets of ‘sabotage attack’, 14 May 2019, https://www.thenational.ae/world/mena/two-saudi-tankers-off-fujairah-coast-targetsof-sabotage-attack-1.860663.

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against Iran.33 The UAE, generally considered safe, also witnessed a few cases of breach of security or fears over possible terrorist attacks.34 Economic Situation The economy of the UAE has been hailed as the regional growth pole and a logistic hub. It also has a more diversified economy and is at the cusp of significant techno-commercial transition. In 2018, the GDP per capita (current price) was US$44,010, placing the Emirates in the league of the wealthiest countries in the world. The GDP at current prices in 2018 was US$414.17  billion, which is an annual increase of 9.7 per cent  (Table 9.1). The real GDP (constant 2010 prices) annual growth rate was only 1.7 per cent.35 The non-oil GDP increased from US$265.59  billion in 2014 to about US$307.05 billion in 2018. The non-oil component of the GDP was about 74 per cent in 2018. The share of non-oil GDP increased from about 66 per cent in 2014 and reached 81 per cent in 2016 and has been declining since then. Table 9.2 shows the sector-wise contribution to the GDP and rates of growth. Among the major non-oil economic activities were wholesale and retail trade, financial services, manufacturing and construction with shares of about 11.2 per cent, 9.2 per cent, 8.9 per cent and 8.3 per cent, respectively, in 2018. Financial services, real estate and manufacturing and mining and quarry had significant average growth rates during 2014–2018 despite periods of low oil price in 2015 and 2016 (Table 9.2). In 2018, a year of more remunerative oil prices, mining and quarry (including oil and gas sector) grew by 35.1 per cent while construction and financial services had low-to-moderate growth rates. The real estate sector as well as wholesale and retail trade recorded negative growth rates in same period.

33  Ali Vaez and Naysan Rafati. ‘U.S Maximum pressure meets Iranian Maximum pressure’, International Crisis Group, 5 November 2019, https://www.crisisgroup.org/middle-eastnorth-africa/gulf-and-arabian-peninsula/iran/us-maximum-pressure-meets-iranianmaximum-pressure. 34  BBC News. ‘Attack fears prompted UAE-Tunisia female passenger row’, 25 December 2017, https://www.bbc.com/news/world-middle-east-42479368. 35  UAE. Federal Competitive and Statistics Authority, ‘National Accounts 2018’, https:// fcsa.gov.ae/en-us.

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Table 9.1  UAE: GDP and growth rates, 2014–2018 (US$ million; per cent)

GDP (current prices) Oil GDP (current prices) Non-Oil GDP (current prices) Growth rates (constant 2010 prices) Per cent

2014

2015

2016

2017

2018

403,137 (3.3) 137,551

358,135 (−11.2) 78,140

357,045 (−0.3) 68,931

377,701 (5.8) 79,281

414,179 (9.7) 107,130

265,586 (7.9) 4.3

279,995 (5.4) 5.1

288,115 (2.9) 3.1

298,420 (3.6) 0.5

307,049 (2.9) 1.7

Figures in brackets are rate of growth Source: UAE. Federal Competitive and Statistics Authority, ‘National Accounts 2018’, https://fcsa.gov. ae/en-us

Table 9.2  UAE: Sector-wise contribution to GDP and growth rates, 2018 (in per cent) Sectors

Share (2018)

Average growth rate, 2014–2018

Growth rate, 2018

Mining and quarry (include oil and gas) Wholesale and retail sectors, repairing of motor vehicles Financial and insurance activities Manufacturing Construction Real estate

25.9

−1.9

35.1

11.2

2.6

−0.5

9.2 8.9 8.3 5.9

6.9 4.7 1.9 6.4

4.5 7.8 1.7 −1.1

Source: Federal Competitive and Statistics Authority (FCSA), the UAE, National Accounts 2018

Dubai contributed about 28.18 per cent of the total GDP (at current prices) of the UAE  in 2018. It has been most successful in economic diversification.  The shares of wholesale and retail trade, transports and storage, financial services and manufacturing are higher at 25.1 per cent, 11.5 per cent, 11.1 per cent and 9.1 per cent, respectively.36 Professional, scientific and technical activities contributed about 4 per cent of Dubai’s GDP. Among the sectors with growth rates close to 5 per cent during that year were education, health and social services; art, recreation and other 36  Government of Dubai, Dubai statistical Centre. ‘National accounts’, https://www.dsc. gov.ae/en-us/Themes/Pages/National-Accounts.aspx?Theme=24&year=2019#DSC_Tab1.

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activities. It is indicative of the emphasis on skill building, health and creativity. However, the GDP (at constant prices) of Dubai grew slowly at 2.1 per cent in the first half of 2019.37 The construction and real estate sector remained subdued during the year. Property rates and rents continued to decline in Abu Dhabi on an average between 4 and 11 per cent in the first half of 2019.38 Dubai’s residential real estate market was down at least by a quarter since its peak in mid-2014 and the second-quarter profit of its largest listed developer Emaar fell by 7.4 per cent in 2019.39 Dubai aims to emerge as a hub for meetings, incentive conference and exhibition (MICE) industry. The corporate groups from Europe and North America are increasingly looking at Dubai as the crossroads of East and West and an ideal destination for attracting delegates from key growth markets. The Dubai Business Event, the official convention bureau, has won 118 bids in the first half of 2019 that has the potential to attract 75,000 delegates in the next few years.40 In the third quarter of 2019, it attracted about 82 new business events that drew nearly 29,000 delegates.41 The UAE air carriers are expanding their global networks in tandem to attract leisure and MICE traffic to the Emirates. The UAE is seeing a spurt in high tech-farms which are currently in the development phase and have relied on the funding from the wealthy local sponsors. They are attracting funding interest from regional private equity investors, global sovereign wealth funds and international real estate investment trusts for creating a lucrative market for locally grown premium produce in the UAE.42 The high-tech  farms, with Recirculating  Ibid.  Aarti Nagraj. ‘Abu Dhabi residential prices, rents continue to drop in H1’, Gulf Business, 8 July 2019, https://gulfbusiness.com/abu-dhabi-residential-prices-rents-continue-droph1/?utm_campaign=GB_Daily_Newsletter_13_07_2019&utm_medium=email&utm_ source=Eloqua. 39  Gulf Business. ‘Emaar Q2 profit falls 7.4% as Dubai property market cools’, 4 August 2019, https://gulfbusiness.com/emaar-q2-profit-falls-7-4-dubai-property-market-cools/ ?utm_campaign=GB_Daily_Newsletter_05_08_2019&utm_medium=email&utm_ source=EloquaVTT. 40  Dominic Ellis. ‘Why the GCC is courting MICE visitors’, Gulf Business, 28 December 2019, https://gulfbusiness.com/gcc-courting-mice-visitors/?utm_campaign=GB_Daily_ Newsletter_29_12_2019&utm_medium=email&utm_source=Eloqua. 41  Ibid. 42  Georgia Tolley. ‘Special focus: How the UAE is leading the charge in food security’, Gulf Business, 1 September 2019, https://gulfbusiness.com/special-focus-uae-leadingcharge-food-security/?utm_campaign=GB_Daily_Newsletter_01_09_2019&utm_ medium=email&utm_source=Eloqua. 37 38

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Aquaculture Systems (RAS) (computer-controlled circular ponds), are successfully breeding salmons, sea-breams, sea-brass, shrimps, hammer and shashmi-grade yellowtail kingfish. The private enterprise Badia farms grows leafy vegetable under LED lights in nutrient water in a vacuum-­ sealed warehouse to be supplied to the restaurants and the supermarkets. There are a few other companies engaged in such projects, such as Pure Harvest Smart farms and Al-Dhara, while several local farmers are hosting pilot projects in growing special variety of quinoa using sophisticated sensors to reduce water usage.43 Abu Dhabi has announced nine new initiatives to boost the private sector, which included instant industrial licensing, loans to small and marginal enterprises (SMEs) and eco-tourism.44 Dubai has announced plans to issue new long-term cultural visas to artists and authors to boost the creative industry.45 The art and entertainment sector has grown at about 5 per cent in 2018 and could be a linchpin of freedom of expression in the Emirate. Tourism and aviation generated about 13 per cent of the GDP in 2018 valuing about US$47.5  billion, providing about 800,000 jobs.46 The UAE owns two of the biggest global airlines Etihad and Emirates. Low-cost airline Airwizz based in Budapest, in which Abu Dhabi has 51 per cent ownership, would begin operation by the second half of 2020 to cities in Europe and Russia.47 The UAE became the largest financial technology (Fintech) hub for the Middle East, securing 69 per cent of the total funding and 47 per cent of all deals in 2019.48 Payment and remittances are among  the largest  Ibid.  Gulf Business. ‘Abu Dhabi reveals nine new initiatives to boost the private sector’, 26 June 2019, https://gulfbusiness.com/abu-dhabi-reveals-nine-new-initiatives-boost-private-sector/. 45  Aarti Nagraj. ‘Dubai announces long term visas for artist, authors’, Gulf Business, 1 October 2019, https://gulfbusiness.com/dubai-announces-long-term-visas-artistsauthors/?utm_campaign=GB_Daily_Newsletter_02_10_2019&utm_medium=email&utm_ source=Eloqua. 46  Gulf Business. ‘Aviation and tourism to contribute $128bn to UAE’s economy in the next 20 years- IATA’, 8 October 2019, https://gulfbusiness.com/aviation-tourismcontribute-128bn-uaes-economy-next-20-years-iata/. 47  Gulf Business. ‘Wizz Air to launch new discount carrier in Abu Dhabi’, 13 December 2019, https://gulfbusiness.com/wizz-air-launch-new-discount-carrier-abu-dhabi/?utm_ campaign=GB_Daily_Newsletter_14_12_2019&utm_medium=email&utm_source=Eloqua. 48  Zainab Mansoor, ‘UAE named largest fintech hub in the MENA region’, Gulf Business, 24 October 2019, https://gulfbusiness.com/uae-named-largest-fintech-hub-in-the-menaregion/?utm_campaign=GB_Daily_Newsletter_26_10_2019&utm_medium=email&utm_ source=Eloqua. 43 44

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transactions and more than 80 per cent of the UAE residents are receptive to adopting fintech solutions by the non-financial institutions. There are about 70 private banks in the UAE that offer wealth management services, of which, 50 per cent are international and regional banks. A new federal law that came into effect from January 2020 protects residents and citizens in debt from legal prosecution.49 It permits the debtors to become productive and work to pay off their debts. In 2019, the National Bank of Abu Dhabi (NBD) became the first bank in the region and the largest lender to use real time cross border payments on block chain.50 In infrastructure development  Abu Dhabi’s Integrated Transport Centre has commenced the Al-Faya-Saih Shuaib road development project to be completed before the Expo 2020 launch in October.51 The road is one of the central truck-road linking Dubai, Abu Dhabi and Al-Ain. To develop other areas in April, the UAE announced that foreigners could hold freehold properties in 15 designated zones while Aldar properties offered residential land plots in the Saadiyat Island for all nationalities.52 The UAE ranked as the most competitive economy in the Arab region for the fourth consecutive year by the Global Competitive Report 2019 of the World Economic Forum. Globally it ranked 25th, an improvement of two notches over the last year.53 Improving governance,  Dubai Now, a government app, provides over 88 government services including

49  Zainab Mansoor. ‘UAE legislates protection of citizens, residents in debt’, Gulf Business, 18 November 2019, https://gulfbusiness.com/uae-promulgates-protection-of-citizensresidents-in-debt/?utm_campaign=GB_Daily_Newsletter_18_11_2019&utm_ medium=email&utm_source=Eloqua. 50  Gulf Business. ‘Abu Dhabi bank NBAD to offer cross border blockchain payments’, 1 February 2019, https://gulfbusiness.com/abu-dhabi-bank-nbad-to-offer-cross-borderblockchain-payments/. 51  Zainab Mansoor. ‘Abu Dhabi’s ITC to launch Dhs100m Sahih Shuaib –AL faya road project’, Gulf Business, 8 December 2019, https://gulfbusiness.com/abu-dhabisitc-launch-dhs100m-saih-shuaib-al-faya-road-project/?utm_campaign=GB_Daily_ Newsletter_09_12_2019&utm_medium=email&utm_source=Eloqua. 52  Aarti Nagraj. ‘Aldar launches new project in Saadiyat Island offering land plots to foreign buyers’, Gulf Business, 8 September 2019, https://gulfbusiness.com/ aldar-launches-new-project-saadiyat-island-offering-land-plots-foreign-buyers/?utm_ campaign=GB_Daily_Newsletter_14_09_2019&utm_medium=email&utm_source=Eloqua. 53  Aarti Nagraj. ‘UAE remains ‘Most competitive’ economy in Arab region-WEF report’, Gulf Business, 9 October 2019, https://gulfbusiness.com/uae-remains-competitiveeconomy-arab-region-wef-repor t/?utm_campaign=GB_Daily_Newsletter_12_ 10_2019&utm_medium=email&utm_source=Eloqua.

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application and management of residency visas by the residents for their spouses and children.54 Dubai aims to become paperless by December 2021. As part of consolidation, Abu Dhabi is creating a new holding company for seven state-owned firms, namely, Abu Dhabi Airports, Abu Dhabi Ports, Abu Dhabi National Exhibition Centre, Abu Dhabi Media, Abu Dhabi Power Company, Khalifa Industrial Zone, Abu Dhabi and Abu Dhabi Health Services Co.55 The holding company aims to rationalize operations of the state firms and to make it easier to raise finance and improve services. Against the backdrop of the death of a two-year-old Jordanian toddler due to negligence of a private hospital, a new regulation issued by Health Ministry in 2019 mandated all hospitals to attend to emergency cases, irrespective of the insurance cover.56 Making the success of economic diversification contribution of oil and gas sector  to the total government revenues has  decreased from 69 per cent in 2011 to 36 per cent in 2018.57 The profits from state enterprises contributed about 32.82 per cent to the total government revenues in 2018, against 44.91 per cent in 2016.58 There has been a significant increase in the profits from government enterprises from about US$4.9 billion in 2015 to US$40.40 billion in 201859 as some of the state enterprises became global and regional behemoths. However, this marks the rise of state capitalism. The major components of government current expenditures are wages and salaries, provisioning of goods and services and subsidies. The share of wages and salaries in the total public expenditure was about 19.2 per cent in 2018 as against 23.8 per cent in 2015.60 The 54  Zainab Mansoor. ‘Dubai residents can now apply, renew visas via phone app’, Gulf Business, 23 October 2019, https://gulfbusiness.com/dubai-residents-can-now-applyrenew-visas-via-phone-app/?utm_campaign=GB_Daily_Newsletter_24_10_2019&utm_ medium=email&utm_source=Eloqua. 55  Gulf Business. ‘Abu Dhabi’s airports, ports and power firms moved to new holding company’, 29 May 2019, https://gulfbusiness.com/abu-dhabis-airports-ports-power-firmsmoved-new-holding-company/?utm_campaign=GB_Daily_Newsletter_01_ 06_2019&utm_medium=email&utm_source=Eloqua. 56  Zainab Mansoor. ‘Abu Dhabi hospitals must treat all emergency cases irrespective of insurance cover’, Gulf Business, 12 December 2019, https://gulfbusiness.com/ abu-dhabi-hospitals-insurance/?utm_campaign=GB_Daily_Newsletter_14_12_2019&utm_ medium=email&utm_source=Eloqua. 57  UAE. Federal Competitive Statistics Authority (FCSA), National Accounts 2018, table 44, https://fcsa.gov.ae/en-us. 58  Ibid. 59  UAE. FCSA, National Accounts 2018, table 45, https://fcsa.gov.ae/en-us. 60  UAE. FCSA, National Accounts 2018, table 46.

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expenditure on provision of goods and services constituted about 20.2 per cent in 2018 against 22.5 per cent in 2017. The share of subsidies was 4.6 per cent in 2018, as against 16.76 per cent in 2014, implying significant fiscal reforms. With US$16.3 billion, the budget for 2019 was the largest ever and was an increase of 17.3 per cent over the previous year.61 The highest allocation, of about 42.2 per cent, was for social development and benefits, underscoring the social welfare Emirati model.62 About 37.5 per cent of the budget was for government affairs and included maintaining regional and international relations, improving judicial systems and economic and infrastructural development. The tax revenues constituted about 5.5 per cent of total public revenues in 2018.63 After the introduction of value-­ added tax (VAT), the budgetary surplus was 2.2 per cent in 2018, while there were budgetary deficits of 0.2 per cent, 1.3 per cent and 6.4 per cent in 2017, 2016 and 2015, respectively.64 As of 2019, about 310,000 businesses registered for VAT and this marked an increase of 5.4 per cent over the previous year.65 The UAE also imposed health tax in the form of 100 per cent excise tax on tobacco and its products66 with effect from 1 December 2019. Likewise, a 50 per cent excise tax on sugary drinks would be introduced on 1 January 61  Aarti Nagraj. ’UAE approves 2020 budget, Sheikh Mohammed says ‘decade of development’ to begin’, Gulf Business, 29 October 2019, https://gulfbusiness.com/ uae-approves-2020-budget-sheikh-mohammed-says-decade-development-begin/?utm_ campaign=GB_Daily_Newsletter_30_10_2019&utm_medium=email&utm_source=Eloqua. 62  UAE. Ministry of Finance (MoF). ‘UAE federal Budget 2019- Highest in the Country’s history’, https://www.mof.gov.ae/en/resourcesAndBudget/fedralBudget/Pages/budget2019.aspx. 63  UAE. FCSA, National accounts 2018, Table 45, https://fcsa.gov.ae/en-us. 64  Zainab Mansoor. ‘VAT contributed 5.5% to UAE’s revenue in 2018’, Gulf Business, 11 December 2019, https://gulfbusiness.com/ v at-contributed- 5- 5 - t o - u aes - r even u es - in - 2 0 1 8 /?utm_ c a mp a i g n=G B _ D a i l y _ Newsletter_12_12_2019&utm_medium=email&utm_source=Eloqua. 65  Emirates Chartered Accountants Group. ‘VAT in UAE, statistics and overview of VAT in UAE since 2018’, 15 January 2020, https://www.emiratesca.com/overview-ofvat-in-uae-since-2018/. 66  Aarti Nagraj. ‘UAE’s tax authority reveals minimum prices for cigarettes, waterpipe tobacco’, Gulf Business, 23 October 2019, https://gulfbusiness.com/uaes-tax-authorityreveals-minimum-prices-cigarettes-waterpipe-tobacco/?utm_campaign=GB_Daily_ Newsletter_23_10_2019&utm_medium=email&utm_source=Eloqua.

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2020.67 Towards augmenting additional resources, four toll gates would become operational in Abu Dhabi from January 2020 on Sheikh Zayed Bridge, Sheikh Khalifa bin Zayed Bridge, Al-Maqtaa Bridge and Mussafah Bridge.68 To finance its expenditure, Abu Dhabi raised US$10  billion through international bonds, first in the last two years. Abu Dhabi enjoyed the ‘A’ category sovereign rating by the three leading international credit rating agencies, Moody’s, S & P and Fitch in 2019. Foreign Investments and Joint Ventures: The total foreign investment (both stocks and flows) for 2014–2016 has grown at an average of 8.6 per cent, while the Foreign Institutional Investment (FII) has grown at 48 per cent in the same period.69 The annual FDI flows were around US$10 billion in 2017.70 About 24.9 per cent of the FDI in 2016 was in retail and wholesale trading activities while 23.8 per cent was in the real estate. The share of the financial and insurance sectors was about 19.3 per cent in the same year and only 9.2 per cent of the FDI went into the manufacturing sector.71 Most of the foreign portfolio investment goes into the financial and insurance sectors. At the same time, the UAE was among the top 20 countries in the world with active outward FDI of US$15 billion in 2018.72 The implementation of UAE Federal Law No. 19 of 2018 on FDI allows 100 per cent foreign ownership in 122 economic activities across 13 sectors; these include transport, storage, space, agriculture, 67  Ben Mack. ‘UAE to tax sugary drinks, e-cigarettes from 2020’, Gulf Business, 21 August 2019, https://gulfbusiness.com/uae-to-tax-sugary-drinks-e-cigarettes-from-2020/?utm_ campaign=GB_Daily_Newsletter_22_08_2019&utm_medium=email&utm_source=Eloqua. 68  Aarti Nagraj. ‘Abu Dhabi toll gates to implement charges from Jan 2, no fee during nonpeak hours’, Gulf Business, 22 December 2019, https://gulfbusiness.com/ abu-dhabi-toll-gates-to-start-operations-on-jan-2-no-fee-during-non-peak-hours/?utm_ campaign=GB_Daily_Newsletter_23_12_2019&utm_medium=email&utm_source=Eloqua. 69  UAE.  FCSA, Foreign Investment Survey 2016, https://fcsa.gov.ae/en-us/Pages/ Statistics/Statistics-by-Subject.aspx#/%3Ffolder=Economy/National%20Account/ Foreign%20Investment. 70  United Nations Conference for Trade and Development (UNCTAD), ‘World Investment Report 2019’, https://unctad.org/en/PublicationsLibrary/wir2019_en.pdf. 71  UAE.  FCSA, Foreign Investment Survey 2016, https://fcsa.gov.ae/en-us/Pages/ Statistics/Statistics-by-Subject.aspx#/%3Ffolder=Economy/National%20Account/ Foreign%20Investment. 72  UNCTAD, World Investment Report 2019.

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manufacturing, renewable energy, hospitality and food services.73 Under the new law, companies enjoy extensive privileges, including the removal of restrictions on the repatriation of profits and proceeds from the liquidation and sale of the business. It allows the employees of the FDI companies to transfer their salaries, indemnities and entitlements outside the UAE. During Crown Prince Sheikh Mohamed bin Zayed’s visit to China in July 2019 both countries signed 16 MoUs and agreements covering energy, investments and real estate.74 The prominent framework agreement included the US$11 billion airport project between the Emaar properties and the Beijing Daxing International Port75 as well as US$12 billion deal between ADNOC and China’s Wanhua Chemical Group in the downstream sector and shipping.76 The Dubai government signed an MoU with the Chinese Huawei, the telecommunication giant, despite the latter’s confrontation with the US.77 The Chinese firm would assist the Dubai government in various initiatives of Smart Dubai, the technology arm of the government.78 The US has warned countries, including the UAE, against using Chinese technology on suspicion of its spy operations against the West.79 The Abu Dhabi-based Etihad Rail has awarded a contract to China Railway Construction Company and National Projects and Construction Company to expand the national railways to connect the ports of Fujairah 73  Rima Mrad. ‘Revealed: The new key laws introduced in the UAE to support businesses’, Gulf Business, 26 December 2019, https://gulfbusiness.com/revealed-the-new-key-lawsintroduced-in-the-uae-to-support-businesses/?utm_campaign=GB_Daily_ Newsletter_27_12_2019&utm_medium=email&utm_source=Eloqua. 74  Aarti Nagraj. ‘UAE, China sign 16 agreements to boost ties in energy, investment’, Gulf Business, 23 July 2019, https://gulfbusiness.com/uae-china-sign-16-agreements-to-boostties-in-energy-investment/?utm_campaign=GB_Daily_Newsletter_23_07_2019&utm_ medium=email&utm_source=Eloqua. 75  Ibid. 76  Pipeline Oil and Gas News. ‘ADNOC and Wanhua chemical sign downstream partnership, shipping joint venture’, 24 July 2019, https://www.pipelineoilandgasnews.com/ regionalinternational-news/regional-news/2019/july/adnoc-and-wanhua-chemical-signdownstream-partnership-shipping-jv/. 77  Ben Mack. ‘Dubai government to partner with Huawei’, Gulf Business, 8 October 2019, https://gulfbusiness.com/dubai-government-partner-huawei/. 78  Ibid. 79  Patrick Wintour. ‘US defence secretary warns Huawei 5G will put alliances at risk’, The Guardian, 15 February 2020, theguardian.com/us-news/2020/feb/15/us-defencesecretary-warns-us-alliances-at-risk-from-huawei-5g.

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and Khorfakkan at the Dubai–Sharjah border.80 The rail link will help transport 30 million tonnes of construction material from quarries in the northern emirates to the ports and give a boost to freight, transport and infrastructure industries in the UAE. The Roads and Transport Authority (RTA) of Dubai has invited local and international companies to submit proposals for the construction of 1,500 bus shelters.81 It has achieved the milestone operation rate of 89 per cent that dwarf some of the advanced metropolis in London, Paris, Berlin, Madrid, Barcelona, Dublin, Montreal, Rome and Sidney.82 In the last three years, it has expanded public transport to reduce the use of private vehicles as part of its energy conservation efforts.83 ADNOC has partnered with the Netherlands-based OCI (in a joint venture of 42 and 58 per cent, respectively) to be the largest producer of nitrogen-based fertilizer in the MENA with a production capacity of 5  million tonnes of urea and 1.5  million tonnes of ammonia84 and would have the world’s largest export capacity at 6.5 million tonnes. Labour Market and Expatriates: The growth story in the UAE has not been producing new job opportunities. According to Emirate’s NBD monthly survey, the non-oil private sector in May 2019 rose to the highest level since 2014. Yet, the employment index was only fractionally above at ‘no change level,’ and wages were stagnant.85 Despite the growth in the 80  Aarti Nagraj. ‘UAE’s Etihad Rail awards Dhs4.6bn contract for next stage of national railway network’, Gulf Business, 19 December 2019, https://gulfbusiness.com/ uaes-etihad-rail-awards-dhs4-6bn-contract-next-stage-national-railway-network/?utm_ campaign=GB_Daily_Newsletter_19_12_2019&utm_medium=email&utm_source=Eloqua. 81  Zainab Mansoor. ‘Dubai’s RTA invites private sector to submit proposals to build bus shelters’, Gulf Business, 15 December 2019, https://gulfbusiness.com/dubaisrta-encourages-private-sector-submit-proposals-build-bus-shelters/?utm_campaign=GB_ Daily_Newsletter_15_12_2019&utm_medium=email&utm_source=Eloqua. 82  Zainab Mansoor. ‘Dubai’s RTA leads in bus operations globally’, Gulf Business, 8 December 2019, https://gulfbusiness.com/dubais-rta-leads-bus-operations-globally/. 83  Gulf Business. ‘RTA offers 74 green and sustainable solutions’, 29 July 2019, https:// gulfnews.com/uae/transport/rta-offers-74-green-and-sustainable-solutions-1.65511763. 84  Aarti Nagraj. ‘Abu Dhabi’s ADNOC, OCI partner to create MENA’s largest fertilizer producer’, Gulf Business, 17 June 2019, https://gulfbusiness.com/abu-dhabisadnoc-oci-partner-create-menas-largest-fertilizer-producer/?utm_campaign=GB_Daily_ Newsletter_21_06_2019&utm_medium=email&utm_source=Eloqua. 85  Aarti Nagraj. ‘UAE’s private sector growth at the highest level since October 2014, hiring stagnant’, Gulf Business, 10 June 2019, https://gulfbusiness.com/uaesprivate-sector-growth-highest-level-since-october-2014-hiring-stagnant/?utm_ campaign=GB_Daily_Newsletter_15_06_2019&utm_medium=email&utm_source=Eloqua.

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business activity, firms are reluctant to recruit more employees or increase wages. The unemployment rates of the Emiratis living in Dubai increased from 2.9 per cent in 2016 to 4 per cent in 2018.86 A study by Tiger Recruitment has found that about 40 per cent of employees in the UAE did not have a salary increase for the last two years.87 To redress the situation, the Ministry of Human Resource and Emiratization has launched a job portal, ‘The UAE Job Bank,’ where the Emiratis could apply directly for jobs for both public and private companies.88 In the first phase, about 160 government and non-government entities would be directed to post job availability through the portal. The UAE accounts for US$44.4 billion of global outward remittances, which is the second  largest in the world.89 In May, the government launched the golden permanent residency programme for expatriates in exceptional professions and by mid-November, about 2,500 foreigners, including scientists, researchers and investors, were granted permanent residency in the Emirates including about 200 African nationals.90 In April, the Emirati cabinet decided to allow expatriates to sponsor their family members based on income rather than their profession.91 It also accorded gender parity in this regard. Previously, only in a certain profession, male expatriates with a minimum monthly salary of Emirati 86  Aarti Nagraj. ‘Dubai’s unemployment rate stood at 0.5% in 2018’, Gulf Business, 19 May 2019, https://gulfbusiness.com/dubais-unemployment-rate-stood-0-5-2018/2018/?utm_ campaign=GB_Daily_Newsletter_19_05_2019&utm_medium=email&utm_source=Eloqua. 87  World Bank. Annual Remittances Data, 2020 Aarti Nagraj. ‘Up to 40% of UAE workers have not had a salary increase in the last 2 years- study’, Gulf Business, 18 December 2019, https://gulfbusiness.com/up-to-40-of-uae-workers-have-not-had-a-salary-increase-in-thelast-2-years-study/?utm_campaign=GB_Daily_Newsletter_21_12_2019&utm_ medium=email&utm_source=Eloqua. 88  Zainab Mansoor. ‘UAE launches new job portal to prioritize Emiratization’, Gulf Business, 27 November 2019, https://gulfbusiness.com/uae-launches-new-job-portalprioritise-emiratisation/?utm_campaign=GB_Daily_Newsletter_30_11_2019&utm_ medium=email&utm_source=Eloqua. 89  The World Bank, Annual Remittances Data, 2020. 90  Aarti Nagraj. ‘Dubai to grant UAE permanent residency visas to 200 African investors’, Gulf Business, 19 November 2019, https://gulfbusiness.com/dubai-grant-uae-permanentresidency-visas-200-african-investors/?utm_campaign=GB_Daily_Newsletter_20_11_ 2019&utm_medium=email&utm_source=Eloqua. 91  Aarti Nagraj. ‘New family sponsorship laws for expats in the UAE takes effect’, Gulf Business, 14 July 2019, https://gulfbusiness.com/new-family-sponsorship-law-for-expatsin-the-uae-takes-effect/?utm_campaign=GB_Daily_Newsletter_15_07_2019&utm_ medium=email&utm_source=Eloqua.

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Dirham (AED) 4,000 (US$1,089) or AED 3,000 (US$816) with accommodation and a female expatriate with a minimum salary of AED 10,000 (US$2,722) were able to sponsor his or her family. Under the new law, the Federal Authority for Identity and Citizenship (ICA) announced that both male and female expatriates who earn a minimum monthly salary of AED 4,000 (US$1,089) or AED 3,000 (US$816) with accommodation could sponsor their families. To facilitate the local companies to recruit within the resident population and help them to reduce the operational cost, the new work permit laws also allow expatriate men who are sponsored by their families to work.92 It would also cover husbands sponsored by their wives, sons by their parents, as well as older men by their children. External Sector: The wealth of the Emirate is mainly generated through the external sector. The current account surplus increased from US$27.47 billion (7.3 per cent of GDP) in 2017 to US$37.84 billion in 2018 (9.1 per cent of GDP) (Table 9.3). The increase in current account surplus accrued from the increase in oil export revenues as the average export price of oil rose from US$54 per barrel in 2017 to US$71 per barrel in 201893 as well as from positive net investment incomes from abroad. Burgeoning trade surplus has offset the negative trade balance in the service account as well as negative net transfers. The hydrocarbon exports increased in 2016–2018. The share of hydrocarbon exports in the total export revenue has come down significantly and was 16 per cent in 2018 against 35 per cent in 2011. The share of re-exports was more than onethird of the total export of goods and services in 2018. As Table 9.4 shows in 2018, Saudi Arabia, Iran and Iraq were the leading destinations for Emirati re-exports with a share of 11 per cent, 8.02 per cent and 7.51 per cent, respectively. About 38 per cent of the total non-oil exports was destined for the Persian Gulf countries and Turkey in 2018.94 The Emirati imports from all the top five exporting 92  Aarti Nagraj. ‘New UAE work permit launched for men on family sponsorship’, Gulf Business, 28 July 2019, https://gulfbusiness.com/new-uae-work-permit-launched-menfamily-sponsorship/?utm_campaign=GB_Daily_Newsletter_28_07_2019&utm_ medium=email&utm_source=Eloqua. 93  Central Bank of the UAE. ‘Developments in the balance of payment’, 15 April 2019, https://www.centralbank.ae/sites/default/files/2019-04/2018%20Balance_of_ Payments_Development_15042019%20%28FINAL%29.pdf. 94  UAE.  Federal Committee and Statistics Authority. ‘Foreign Trade General System 2018’, https://fcsa.gov.ae/_layouts/download.aspx?SourceUrl=%2Fen-us%2FLists%2FD_ StatisticsSubjectV2%2FAttachments%2F1157%2FForeign%20Trade%202018%20 General%20Trade%20System%3B.xlsx.

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Table 9.3  UAE: Select balance of payments indicators, 2016–2018 (US$ million)

Crude oil exports Petroleum products exports Gas exports Other exports Free zone exports Re-exports Total exports of goods and services (fob) Total imports of goods and services Net trade in services Net investment income from abroad Net transfers Current account balance

2016

2017

2018

25,159.97 15,275.70 6,017.70 45,908.78 57,562.97 145,105.51 360,626.28 350,388.02 −18,216 2,097 −39,101 13,206.26

31,313.82 19,332.88 7,488.09 45,200.82 61,402.31 148,808.71 384,043.57 345,514.00 −15,003 2,777 −41,198 27,474.47

34,145.68 21,102.79 7,950.99 40,653.51 71,150.44 141,919.67 388,754.25 333,832.54 −490 1,988 −45,201 37,848.88

Source: Compiled from FCSA, National Accounts 2018, Table 39

Table 9.4  UAE: Direction of trade, 2018 Top five sources of imports

Top five export destinations

Top non-oil trading partners

Top five re-export destination

China (15.5) India (9.4) USA (8.5) Japan (5.6) Germany (4.5)

Japan (10.65) India (10.63) Iraq (7.57) China (6.46) Oman (5.37)

China (10.3) India (8.6) USA (6.5) Japan (3.5) Germany (3.2)

Saudi Arabia (11) Iran (8.02) Iraq (7.51) India (6.78) Switzerland (6.16)

Figures in brackets are percentage shares Sources: Federal Competitive Statistical Authority, Foreign Trade General System 2018; https://fcsa.gov. ae/_layouts/download.aspx?SourceUrl=%2Fen-us%2FLists%2FD_StatisticsSubjectV2%2FAttachments% 2F1157%2FForeign%20Trade%202018%20General%20Trade%20System%3B.xlsx; UNCTAD.  General Profile: United Arab Emirates, https://unctadstat.unctad.org/CountryProfile/GeneralProfile/ en-GB/784/index.html

countries—except India—registered negative growth rates in 2018 over the previous year.95 India is a major destination for Emirati exports and re-exports and also a major source of imports after China and the second largest non-oil trading partner.

 Ibid.

95

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According to the Federal Competitive and Statistical Authority, the major components of the imports in 2018 were electrical machinery items (25.7 per cent), pearls, stones, precious metals and articles (22.1 per cent), vehicles of transport (11.5 per cent), base metals and articles thereof (7 per cent) and mineral products (6.9 per cent).96 The major composition of non-oil exports were pearls, stones, precious metals and articles (31 per cent), base metals and its articles (24 per cent), food stuff, beverages and tobacco (9.6 per cent). The main re-export items were electrical machinery items and parts (35.7 per cent), pearls, stones, precious metals and articles (24.2 per cent) and vehicles of transport and parts (14.1 per cent).97 Net foreign exchange reserves (including the Special Drawing Rights (SDR) of the IMF) was US$96.80 billion in 2018 against US$93.20 billion a year earlier.98 As per cent of GDP, it was about 24 per cent. Major developments in the bilateral trade were with Russia, China and India. Russian President Vladimir Putin visited the UAE on 15 October 2019 and the bilateral trade has grown by 67 per cent in 2018 over 2016 from US$1.49 billion to US$2.48 billion.99 Tourism between the two countries has flourished, with about 900,000 Russian tourists visiting the Emirates in 2018 and more Emiratis making Russia as their holiday destination. Mubadala made the maiden entry into the Russian oil and gas sector with investments in Gazpromneft Vostok to develop the oil fields in Western Siberia.100 This speaks volumes of the technical sophistication the company has acquired over time. Energy Sector Energy has been one of the building blocks success and reflects its transition to life after oil; within the Emirates, Abu Dhabi has 94 per cent of the 96  FCSA, Foreign Trade 2018, ‘General Trade system’, Table  7, https://fcsa.gov.ae/ en-us/Pages/Statistics/Statistics-by-Subject.aspx#/%23/%2523/%2523/reporttvDetails&folder=Economy/International%20Trade/Commodities%20Trade. 97  FSA, Foreign Trade 2018, ‘General Trade system’, Tables 8 and 9. 98  Central Bank of the UAE. ‘Developments in the balance of payment’, 15 April 2019, https://www.centralbank.ae/sites/default/files/2019-04/2018%20Balance_of_ Payments_Development_15042019%20%28FINAL%29.pdf. 99  Gulf Business. ‘Dubai’s external trade with Russia up 67%’, 15 October 2019, https:// gulfbusiness.com/dubais-external-trade-russia-67-per-cent/?utm_campaign=GB_Daily_ Newsletter_16_10_2019&utm_medium=email&utm_source=Eloqua. 100  MEES, vol. 62 no. 45, 8 November 2019, p. 9.

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total oil reserves while Dubai and Sharjah have 4 per cent and 1.5 per cent, respectively. New discoveries of oil and gas were made in 2019 and according to the Supreme Petroleum Council (SPC), proven oil reserves have increased to 105 billion barrels and proven conventional gas reserves have increased to 273 tcf.101 The new oil discoveries make the UAE’s crude oil reserves the sixth largest in the world. Table 9.5 shows energy production and exports in 2018; the crude oil production was 3.01 mb/d while the exports were 2.29 mb/d. In a major shift, the UAE has announced future pricing102 for its Murban crude to transform its flagship crude grade into a regional benchmark. Murban will be listed for future contract from mid-2020 and the destination clause has been lifted.103 The refining capacity in the UAE in 2017 was 1,127,000 b/d and  was distributed among the refineries in  Al-Ruwais (817,000 b/d), Jabel Ali (140,000 b/d), Abu Dhabi and Fujairah (85,000 b/d each).104 Natural gas reserves estimated in 2018 were about 5.9 tcm (Table 1.2) and the marketed production was approximately 47.62 bcm (Table 9.5). However, it is costly to process the natural gas due its high sulphur content and about 30 per cent of the natural gas production is re-injected into the oil fields to maintain reservoir pressure. The UAE became net importer of natural gas in 2008 to meet its rising domestic demand especially from the power plants. About 22.39 bcm of natural gas was imported in 2018 (Table 9.5). Abu Dhabi is the main gas producer but the Emirates still has to import LNG and piped gas mainly from Qatar. Dolphin Energy in which Abu Dhabi’s Mubadala has 51 per cent stake had an agreement with Qatar in 2007 for the supply of 2 bcf/d of piped gas to the UAE and Oman through energy sub-sea pipelines.105 The gas supplies has been continuing  MEES, vol. 62 no. 44, 1 November 2019, p. 3.  Rania EL Gamal. ‘Abu Dhabi approves new pricing mechanism for ADNOC’s Murban crude’, Reuters, 4 November 2019, https://www.reuters.com/article/us-emirates-adnoccr ude/abu-dhabi-approves-new-pricing-mechanism-for-adnocs-murban-cr udeidUSKBN1XE13V. 103  Ibid. 104  FCSA, the UAE, Oil, Gas and Coal 2009–2017. 105  Dania Saadi. ‘Feature: UAE holds back from Qatari-Saudi Détente and plans for gas independence’, S &P Global Platts, 23 December 2019, https://www.spglobal.com/platts/ en/market-insights/latest-news/natural-gas/122319-feature-uae-holds-back-from-qatari-saudi-detenteand-plans-for-gas-independence. 101 102

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Table 9.5  UAE: Energy production, exports and imports, 2018 Production

Export/ re-exports

Imports

Crude oil (mb/d) Petroleum products (mb/d) Natural gas, marketed (bcm)

3.01 1.07 47.62

2.29 0.92 7.09

– 1.8 thousand b/d 22.39a(2017)

Coal (tonnes) (2017)

–

1,676

3,215,912

a

Sources: OPEC. Annual Statistical Bulletin 2019 a Federal Competitive and Statistics Authority, UAE; Oil, Gas and Coal 2009–2017

despite the Emirati-Saudi boycott of Qatar106 and CEO of Qatar Petroleum reportedly said that despite a ‘force majeure’ clause in the gas agreement, Doha would not stop not gas supplies to its “brother.”107 Indeed, as of 2019 the UAE crucially needs gas imports from Qatar, which constitutes about one-third of its total consumption, especially to maintain its water and power supplies. The new gas discoveries of about 80 tcf between Abu Dhabi and Dubai and about 58 tcf of unconventional gas in 2019108 are expected to take UAE towards gas self-sufficiency. At the same time, the Emirates had also been exporting LNG to keep its past export commitments under a 25-year contract with Japan’s utility company TEPCO, which expired in 2019.109 It also exported small amounts of LNG to India and Pakistan in 2018.110

106  Dimitry Zhdannikov. ‘Qatar ships LNG to the UAE after the Dolphin pipeline outage: source’, Reuters,  19 May 2019, https://www.reuters.com/article/us-qatar-emirates-lng/ qatar-ships-lng-to-the-uae-after-dolphin-pipeline-outage-source-idUSKCN1SP063. 107  Aljazeera. ‘Qatar will not shut gas pipelines to UAE:QP CEO’, 17 June 2017, https:// w w w. a l j a z e e r a . c o m / n e w s / 2 0 1 7 / 0 6 / q a t a r- s h u t - g a s - p i p e l i n e - u a e - q p - c e o 170618171841461.html. 108  The ET Energy World. ‘UAE discovers trillions of cubic feet of shallow natural gas reserves’, 3 February 2020, https://energy.economictimes.indiatimes.com/news/oil-andgas/uae-discovers-trillions-of-cubic-feet-of-shallow-natural-gas-reserves/73906102. 109  Independent Commodity Intelligence Service. ‘Trading houses soak up UAE LNG cargoes as Japan’s contract ends’, 17 July 2019, https://www.icis.com/explore/resources/ news/2019/07/17/10393092/trading-houses-soak-up-uae-lng-cargoes-as-japancontract-ends. 110  IGU. Annual Report 2019, p.  20, https://www.igu.org/sites/default/files/nodenews_item-field_file/IGU%20Annual%20Report%202019_23%20loresfinal.pdf.

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ADNOC, the state-run oil and gas producer, was long seen as one of the most protectionist energy companies in the Persian Gulf. In recent years, its global march is ushered through collaborations with international energy, financial and storage companies. It is in talks to acquire a stake in VTTI, a global energy storage company that owns about 60 million barrels of combine storage capacity in 15 terminals across 15 countries.111 DP World, one of the largest port operators, acquired the Dubai-based Topaz Energy in a deal worth US$1.08 billion, to join the global logistics and maritime service industry.112 Topaz world operates in the Caspian Sea, Middle East and West Africa with a fleet of about 117 vessels and works with oil giants such as BP, Exxon Mobil and Saudi Aramco. Abu Dhabi National Energy Company (TAQA) also produced more than a million barrels of oil in July 2019 from the Atrush oil field, one of the largest new oil fields, 85 kilometres Northwest of Erbil, in the Kurdish autonomous region of Iraq.113 Mubadala Investment Company, the state investment vehicle, ranks among the top 15 sovereign wealth funds in the world with value more than US$229  billion.114 It has greatly expanded its investment in the energy sector and has added global gas assets to its portfolio. In its first exposure to the US LNG market in 2019, it agreed to buy US$50 million stakes in NextDecade LNG Development firm, which is building an LNG export facility in Texas.115 It also has 2 per cent stake in Spain’s Enagas, which operates one of the largest number of re-gasification LNG terminals.116 Regionally, it acquired a 10 per cent stake (from Italy’s ENI) in the  Gulf Business. ‘Abu Dhabi’s ADNOC acquires stake in VTTI oil storage business’, 7 August 2019, https://gulfbusiness.com/abu-dhabis-adnoc-acquires-stake-vtti-oil-storagebusiness/?utm_campaign=GB_Daily_Newsletter_10_08_2019&utm_medium= email&utm_source=Eloqua; https://www.vtti.com/terminals. 112  Gulf Business. ‘Dubai’s DP World acquires Topaz Energy in $1bn deal’, 1 July 2019, https://gulfbusiness.com/dubais-dp-world-acquires-topaz-energy-1bn-deal/?utm_ campaign=GB_Daily_Newsletter_01_07_2019&utm_medium=email&utm_source=Eloqua. 113   Carla Sertin. ‘TAQA produced more than 1mn barrels of oil from Atrush in July 2019’, Oil and Gas, Middle East, 22 August 2019,  https://www.oilandgasmiddleeast.com/ drilling-production/34818-taqa-produced-more-than-1mn-barrels-of-oil-from-atrush-injuly-2019 114  MEES, vol. 62 no. 45, 8 November 2019, p. 8. 115  MEES, vol. 62 no. 45, 8 November 2019, p. 7. 116  Ibid. 111

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Egyptian Zohr gas field, one of the largest in the Mediterranean gas fields in 2018. The UAE already has a 20 per cent stake in the Nour offshore gas exploration in Egypt. Domestically, investment firms BlackRock and Kohlberg Kravis Roberts & Co acquired a combined 40 per cent stake in ADNOC Oil Pipelines worth US$4 billion in the first quarter of 2019, making it the second-largest M&A deal in the region in the year.117 The UAE had about 30.37 GW of installed electricity capacity in 2017.118 About 37 per cent of the gas produced in the UAE is consumed in the power sector.119 Desalination caters to 30 per cent of the water ­supply in Abu Dhabi, while groundwater and recycled water provide for 60 per cent and 10 per cent, respectively.120 The desalination industry is a significant consumer of electricity. The renewable power produced in 2017 was about 733.8 MW; 476.5  MW from solar photovoltaic and 253.3  MW from concentrated solar power (CSP).121 Mohammed bin Rashid al-Maktoum Solar Park in Dubai is the largest single-site solar park in the world. Two of its phases are operational with a capacity of 213 MW and the third phase (800 MW photovoltaic) is scheduled to go online in 2020. The total capacity of the solar park would be 5 GW by 2030, with an investment of US$13.5 billion. Phase four of the solar park includes a 700  MW CSP plant and a 250  MW PV facility to be jointly developed by Saudi ACWA and the

 Zainab Mansoor. ‘Regional M&A activity in 2019: fireworks or a squib?’, Gulf Business, 13 December 2019, https://gulfbusiness.com/regional-ma-activity-2019-fireworkssquib/?utm_campaign=GB_Daily_Newsletter_14_12_2019&utm_medium=email&utm_ source=Eloqua. 118   UAE.  FCSA, Electricity 2017-17, https://fcsa.gov.ae/en-us/Pages/Statistics/ Statistics-by-Subject.aspx#/%23/%2523/%2523/%2523/%2523/%2523/%2523/%2523 /%2523/%2523/%2523/%2523/%2523/report-tvDetails&folder=Agriculture%20 Environment%20and%20Energy/Energy/Electricity&subject=Agriculture%20 Environment%20and%20Energy. 119  MEES, vol. 62, no. 43, 25 October 2019, p. 8. 120  MEES, vol. 62, no. 43, 25 October 2019, p. 8. 121  UAE.  FCSA, Renewable energy 2017, https://fcsa.gov.ae/en-us/Pages/Statistics/ Statistics-by-Subject.aspx#/%23/%2523/%2523/%2523/%2523/%2523/%2523/%2523 /%2523/%2523/%2523/%2523/%2523/%2523/%2523/reporttvDetails&folder=Agriculture%20Environment%20and%20Energy/Energy/Renewable%20 Energy&subject=Agriculture%20Environment%20and%20Energy. 117

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Dubai Water and Electricity Authority (DEWA).122 The tender for the fifth phase was announced in 2019 and attracted dozens of companies for its independent power producer model (IPP) for the 40 per cent ownership of the project.123 Dubai’s clean energy strategy 2050 aims to source 50 per cent of its power output from clean energy by that year. The world’s largest photovoltaic solar plant has begun commercial operation in Abu Dhabi and is a joint venture of China’s JinkoSolar, Japan’s Marubeni Corp and DEWA.124 It has grid-connected 1.2 GW capacity and can supply electricity to about 90,000 people. The project started in 2016, with a record low bid of 2.42 cent per kilowatt-hour at that time and is expected to reduce carbon dioxide emission by one million tonnes per year.125 Masdar, Abu Dhabi’s renewable energy company has overseas renewable energy projects (installed or under construction) in nearly 25 countries, including London Array Wind Farm and Barbados Caribbean Renewable Energy Project, with a gross capacity of nearly 4 GW.126 Society The UAE has  progressed significantly in social issues, cultural openness and cohesion. Among the Gulf countries, the UAE is considered a model state where women, minorities and migrants enjoy independent and prosperous living.127 Emirati women have accomplished themselves in many 122  Emiliano Bellini. ‘Phase V of 5 GW Mohammed bin Rashid Al Maktoum Solar Park reaches final close’, PV Magazine, 25 March 2019, https://www.pv-magazine. com/2019/03/25/phase-iv-of-5-gw-mohammed-bin-rashid-al-maktoum-solar-parkreaches-financial-close/. 123  Aarti Nagraj. ‘Dubai’s DEWA launches tender for 900MW fifth phase of mega Solar Park’, Gulf Business, 16 June 2019, https://gulfbusiness.com/dubais-dewa-launchest e n d e r- 9 0 0 m w - f i f t h - p h a s e - m e g a - s o l a r- p a r k / ? u t m _ c a m p a i g n = G B _ D a i l y _ Newsletter_16_06_2019&utm_medium=email&utm_source=Eloqua. 124  Gulf Business. ‘World’s biggest solar Plant starts in Abu Dhabi’, 31 October 2019, https://gulfbusiness.com/worlds-biggest-solar-plant-star ts-abu-dhabi/?utm_ campaign=GB_Daily_Newsletter_01_11_2019&utm_medium=email&utm_ source=Eloqua. 125  Ibid. 126  MEES, vol. 62 no.46, 15 November 2019, p. 13; Masdar. ‘Masdar clean energy’, 2019, https://masdar.ae/en/masdar-clean-energy/projects. 127  Saadia Mufarreh. ‘Gulf women have come a long way’, Al-Jazeera, 8 March 2019, https://www.aljazeera.com/indepth/opinion/gulf-women-long-190308131344342.html.

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fields and have acquired a leadership role in business, bureaucracy, academia and other fields. The UAE has a high HDI of 0.866 and ranks 35 globally. It has a Gender Development Index (GDI) score of 0.965 and a Global Innovative Index (GII) score of 0.113.128 The year 2019 was declared as the ‘Year of Tolerance,’ and the Emirates unveiled A-380 aircraft as a multicultural flight. It was decked with a multicultural crew to fly over its network of more than 50 locations during the year spreading the message of tolerance and mutual respect.129 The UAE ranks the best in the region for its inclusiveness and freedom to observe and practice religion. Unlike some of its neighbours, the Emirates recognizes and accepts non-Muslim places of worship, though all places of worship (including Islamic ones) and civil associations are monitored and regulated under the federal and local laws. In February, Pope Francis travelled to the UAE as the guest of the Emirates and this was the first papal visit to the Persian Gulf region. The Pope held a public mass in Zayed Sports City with the participation of an estimated 180,000 people.130 He held talks with the Emirati political and religious leaders on the need to improve cooperation with peoples of different religions and for building tolerance and defeating extremism. Many viewed the event as a historic moment towards promoting tolerance and coexistence.131 The UAE announced a contribution of about US$15 million over the next three years to support the activities of the United Nations Women, which was established in 2010.132 The UAE has supported the fund’s operation and activities to promote gender equality and empowerment globally through its liaison office in Abu Dhabi. Since its inception, the

128   United Nations Development Program (UNDP). Human Development Report: United Arab Emirates, 2019, http://hdr.undp.org/en/countries/profiles/ARE. 129  Zainab Mansoor. ‘Emirates unveils ‘Year of tolerance’ A380 for historic multicultural flight’, Gulf Business, 27 November 2019, https://gulfbusiness.com/emiratesunveils-year-tolerance-a380-historic-multicultural-flight/?utm_campaign=GB_Daily_ Newsletter_28_11_2019&utm_medium=email&utm_source=Eloqua. 130  Sofia Barbarani. ‘Papal visit: Pope Francis lands in Abu Dhabi for historic first Gulf trip’, The National, 3 February 2019, www.thenational.ae/uae/the-pope-in-the-uae/papalvisit-pope-francis-lands-in-abu-dhabi-for-historic-first-gulf-trip-1.821388. 131  The National. ‘The Pope’s historic visit to the UAE’, 3 February 2019, https:// papalvisit.thenational.ae/. 132  Ben Mack. ‘UAE pledges $15m to UN Women’, Gulf Business, 29 September 2019, https://gulfbusiness.com/uae-pledges-15m-un-women/?utm_campaign=GB_Daily_ Newsletter_30_09_2019&utm_medium=email&utm_source=Eloqua.

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UAE has contributed about US$$26 million to the core budget.133 This comes at a time when a record number of the Emirati women (about 180) registered for the Federal National Councils’ elections in 2019 and about 50 per cent of the Emirati employees for the Expo 2020 are women. About 60 per cent of the new social media business licenses issued since 2017 have been given to the women in Dubai.134 Nonetheless, there have been instances that are not commensurate with universal rights of freedom and gender equality. For example, the anti-­ discrimination law adopted in 2015 does not include gender discrimination.135 Similarly, there are no laws that criminalize domestic violence and marital rape.136 On civil issues such as marriage, divorce, maintenance or sexual preference, the UAE laws are discriminatory against women.137 Migrant workers continue to face discrimination and are vulnerable to exploitation from the highly contentious kafala system prevalent in the region, including the Emirate. In 2017 the UAE introduced new labour laws that are more amenable to the rights of migrant workers138 and over the years it has lowered the abuse of low-paid and unskilled migrant labourers coming from the developing  African and Asian countries. However, there is still scope for improvement, especially on issues such as freedom to change jobs as per individual choice.139

Bilateral Ties The proactive political engagements between Prime Minister Modi and Crown Prince Mohammed bin Zayed have given an unprecedented momentum to the bilateral ties, propelling them  to a new orbit of  Ibid.  Ben Mack. ‘Women accounts for 60% of Dubai social media business licenses- new Data’, Gulf Business, 22 September 2019, https://gulfbusiness.com/ women-account-60-dubai-social-media-business-licences-new-data/?utm_campaign=GB_ Daily_Newsletter_23_09_2019&utm_medium=email&utm_source=Eloqua. 135  Human Rights Watch. ‘United Arab Emirates: Events of 2018’, 2019, https://www. hrw.org/world-report/2019/country-chapters/united-arab-emirates. 136  Human Rights Watch. ‘United Arab Emirates: Events of 2019’, 2019, https://www. hrw.org/world-report/2020/country-chapters/united-arab-emirates. 137  Ibid. 138  Human Rights Watch. ‘UAE: Domestic Worker’s Rights Bill a step forward’, 7 June 2019, https://www.hrw.org/news/2017/06/07/uae-domestic-workers-rights-bill-stepforward. 139  Ibid. 133 134

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comprehensive engagements. The UAE has emerged as India’s most preferred partner in the Persian Gulf region while India has become a valued partner for the Emirates. Trade, commerce, security, defence and peopleto-­people contacts form the backbone of bilateral ties. In 2019, many important visits were exchanged and in April, the UAE conferred its highest civilian award Order of Zayed upon the Indian prime minister, who visited the Emirates in August, his third visit within five years, to receive the award. Political Relations Both countries have achieved an extraordinary level of political understanding and trust since Narendra Modi became prime minister. The process was set off with his visit to the UAE in August 2015 and this was followed by the visits of the Crown Prince of Abu Dhabi Mohammed bin Zayed to New Delhi in February 2016 and January 2017 (as the chief guest for India’s Republic Day celebrations). Prime Minister Modi reciprocated with a return visit in February 2018 to participate in the 6th World Government Summit in Dubai, where India was the “Guest of Honour” country. Meanwhile External Affairs Minister Sushma Swaraj visited the UAE thrice during her five-year tenure while her counterpart Abdullah bin Zayed visited India twice (June 2018 and July 2019). The last visit of EAM Swaraj took place in February–March 2019 when she represented India at the 46th session of the Council of Foreign Ministers of Organization of Islamic Cooperation (OIC), where India was invited as “Guest of honour” by the UAE.140 Prime Minister Modi visited the UAE in August to receive the Order of Zayed conferred on him by the UAE President a few months earlier, in recognition of his “pivotal role in building the strategic relationship between the two countries.”141 During Modi’s visit, the RuPay Card—the Indian alternative to international credit cards like Visa and Master—was

140  Elizabeth Roche. ‘India invited as ‘guest of honour’ to OIC meet, Sushma Swaraj to attend’, Livemint, 24 February 2019, https://www.livemint.com/politics/news/indiainvited-as-guest-of-honour-to-oic-meet-sushma-swaraj-to-attend-1550913750935.html. 141  The Economic Times. ‘UAE confers ‘Order of Zayed’ to PM Modi’, 24 August 2019, https://economictimes.indiatimes.com/news/politics-and-nation/uae-confers-order-ofzayed-to-pm-modi/articleshow/70817695.cms?from=mdr.

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officially launched in the UAE.142 The Emirates became the first foreign country where RuPay payment service  became operational and Saudi Arabia followed suit in October.143 It would facilitate the transactions of the large expatriate community both within the UAE and with their families in India.144 The two sides also released a set of stamps issued by the Emirates Post commemorating the 150th birth anniversary of Mahatma Gandhi. The prime minister exchanged views with the Crown Prince on important bilateral, regional and international issues of mutual interest.145 In April, some media reports suggested that the prime minister might travel to the UAE to inaugurate the first Hindu temple in Abu Dhabi; however, this could not materialize due to the ongoing Lok Sabha elections.146 Earlier in February–March, EAM Swaraj visit to the UAE to attend an OIC meeting was momentous for its diplomatic and strategic importance. India participated in the 46th Council of Foreign Ministers meeting of the OIC as the “Guest of Honour” on the invitation of the Emirati Foreign Minister. Her presence held significance in overturning New Delhi’s diplomatic embarrassment over its participation in the first Islamic summit in Rabat in September 1969.147 Besides, much to the chagrin of Pakistan, India’s  participation came within days of the Pulwama terror attack in January and the retaliatory Indian airstrikes on Balakot.

142  Dipanjan Roy Chaudhary. ‘PM Modi launches RuPay card in UAE’, The Economic Times, 24 August 2019, https://economictimes.indiatimes.com/news/politics-andnation/pm-modi-launches-rupay-card-in-uae/articleshow/70816228.cms?from=mdr. 143  Livemint. ‘India signs MoU with Saudi Arabia to Launch RuPay card in Gulf Kingdom’, 30 October 2019, https://www.livemint.com/news/india/india-signs-mou-with-saudiarabia-to-launch-rupay-card-in-gulf-kingdom-11572405975099.html. 144  Rohma Sadaqat. ‘Before the dirham, UAE used the Rupee’, Khaleej Times, 27 January 2017, https://www.khaleejtimes.com/uae-india-ties/before-the-dirham-uae-used-the-rupee. 145  GoI. MEA. ‘State Visits of Prime Minister to United Arab Emirates (August 23–25, 2019)’, 18 August 2019, https://www.mea.gov.in/outoging-visit-detail.htm?31740/State +Visits+of+Prime+Minister+to+United+Arab+Emirates+and+Bahrain+August+2325+2019. 146  Dipanjan Roy Chaudhary. ‘Talks on for Pm Modi to open Temple in UAE on April 20’, The Economic Times, 2 April 2019, https://economictimes.indiatimes.com/news/politicsand-nation/talks-on-for-pm-modi-to-open-temple-in-uae-on-april-20/ar ticleshow/68680149.cms. 147  Sujan R. Chinoy and Md. Muddassir Quamar. ‘India at the OIC: Recognition of a rising Global power’, Manohar Parrikkar IDSA, 25 March 2019, https://idsa.in/idsacomments/india-at-the-oic-chinoy-quamar-250319.

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In July, the foreign minister of the UAE, Abdullah bin Zayed, accompanied by a large delegation visited New Delhi and held bilateral talks with EAM S. Jaishankar and also called on the prime minister.148 This was the first official meeting between the two sides after the May Lok Sabha elections in India, where Prime Minister Modi was re-elected with a landslide victory. In November, Jaishankar embarked on his maiden official visit to the UAE and attended the 10th Sir BaniYas Forum, organized by the UAE Ministry of Foreign Affairs in collaboration with the Washington-­ based Centre for Strategic and International Studies (CSIS) and met Crown Prince Mohammed bin Zayed on side lines of the forum deliberations.149 In addition, the Minister of Commerce and Industry and Minister for Railways Piyush Goyal visited the Emirates in September for the 7th meeting of the UAE–India High-Level Joint Task Force on Investments (HLTFI). Minister of Petroleum and Natural Gas Dharmendra Pradhan visited in the same month to participate in the 8th Asian Ministerial Energy Round Table and 24th World Energy Congress.150 The Minister of State for External Affairs and Parliamentary Affairs represented India at the 10th Indian Ocean Rim Association (IORA) ministerial meeting held in Abu Dhabi in November.151 Security and Defence Greater political and diplomatic contacts and strong trade and commercial ties have paved the way for better security and defence cooperation between the two countries. The security relations have improved significantly, especially in counter-terrorism and combating radicalism. Both countries have an extradition treaty since 2000 and in recent years, the UAE has been forthcoming in extraditing and deporting Indians accused 148  GoI. MEA. ‘Visit of the Foreign Minister of the United Arab Emirates to India (July 7–9, 2019)’, 4 July 2019, https://mea.gov.in/incoming-visit-detail.htm?31540/Visit+of+F oreign+Minister+of+the+United+Arab+Emirates+to+India+July+79+2019. 149   GoI.  MEA. ‘India-UAE Bilateral relations’, 2020, http://mea.gov.in/Portal/ ForeignRelation/Bilateral_Brief_feb_2020_pdf. 150  Ibid. 151  GoI. MEA. ‘Country statement delivered by minister of State for External Affairs during the 19th Council of Ministers meeting of IORA, Abu Dhabi’, 9 November 2019, https://www.mea.gov.in/Speeches-Statements.htm?dtl/32022/Country_Statement_ delivered_by_Minister_of_State_for_External_Affairs_during_the_19th_Council_of_ Ministers_Meeting_of_IORA_Abu_Dhabi__07_November_2019.

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or suspected of involvement in money laundering, terror financing, online radicalization, organized crimes and corruption charges. In 2019, three more suspects were deported to India on charges of money laundering and attempted murder.152 Intelligence sharing and periodic interactions between national security advisors and security agencies have improved strategic cooperation.153 Since 2009, both air forces have been conducting joint Desert Eagle exercise alternatively in India and the UAE. The UAE participated in the Indian Air Force humanitarian assistance and disaster relief exercise Samvedna along with Bangladesh, Nepal and Sri Lanka in March 2018.154 Moreover, the first India–UAE joint naval exercise was conducted in March 2018.155 Furthermore, many bilateral visits of high-ranking military officials have taken place in recent years. Besides joint exercises and exchange of visits, India and UAE have been contemplating cooperation in the area of joint manufacturing of defence equipment and space exploration.156 Trade and Commerce The UAE was India’s third-largest trading partner with a share of 7.1 per cent (Table 1.6), while India was the Emirate’s second-largest export destination (10.63 per cent share), second largest non-oil trading partner (8.6 per cent share) and second largest source of its imports (9.4 per cent share) in 2018 (Table 9.3). India’s bilateral trade for 2018–2019 stood at US$59.9  billion, with a growth of 20 per cent over the previous year (Table  9.4). This double-digit growth came on the backdrop of the 152  GoI. MEI. ‘List of fugitives extradited by foreign governments to India’, 29 January 2019, https://www.mea.gov.in/toindia.htm. 153  GoI.  MEA. ‘India-UAE Joint statement during State Visit of the Prime Minister of India to UAE’, 11 February 2018, https://mea.gov.in/bilateral-documents. htm?dtl/29476/IndiaUAE_Joint_Statement_during_State_Visit_of_the_Prime_Minister_ of_India_to_UAE_February_1011_2018. 154  The Economic Times. ‘Multilateral HADR Air Force exercise from March 12–17’, 10 March 2018, https://economictimes.indiatimes.com/news/defence/multilateral-hadr-airforce-exercise-from-march-12-17/articleshow/63244964.cms?from=mdr. 155  Indian Navy. ‘Indian Navy- United Arab Emirates Bilateral exercise’, https://www. indiannavy.nic.in/content/indian-navy-united-arab-emirates-bilateral-exercise. 156  GoI.  MEA. ‘India-UAE Joint statement during State Visit of the Prime Minister of India to UAE’, 11 February 2018, https://mea.gov.in/bilateral-documents. htm?dtl/29476/IndiaUAE_Joint_Statement_during_State_Visit_of_the_ Prime_Minister_of_India_to_UAE_February_1011_2018.

30,316.50 −8.21 11.56 19,445.68 −25.61 5.10 49,762.18 −15.90 7.74

33,028.08 8.22 10.64 26,139.91 −9.92 5.83 59,167.99 −0.63 7.80

2015–2016

52,685 5.87 7.98

21,509.83 10.61 5.60

31,175.08 2.83 11.30

2016–2017

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

Total exports to UAE Per cent growth rate UAE’s share in India’s total exports (per cent) Total Imports from the UAE Per cent growth rate UAE’s share in India’s total import (per cent) Total bilateral Trade Per cent growth rate UAE’s share in India’s total trade (per cent)

2014–2015

Table 9.6  India–UAE bilateral trade, 2014–20 (US$ million)

49,885.23 −5.31 6.49

21,739.11 1.07 4.67

28,146.12 −9.73 9.27

2017–2018

59,912.05 20.10 7.10

29,785.33 37.01 5.79

30,126.73 7.04 9.13

2018–2019

50,035.46 – 7.50

25,757.57 – 6.39

24,277.89 – 9.20

April–January 2019–2020a

284  P. R. KUMARASWAMY ET AL.

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negative growth rate of 5.31 per cent witnessed in 2017–2018. The decline in bilateral trade in 2017–2018, over the previous year, was primarily due to the decline in India’s exports to the Emirates. India enjoys a positive trade balance with the UAE since 2014, but this has been consistently declining from US$10.87 billion in 2015–2016 to US$431.40 million in 2018–2019. Table 9.7 shows the composition of India’s exports to the UAE. The two dominant categories are precious and semi-precious stones and petroleum products, with a share of 34.6 per cent and 21.14 per cent, respectively. The export items that registered negative growth rates in 2018 over the previous year were precious and semi-precious stones, apparels and textiles, agricultural and edible items and mechanical equipment. India’s textile-related exports suffered negative growth in 2018–2019 over the previous year due to the imposition of VAT by UAE.157 The smartphone exports to the UAE surged eight-fold during April–December 2019 over the same period in the previous year. As Table 9.8 shows, besides mineral fuels, the dominant import items in 2018 were precious and semi-precious stones and metals and articles thereof with shares of 28.86 per cent and 8.01 per cent, respectively. Imports of petroleum products, plastics and its articles and ships, boats and floating structures were some of the items with a high rate of growth. Energy Ties: As with the other Persian Gulf countries, oil is the dominate component of the bilateral trade. About one-fourth of the total oil imports are petroleum products, of which nearly half is LPG.158 The UAE has also been supplying small amounts of LNG and with the expiry of ADNOC’s long-term supply contract with Japan in March 2019, India’s LNG imports more than doubled from US$336 million in 2018–2019 to US$760.34  million between April 2019 and January 2020. ADNOC shipped about 929,000 tonnes of LNG to India in the second quarter, 15 times more than same period a year ago.159 The Emirati share in India’s total oil and gas imports have been increasing since 2017 and touched 12.61 per cent during April–January 2019–2020 (Table 9.9). The value of 157  Reserve Bank of India (RBI). 2019. ‘Annual Report’, 29 August, https://www.rbi.org. in/scripts/AnnualReportPublications.aspx?Id=1257. 158  GoI. DGFT. Export Import Databank. 159  Patrick Sykes. ‘Trading houses soak up UAE LNG cargoes as Japan’s contract ends’, Independent Commodity Intelligence Service, 17 July 2019, https://www.icis.com/explore/ resources/news/2019/07/17/10393092/trading-houses-soak-up-uae-lng-cargoesas-japan-contract-ends.

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Table 9.7  Composition of India’s exports to UAE, 2018–2019 HS Code

Commodity

71

Precious and semi-­ 10,418.15 precious stone etc. Mineral fuels, mineral oil 6,367.54 and their distillates, etc. Apparels and textiles 2,569.7 Agricultural and edible 1,942.23 items Iron and steel and articles 1,190.15 thereof Electrical machinery and 1,713.22 equipment set c. Ships, boats and floating 1,357.70 structures Mechanical equipment 653.01

27 50 to 63. 1 to 24 72, 73 85 89 84

Value (US$ million)

Share in total exports to UAE (Per cent)

Growth rate (per cent)

34.6

−3.82

21.14

36.55

8.53 6.45

−12.47 −1.92

6.37

3.07

5.67

150.81

4.50

17.02

2.17

−8.06

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

Table 9.8  Composition of India’s imports from UAE, 2018–2019 HS Code

Commodity

Value (US$ million)

Share in imports from UAE (per cent)

Growth (per cent)

27

Mineral fuels, mineral oil and their distillates, etc. Precious and semi-precious stone etc. Copper, aluminium, nickel, lead, zinc Iron and steel, etc. and articles thereof Plastics and articles thereof Ships, boats and floating structures

13,656.84

45.85

50.39

8,594.62

28.86

−1.25

71 72–80

39 89

2,386

8.01

60

984.49 716.28

3.31 2.40

38.18 1613

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

8.16 10.32 40.69 4,004.77 12.70 13.21

10.43 51.68 6,519.64 11.41 19.74

7,912.8

8.64

13,509.04

2015–2016

12.53

12.80

3,907.11

43.97

11.48

9.17

9,457.60

2016–2017

16.57

12.48

4,663.09

41.77

8.91

6.86

9,080.71

2017–2018

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

21.14

13.69

6,367.54

45.85

10.29

8.14

13,656.84

2018–2019

Note: India’s energy import and export to UAE also include about US$100–200 million worth of coal/coke products

UAE’s share in India’s total energy imports (per cent) UAE’s share in India’s total oil and gas imports Per cent share in imports from UAE Petroleum product exports to UAE UAE’s share in total petroleum products exports (per cent) Per cent share in total exports to the UAE

Oil and gas imports from UAE

2014–2015

Table 9.9  India–UAE oil and gas trade, 2014–20 (US$ million)

19.88

13.62

4,825.63

52.68

12.61

10.52

13,568.72

April–January 2019–2020

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oil and gas imports has increased from US$9.08 billion in 2017–2018 to US$13.65  billion in 2018–2019. The share of oil and gas imports in India’s imports from the UAE has been increasing from 41.77 per cent in 2017–2018 to 52.68 per cent in April–January 2019–2020. Since 2018, the Emirates ranks as the third largest supplier of oil and its products and between April and January 2019, ranked fourth in the supply of LNG (Table 1.12). Besides energy trade, the UAE is a partner in India’s quest for energy security through host of other investment deals. A consortium of Indian firms has a 10 per cent stake in ADNOC’S lower Zakum oil field,160 while Indian Oil Corporation and Bharat Petroleum have obtained onshore exploration license.161 ADNOC is also supplying crude oil for India’s strategic petroleum reserves at Mangalore and Padur as well as leasing a part of the storage capacity for India’s use. In the year 2019, ADNOC (along with Saudi Aramco) agreed to take 25 per cent stakes in India’s planned 1.5  mb/d Ratnagiri refinery (Maharashtra), but delays and its relocation to Raigad have pushed starting plans to 2025.162 Joint investment in downstream refining sector is a logical way forward to further cement energy ties. Like its peers, the UAE aims to increase its refining capacity to export more value-added petroleum products. At the same time, India’s exports of petroleum products to the Emirates have been increasing in value as well as share in country’s total exports to the UAE (Table 9.7). India’s exports of petroleum products to the Emirates have surged from US$3.9 billion in 2016–2017 to US$6.3 billion in 2018–2019. It is the one of the few countries where the exports of petroleum products have been increasing consistently in recent years. Both India and the UAE are talking ambitious strides towards generation of renewable energy and the UAE takes cognisance of India’s renewable energy capacity as Abu Dhabi-based International Renewable Energy Agency ranks India fourth worldwide in installed solar and wind capacity. In June, Abu Dhabi Investment Authority (ADIA) agreed to invest about 160  Stanley Carvalho and Rania El Gamal. ‘India ONGC-led group gets stake in ADNOC offshore oil concession’, Reuters, 10 February 2018, https://www.reuters.com/article/usadnoc-india-oil/india-ongc-led-group-gets-stake-in-adnoc-offshore-oil-concessionidUSKBN1FU0A7. 161  Ibid. 162  Kalpana Pathak. ‘Oil firms prepare for potential investment from Aramco, Adnoc’, Livemint, 2 February 2020, livemint.com/industry/energy/oil-firms-prepare-for-potentialinvestments-from-aramco-adnoc-11580665312109.html.

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US$495  million in renewable energy firm Greenko Energy Holdings, which has wind, solar and hydro projects.163 Masder has made an investment of US$150 million in Hero Future Energy, which has about 1.2 GW of solar and wind power in operation with another 500 MW under construction.164 Most of the US$11 billion deal that were announced in the Abu Dhabi Sustainability Week in January focused on India.165 Bilateral Investments and Joint Ventures: The Indo-UAE foreign direct investment (FDI) is a two-way traffic. Indians have made the second largest FDI in the Emirates between 2011 and 2016 after the United Kingdom of about US$6.5 billion in 2016166 According to the Dubai’s Department of Economic Development, more than 64,360 licenses have been issued to about 246,737 Indian business persons by November 2019.167 The share of commercial activities is 77.5 per cent, followed by professional activities, industrial licenses and tourist licenses and they have reportedly generated about 854,234 jobs in Dubai.168 About 3,400 Indian companies are based in Ras al-Khaimah. The ADNOC has signed a framework agreement with Reliance Industries Limited towards the development of Ethylene Dychoride Facility (EDC) near its integrated refinery and petrochemical facility in Ruwais, Abu Dhabi.169 EDC is important in the production of PVC, a polymer product extensively used in the housing and agriculture sectors. 163  Livemint. ‘India becomes the investment darling of the sovereign wealth and pension funds’, 21 June 2019, https://www.livemint.com/news/india/india-becomes-investmentdarling-for-sovereign-wealth-and-pension-funds-1561097975025.html. 164  Mohammed Jameel Al Ramahi. ‘Abu Dhabi Sustainability Week: India renewable energy pledges show ‘an ounce of practise is worth tons of preaching’, The National, 2 January 2020, https://www.thenational.ae/business/comment/abu-dhabi-sustainabilityweek-india-s-renewable-energy-pledges-show-an-ounce-of-practice-is-worth-tons-ofpreaching-1.958512. 165  Ibid. 166  UAE.  FCSA, https://fcsa.gov.ae/en-us/Pages/Statistics/Statistics-by-Subject.aspx# /%3Ffolder=Economy/National%20Account/%20Investment. 167  Zainab Mansoor. ‘Indian Companies created 854, 234 jobs in Dubai- report’, Gulf Business, 10 November 2019, https://gulfbusiness.com/indian-companies-created854234-jobs-in-dubai-report/?utm_campaign=GB_Daily_Newsletter_11_11_2019&utm_ medium=email&utm_source=Eloqua. 168  Ibid. 169  Zainab Mansoor. ‘Abu Dhabi’s ADNOC, India’s Reliance, sign up for potential Joint venture’, Gulf Business, 11 December 2019, https://gulfbusiness.com/abu-dhabi-adnocindia-reliance/?utm_campaign=GB_Daily_Newsletter_12_12_2019&utm_ medium=email&utm_source=Eloqua.

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ADNOC would supply the ethylene feedstock for the EDC plant, while Reliance would provide operational expertise and entry into the thriving vinyl market in India.170AquaChemie Middle East, the regional chemical distributor, is poised to invest US$40 million to build a chemical terminal facility in Jebel Ali Port. Cofounded by four Indians in Dubai in 2008 to supply specialty chemicals and commodities, its supply chains have grown extensively in the region.171 The India–UAE Bridge Initiative is a collaborative venture involving DP World, Jebel Ali Free Zone (JAFZA) and Indian Business and Professional Council (IBPC) and was launched in July 2019 to provide an end-to-end solution to companies and entrepreneurs. The aim is to attract Indian trade and investment in DP World’s flagship Jebel Ali port and JAFZA.172 DP World has portfolios in 150 operations in 50 countries spanning six continents aiming to build end-to-­ end marine logistics services.173 Abu Dhabi Investment Authority has been investing in Indian equities and has enlarged its assets class to include infrastructure, real estate and private equity. The UAE investment, both FDI and Foreign Institutional Investment (FII) in India, is about US$10–11  billion in several joint investment agreements. The cumulative FDI investment of US$6.9  billion between January 2000 and December 2019 (Table 11.8), is the 10th largest in India and the largest from the GCC. However, this was just 1.51 per cent of India’s total cumulative FDI inflows in the period. In April, ADIA and India’s National Investment & Infrastructure Fund (NIIF) agreed to buy a 49 per cent stake in the airport unit of Indian conglomerate GVK Power and Infrastructure. In 2019, ADNOC has signed an MoU with the Adani group (with Germany’s BASF and Austria Borealis) for a joint feasibility study to build propane dehydrogenation and polypropylene complex in Mundra (Gujarat). DP World has also made inroads in the  MEES, vol. 62 no. 50, 13 December 2019, p. 13.  Arijit Sikdar, “Aquachemie LLC  – Expansion in Qatar,” 2018, Emerald Emerging Markets Case Studies, Vol. 1, no. 1, pp. 1–4, https://doi.org/10.1108/20450621111097146. 172  Zainab Mansoor. ‘DP world acquires marine logistics provider Feedertech Group’, Gulf Business, 4 December 2019, https://gulfbusiness.com/dp-world-acquires-marine-logisticsprovider-feedertech-group/?utm_campaign=GB_Daily_Newsletter_05_12_2019&utm_ medium=email&utm_source=Eloqua. 173  DP World. ‘DP World Expands Rwanda’s Consumer Goods Portfolio While Enabling Greater Trade Investment’, 27 January 2020, https://www.dpworld.com/news/dpworld-expands-r wandas-consumer-goods-portfolio-while-enabling-greater-tradeinvestment/. 170 171

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inland transport logistics in India by picking up 75 per cent stakes in KRIBHCO Infrastructure Limited (KRIL) through its joint venture Hindustan Infralog Private Limited (HIPL). HIPL is a joint venture between DP World and the state-owned NIIF of India and would invest about US$3  billion in assets and develop projects in ports, terminals, logistics, transportation and related sectors.174 Civil aviation, financial services and tourism are the budding areas of commercial ties. India’s second-largest domestic airline SpiceJet has signed an agreement with the Ras al-Khaimah airport to expand its network from Ras al-Khaimah to European countries while bypassing congestion in the Indian airports.175 At the same time, Dubai’s Emirates has signed a code-­ sharing agreement with SpiceJet. Dubai International Financial Centre (DIFC) signed an agreement with the Government of Maharashtra in July to provide a platform for the Indian firms operating in the Middle East and South Asia to make Dubai as their base.176 About 2.89 million Indian tourists visited the UAE in 2019 and this is expected to increase to 5.29 million by 2024.177 Since its launch in 2018 in the UAE, Indian hospitality chain Oyo Hotels and Homes has about 1,700 rooms in 80 hotels and homes and plans to increase it to 12,000 in 2020, expecting increased demand from India and China.178 India’s first premium cruise ship Karnika made Dubai as its first homeport in the Persian Gulf and made regular GCC itineraries catering to both residents and visitors. The ship is laced with all etiquettes of Indian hospitality to give the visitors the experience 174  P Manoj. ‘DP world-NIIF team buys 76 percent in KRIBHCO infrastructure Ltd’, The Hindu BusinessLine, 23 May 2019, https://www.thehindubusinessline.com/economy/ logistics/d-p-world-niif-team-buys-76-per-cent-in-kribhco-infrastructure-ltd/article27216999.ece. 175  Aarti Nagraj. ‘Indian low-cost Airline SpiceJet to open first International hub in UAE’, Gulf Business, 23 October 2020, https://gulfbusiness.com/ indian-low-cost-airline-spicejet-open-first-international-hub-uae/. 176  Gulf News. ‘DIFC signs MoU with Maharashtra government’, 28 July 2019, https:// gulfnews.com/business/banking/difc-signs-mou-with-maharashtra-government1.65495478. 177  Zainab Mansoor. ‘GCC to welcome 9.8 million Indian tourists by 2024- report’, Gulf Business, 20 November 2019, https://gulfbusiness.com/gcc-welcome-9-8-million-indiantourists-2024-report/?utm_campaign=GB_Daily_Newsletter_22_11_2019&utm_ medium=email&utm_source=Eloqua. 178  Live Mint. ‘OYO expands international presence with UAE foray’, 15 October 2018, https://www.livemint.com/Companies/pwcEfeo5mS7tFe6LUGU3wJ/OYO-expandsinternational-presence-with-UAE-foray.html.

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of a cruise vacation as Dubai aims to boost its cruise vacation tourism with a target of attracting one million tourists in 2020–2021. Expatriates India and the UAE share strong cultural relations and people-to-people contacts due to the presence of a robust Indian expatriate community. This has helped in building trust and cultural connections. Indian cinema, cuisine, yoga and music are popular and there are a number of schools affiliated to the Central Board of Secondary Education (CBSE) of India and branches of Indian universities catering to the need of the Indian expatriate community. In March, the UAE opened the Gandhi Zayed Digital Museum for the public, showcasing the lives of the fathers of the two nations.179 In December, a soft launch for the museum was conducted. In April, the foundation stone for the first Hindu temple in Abu Dhabi was laid and the ceremony was attended by Emirati Minister of Climate Change and Environment Thani bin Ahmed al-Zeyoudi.180 Indians are the largest community in the UAE and have contributed significantly to its economic development and are recognized for their hard work, dedication and professional skills. As of December 2018, about 3.1 million non-resident Indians and 4,586 persons of Indian origin were living in the UAE181 and this is also the largest concentration of Indians leaving overseas. According to the UAE’s Central Bank, the expatriates remitted about US$22.04 billion back to their countries in the first half of 2019; the Indian expatriates were the largest and sent about 37.2 per cent of the total. Several Indians have been given the permanent residency gold card during the year. In June, Yusuf Ali became the first expatriate to get the Emirate’s gold card permanent residency.182 The gold card bestows  Ashwani Kumar. ‘Gandhi-Zayed digital museum opens in Abu Dhabi’, Khaleej Times, 4 December 2018, https://www.khaleejtimes.com/nation/abu-dhabi/gandhi-zayed-digitalmuseum-opens-in-abu-dhabi. 180   GoI.  MEA. ‘India-UAE Bilateral relations’, February 2020, http://mea.gov.in/ Portal/ForeignRelation/Bilateral_Brief_feb_2020_pdf. 181   GoI.  MEA. ‘Population of overseas Indians’, http://mea.gov.in/images/attach/ NRIs-and-PIOs_1.pdf. 182  Varun Godinho. ‘UAE businessman MA Yusuff Ali receives Saudi premium residency’, Gulf Business, 3 March 2020, https://gulfbusiness.com/uae-businessman-mayusuff-ali-receives-saudi-premium-residency/?utm_campaign=GB_Daily_Newsletter_ 07_03_2020&utm_medium=email&utm_source=Eloqua. 179

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long-­term residency upon the investors in the country, along with the family members, including their spouses. They can employ up to three workers and obtain residency for senior employees, advisors or manager. The Shetty family, the owner of NMC, the Emirate’s largest private health provider, lost US$820 million over Carson Block’s Muddy Waters Report that criticized the company’s accounts.183

Challenges The robust political engagements between the two leaders offer India the opportunity to scale up its economic engagement and benefit from the Emirate’s diversification plans. The relations need to be steered towards more tangible deliverables in building infrastructure, R&D consortiums and clean energy partnership. Bilateral institutional mechanism needs to be strengthened by both by political and commercial representatives and stakeholders with routine exercise in project appraisal and market intelligence. The strategic engagement has to steer clear of the regional fault lines while safeguarding the India’s interest in the region.

183  Gulf Business. ‘UAE-based Shetty family lose $820m over Muddy Waters report’, 22 December 2019, https://gulfbusiness.com/uae-based-shetty-family-lose-820m-muddywaters-report/?utm_campaign=GB_Daily_Newsletter_22_12_2019&utm_ medium=email&utm_source=Eloqua.

CHAPTER 10

Yemen

Key Information Ruling group/party: General People’s Congress/Houthis; President: Abdrabbuh Mansur Hadi (since 25 February 2012); Mohammed Ali al-­ Houthi, President of the Revolutionary Committee (since 22 January 2015); Prime Minister: Maeen Abdulmalik Saeed (since 18 October 2018); National day: 22 May; Parliament: 111-member nominated Shura Council and 301-member elected House of Representatives; Last parliamentary election: 21 February 2012; Major group in parliament: General People’s Congress; National carrier: Yemen Airlines. Socio-economic Indicators Area: 527,968 sq. kms; Population: 28.5 million (UNDP, 2019); Native: NA; Expats: NA; Religious groups: Muslim 99.1 per cent (Sunni 65 per cent; Shia 35 per cent); Others (Jewish, Baha’i, Hindu and Christian) 0.9 per cent (2010 est.); Youth: 21.26 per cent; Population growth rate: 2.17 per cent (2018 est.); Life expectancy at birth: 66.2 years (UNDP, 2019); Major population groups: Yemeni Arabs; some Afro-Arabs, South Asian and European; Literacy rate: 66.1 per cent (UNDP, 2019); National currency: Yemeni Rial (YER); GDP (Current prices): US$26.9  billion (World Bank, 2018); Foreign trade: Exports-US$384.5 million (2017 est.), Imports-US$4.079 billion (2017 © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_10

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est.); Military expenditure: 4 per cent of GDP (World Bank, 2014); Foreign reserve: US$245.1  million (2017 est.); External debt: US$7.068 billion (31 December 2017 est.); GNI per capita: US$1,433 (2011 PPP); GDP per capita: US$2,285 (2011 PPP) (UNDP, 2019); Oil reserves: 3  billion barrels; Gas reserves: 9.4 tcf (BP, 2018); HDI rank: 177/189; Infant mortality rate: 43.2 deaths/1,000 live birth (UNDP, 2019); UN Education Index: 0.347 (UNDP, 2019); Labour force: 6.7  million (World Bank, 2019); Employment to population ratio (ages 15 and older): 33.5 per cent (UNDP, 2019); Unemployment rate: 12.9 per cent (UNDP, 2019); Urban population: 36.6 per cent (UNDP, 2019); Rate of urbanization: 4.06 per cent (2015–20 est.); Last national census: 2004; World Press Freedom Index: 168 out of 180 Countries (RSF, 2019); Ease of Doing Business: 187 out of 190 Countries (World Bank, 2019); Corruption Perception Index: Rank 177 out of 180 Countries (Transparency International, 2019); Foreign Direct Investment (Inward): US$ −282  million (UNCTAD, 2019); Individual using Internet: 26.7 per cent (UNDP, 2019); Net migration rate (per 1,000 population, 2015–20): −1.1 (UN World Population Prospects, 2019); Forest area (per cent of land area): 1 per cent (UNDP, 2019); International tourism, number of arrivals: 366,700 (World Bank, 2015); Carbon dioxide emissions, (tonnes per capita): 0.3 (UNDP, 2019); Gender Development Index: 0.458 (UNDP, 2019); Gender Inequality Index: 0.834 (UNDP, 2019); Global Terrorism Index: Rank 8 out of 163 countries (Vision of Humanity, 2019). India Related Indian Cultural Centre: NA; Number of Indians: 5,000 (approx.); Number of places of worship for Indians: A number of old Hindu Temples in Aden; Indian schools: One; Indian banks: None (Bank of India has a branch incorporated into National Bank of Yemen); Currency exchange rate: 1 YER = INR 0.30 (March 2020); Last visit to India by the ruler: President Ali Abdullah Saleh, March 1999; Last Indian prime minister to visit: None since 1947. * * * India’s approach towards the Republic of Yemen has been shaped by the on-going civil war in that country. In recent years, Yemen has been divided

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into areas of influence of Houthis, Hadi-led government, Southern Transition Council (STC) and of AQAP (Al-Qaeda in the Arabian Peninsula) and Islamic State of Iraq and Syria (ISIS). Without any central authority and with no access to resources, millions of people have been left to fend for themselves. With no economic activities and inadequate international assistance, the country has plunged into one of the worst humanitarian crises in recent history. The failure of the UN-led mediation efforts and the lack of the implementation of the Stockholm Agreement signed in December 2018 underline the Yemeni complexities. With Houthi rebels, aided by Iran, threatening the security of Saudi Arabia, the Yemen conflict could snowball into a regional crisis.

Domestic Developments Since internal protests and troubles began in 2011, the erstwhile fault lines of the republican south and Imamate north have intensified with the growth of  a host of sectarian and political groups. The linkages some of these groups forged with regional powers have transformed the internal conflict into a regional crisis and plunged Yemen into a civil war. As the regional and international efforts became ineffective and insufficient to bring warring sides to the negotiating table, the country is plunging into divisions. Politics and Society Hopes generated by the Hodeida ceasefire agreement (also known as the Stockholm Agreement) between the Houthi rebels and the Saudi-led coalition forces in December 2018 did not materialize. The agreement revolved around three components: a ceasefire in the Hodeida Port, prisoners swap and a statement of understanding to discuss the status of the city of Taiz.1 The United Nations was committed to forming a Redeployment Coordination Committee (RCC) to monitor the ceasefire and the Security Council Resolution 2452 to this effect was passed on 16 January 2019.2 After some initial progress on withdrawal of forces by the 1  Government Offices of Sweden. ‘Stockholm Agreement gives hope of peaceful solution in Yemen’, 14 December 2018, government.se/articles/2018/12/stockholm-agreementgives-hope-of-peaceful-solution-in-yemen/ 2  United Nations (UN). ‘Adopting Resolution 2452 (2019), Security Council Establishes special political mission to support Ceasefire between Yemen’s Government, Houthi Militia’, 16 January 2019, un.org/press/en/2019/sc13664.doc.htm

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warring sides and prisoner swap, the ceasefire broke down due to the lack of clarity on who would control the city.3 The United Nations Mission to support the Hodeida Agreement (UNMHA) formed4 under the UNSC Resolution 2452 could not implement the ceasefire due to lack of cooperation from the local parties. The UNMHA was initially authorized for six months and its mandate was extended in June for six more months5 but of no avail. Fighting continued unabated since early 2019 and escalated significantly in April when several attacks on the warehouses storing weapons for Houthis in Sana’a led to the killing of several people, including children.6 The Saudi-led coalition forces denied undertaking any airstrikes in Sana’a at the time while the Yemeni government led by Abrabbuh Mansur Hadi and based in Aden alleged that the warehouse was located in a civilian area and might have caused collateral damages.7 While the fighting between the coalition forces and Houthi rebels continued, the latter escalated the crisis by attacking several military and civilian targets inside the Kingdom of Saudi Arabia.8 As the fighting continued, cracks within the coalition started to emerge, not only between the Yemeni government and the STC but also between the principal coalition partners, Saudi Arabia and the UAE.9 In June, the UAE started scaling down its military presence in Yemen and within a month, the Emirates announced a partial withdrawal of its positions in Yemen.10 On 12 August, fighting started between the Hadi-led 3  UN. ‘United Nations Officials Urge Parties in Yemen to fulfil Stockholm, Hodeidah Agreements, amid security council calls for Opening of Aid Corridors’, 17 June 2019, https://www.un.org/press/en/2019/sc13845.doc.htm 4  UN. Department of Political and Peacebuilding Affairs (DPPA). ‘UNMHA, Hudaydah Agreement’, 16 January 2019, https://dppa.un.org/en/mission/unmha-hudaydahagreement 5  Xinhua Net. ‘Security Council extends mandate of UN mission in Yemen for 6 Months’, 14 January 2020, http://www.xinhuanet.com/english/2020-01/14/c_138701975.htm 6  Human Rights Watch (HRW). ‘Yemen: Warehouse Blast Kills Schoolchildren’, 9 May 2019, https://www.hrw.org/news/2019/05/09/yemen-warehouse-blast-kills-schoolchildren 7  Ibid. 8  Gulf News. ‘Yemen’s Houthis attack Saudi Arabia’s Abha Airport’, 29 August 2019, https://gulfnews.com/world/gulf/saudi/yemens-houthis-attack-saudi-arabiasabha-airport-1.1567051358050 9  Patrick Wintour. ‘Saudi Arabia and UAE attempt to paper over Yemen cracks’, The Guardian, 9 September 2019, https://www.theguardian.com/world/2019/sep/09/ saudi-arabia-and-uae-in-joint-bid-to-end-further-yemen-conflict 10  Ibid.

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government forces and the STC for the control of Aden and eventually, the latter took over the port city. This led to a virtual third front inside Yemen. Thus, the Hadi government was at loggerheads with the Houthi rebels and was also fighting the rise of AQAP in various pockets.11 In September, the Saudi-led coalition resumed airstrikes on the Houthi positions in Sana’a and targeted a prison and a weapon storing facility, in which 100 people were reportedly killed.12 As a retaliation, the Houthi rebels claimed responsibility for drone attacks on the Saudi Aramco oil facilities in Abqaiq and Khurais on 14 September.13 As the tensions between the Hadi government forces and STC intensified, President Hadi blamed the UAE for supporting and backing the STC’s takeover of the Aden.14 This was followed by Saudi Arabia and the UAE mediating the infighting, which led to the signing of an agreement in Riyadh on 5 November between the Hadi government and the STC to end hostilities and share power in Aden.15 Earlier, on 12 September, due to efforts by Martin Griffiths—the UN special envoy for Yemen—Saudi Arabia announced a unilateral ceasefire in parts of Yemen, including Sana’a.16 In the meanwhile, Kuwait and Oman separately initiated mediation efforts to bring an end to the five-year-old war between the rebels and the Hadi government. In November, secret

11  Reuters. ‘Factbox: Who is fighting in Yemen’s disastrous war’, 12 November 2018, https://www.reuters.com/article/us-yemen-security-factbox/factbox-who-is-fighting-in-yemensdisastrous-war-idUSKCN1NH1ZU 12  Dahlia Nehme. ‘Saudi-led coalition bombs Yemen prison, scores killed’, Reuters, 1 September 2019, https://www.reuters.com/article/us-yemen-security-dhamar/saudi-ledcoalition-bombs-yemen-prison-scores-killed-idUSKCN1VM0ZU 13  Al-Jazeera. ‘Houthi drone attacks on 2 Saudi Aramco oil facilities spark fires’, 14 September 2019, https://www.aljazeera.com/news/2019/09/drones-hit-saudi-aramcofacilities-fires-190914051900472.html 14  Al-Jazeera. ‘Hadi urges Saudi intervention to stop UAE support for separatist’, 30 August 2019, https://www.aljazeera.com/news/2019/08/yemen-southern-separatistsregain-control-port-city-aden-190829073935248.html 15  Marwa Rashad. ‘Yemen government and separatists sign deal to end power struggle in south’, Reuters, 5 November 2019, https://www.reuters.com/article/us-yemen-security/ yemen-government-separatists-sign-saudi-brokered-deal-to-end-power-struggle-in-southidUSKBN1XF1Y5 16  Patrick Wintour. ‘Yemen ceasefire looks dire but is holding, says UN envoy’, The Guardian, 30 January 2019, https://www.theguardian.com/world/2019/jan/30/ yemen-ceasefire-is-holding-says-un-envoy

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talks also took place in Oman between Houthis and Saudi officials and it was believed that the Omani mediation began soon after the attacks on Aramco sites in September.17 Kuwait, too, resumed its efforts at the same time. But all these efforts proved ineffective18 and the hostilities resumed in December with several Houthi strikes on military targets in the southern Yemeni town of Dhalea.19 Houthis also listed targets in Saudi Arabia and the UAE, which they threatened to attack.20 With the political and security situation deteriorating and economic activities coming to a complete halt, the humanitarian crisis continued unabated in Yemen. The civil war has displaced more than four million people21 and according to UN, “14.3 million people are classified as being in acute need, with around 3.2 million requiring treatment for acute malnutrition; that includes two million children under-five and more than one million pregnant and lactating women.”22 Furthermore, an estimated “17.8 million people lack access to safe water and sanitation and 19.7 million lack access to adequate healthcare.”23 The humanitarian situation remains critical and women and children are the worst affected in the violence.24

17  Al-Jazeera. ‘Saudi, Yemen’s Houthis hold ‘indirect talks’ in Oman to end war’, 13 November 2019, https://www.aljazeera.com/news/2019/11/saudi-yemen-houthis-holdindirect-talks-oman-war-191113160747944.html 18  DW. ‘Yemen missile attack kills security recruits’, 29 December 2019, https://www. dw.com/en/yemen-missile-attack-kills-security-recruits/a-51826081 19  Ibid. 20  Reuters. ‘Yemen’s Houthis list six strike targets in Saudi, three in UAE’, 29 December 2019, https://www.reuters.com/article/us-yemen-security-houthis-targets/yemens-houthislist-six-strike-targets-in-saudi-three-in-uae-idUSKBN1YX0AS 21  United Nations Office for the Coordination of Humanitarian Affairs (UN-OCHA). ‘Humanitarian Update’, 2019–20, https://reliefweb.int/sites/reliefweb.int/files/ resources/2020_Yemen_Humanitarian_Update_No1.pdf 22  UN News. ‘Humanitarian Crisis in Yemen remains the worst in the world, warns UN’, 14 February 2019, https://news.un.org/en/story/2019/02/1032811 23  Ibid. 24  HRW. ‘Yemen: Events on 2019’, 2020, https://www.hrw.org/world-report/2020/ country-chapters/yemen

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Economic Situation The Yemeni economy continued to reel under the protracted conflict and the severe economic decline and collapse of the essential services have taken an enormous toll on the people. Even before the conflict, the country had been among the poorest in the world facing high rates of poverty, food insecurity, under-nutrition and malnutrition, water shortage and land degradation.25 Agriculture had been the mainstay of the economy contributing about 15 per cent of the GDP and employing more than 50 per cent of the population.26 Agricultural produce, especially, coffee, fish, fruits and vegetables were the main non-oil exports. The GDP had declined by almost 24 per cent during 2015–17, driven by the sharp decline in the oil production after the withdrawal of foreign companies in 2015.27 The oil sector GDP started to recover as the production resumed gradually in 2017, but the non-oil sector GDP continued to decline in the following two years.28 The estimated GDP at current prices in 2019 was US$29.86 billion and the real GDP growth rate was around 2.1 per cent.29 The per capita income, which had declined during 2015–17, marginally increased to US$943.34 in 2019.30 Early in the year, there were fragile signs of economic growth with the gradual recovery of oil and gas production, but they were dashed in the later half as escalating conflict led to frequent disruption of oil production, exports and the supply of essential inputs.31 By mid-2019, the crucial Hodeida Port, along with two Red Sea ports, were handed over by the Houthis as part of the attempt for a ceasefire to end Saudi-led blockade and to provide Yemen’s starving population with food and medical aid.32 25  Food and Agricultural Organization (FAO). ‘Plan of Action 2018–2020’, 2018, http:// www.fao.org/3/I9054EN/i9054en.pdf 26  FAO. ‘Family Planning knowledge platform-Yemen’, http://www.fao.org/family-farming/countries/yem/en/ 27  Majdi Debbich. ‘Assessing Oil and Non-Oil GDP growth from space: An application to Yemen 2012–17’, International Monetary Fund (IMF), 11 October 2019, https://www. imf.org/en/Publications/WP/Issues/2019/10/11/Assessing-Oiland-Non-Oil-GDP-Growth-from-Space-An-Application-to-Yemen-2012-17-48690 28  Ibid. 29  IMF. ‘Republic of Yemen’, https://www.imf.org/en/Countries/YEM#countrydata 30  Ibid. 31  The World Bank. ‘Yemen Monthly economic update- December 2019’, 28 January 2020, https://www.worldbank.org/en/country/yemen/publication/yemen-monthlyeconomic-update-december-2019 32  MEES, vol. 62 no. 20 17 May 2019.

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International organizations like UN, WHO among others, have been raising alarms over an impending famine in Yemen. The country imported about 90 per cent of its food needs with about 70 per cent of them coming through the port of Hodeida. As the blockade of the port unleashed misery and deprivation on the population, the domestic food systems have also shrunk due to the destructions and disruptions of the supplies. Yemen has been increasingly experiencing fuel shortages of especially diesel and gasoline. About 50 per cent of the agricultural sector in many areas has been decimated due to shortages of diesel,33 used in water pumps for irrigation in about one-third of the cropped area in the arid country. Transport cost had become unbearably high and affected food supplies to the people. The non-oil sectors also suffered as the economic warfare raged between the Yemeni government and the Houthis over the control of fuel imports, monetary policy, commercial banks, money exchangers and telecommunication companies.34 By the year end, the Houthis banned the currency notes printed by the Aden-based Central Bank of Yemen (CBY) in use since 2016. The functioning of the CBY was fragmented not only between Aden and Sana’a but also within the government control areas.35 The Yemeni Rial exchange rates dramatically diverged between Aden and Sana’a as the Yemeni government started using preferential rates to finance essential imports and this led to black market currency trading and smuggling.

33  Aldaghbashy. ‘Yemen Fuel Crisis Takes Heavy Toll on Agriculture’, SciDevNet, https:// www.scidev.net/global/agriculture/news/yemen-fuel-crisis-takes-heavy-toll-on-agriculture.html? 34  Sanaa Centre for Strategic Studies. ‘The war’s elusive end – The Yemen annual review 2019, https://sanaacenter.org/publications/the-yemen-review/8923#Economic-WarfareGovernment-and-Houthi-Struggle-for-Control-Deepens 35  Ibid.

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Energy Sector: Yemen has been an insignificant oil and gas producer compared to its other Arab neighbours. It is estimated to have 3 billion barrels of crude oil and 16.9 tct of gas.36 Though modest in reserves, oil and gas contribute 80 per cent of the total government revenues.37 Yemen has a LNG facility at Balhaf, which is located 30 kilometres west of Bir Ali terminal, a tiny offshore single mooring point in the Gulf of Aden, from where the oil shipments are loaded for customers in East Asia.38 The state-owned oil firm Safer Exploration and Production restarted production in Block 18 in the oil-rich Marib basin, with the current output at 5,000 b/d, it plans to ramp up production to 15,000 b/d.39 The resumption of production is significant from security front as it is the Westernmost production block and is the closest to the Houthi-controlled territories and areas that had seen most of the fighting.40 The alternate export route is being explored to avoid the risk of transporting crude through the Houthi-controlled territories. At present, crude oil is being trucked to a pipeline running 200 kilometres south to the Bir Ali terminal.41 Austria’s OMV first re-entered the country in 2018, after the start of Saudi-led military intervention in early 2015. By 29 July 2019, it has started exporting from the Bir Ali. Other foreign firms active in the Yemeni oil and gas sector were Kuwait Energy, ExxonMobil, Indonesia’s Medco Energy and Total.  Another foreign operator Calvalley (Canada) and PetroMasilah—a leading Yemeni state company—reportedly resumed oil production amid continued strife. In March, the French Total announced that it would sell its 15 per cent stake in Block 5, which was once Yemen’s second-largest producing block until production was halted in 2015.42 The block was operated by Kuwait Energy with other partners, including ExxonMobil and State Yemeni Firm Yicom. The planned resumption of 36  BP. Statistical Review of the World Energy 2019, https://www.bp.com/content/dam/ bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bpstats-review-2019-full-report.pdf 37  Ramadan Al Sherbini. ‘Riyadh deal set to kick-start Yemen economy’, Gulf News, 7 November 2019, https://gulfnews.com/world/gulf/yemen/riyadh-deal-set-to-kick-startyemen-economy-1.67671534 38  MEES, vol 61, no. 31, 3 August 2018. 39  MEES, vol. 62, no. 42, 18 October 2019, p. 2. 40  Ibid. 41  S&P Global Platts, ‘Promising signs for Yemen’s oil industry but civil war rages’, 23 January 2020, https://www.spglobal.com/platts/en/market-insights/latest-news/ natural-gas/012320-promising-signs-for-yemens-oil-industry-but-civil-war-rages 42  MEES, vol. 62 no. 17, 26 April 2019.

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the LNG production did not happen in 2019 as Total cited continued operational risks for the delay.43 Yemen exported about 6.7  million barrels in the first half of 2019 against 10.8 million barrels in 2018.44 The crude oil production averaged 55,000 b/d in 2019, which was a fraction of the pre-war level but marked an increase of 40 per cent over the previous year.45 Another crisis was brewing off the Yemeni coast, where a floating storage and offloading unit SAFER, containing about a million barrels of oil, was unattended since 2015 and was on the verge of explosion.46 Dubbed as the ‘floating bomb’ that can trigger one of the worst environmental disasters, it is currently under the control of the Houthis, who have asked the UN to sell the oil and use the proceeds for the purchase of fuel and pay salaries of the public employees.47 In the domestic front, fuel prices were nearly double the pre-conflict levels, especially in Sana’a and most of the northern areas due to shortages.48 This is ironical as the domestic fuel prices were rising when the international oil prices were dipping. The war has ravaged internal supply lines and the blockade of the ports has held up shipping to the country. Besides, for  regulatory control over the fuel imports and tariff collection, port Hodeida was one of the battle grounds between the government forces and the Houthis. When the government attempted to impose regulations and tariffs on fuel imports in the port Hodeida, the Houthi attempts to thwart them led to fuel tankers waiting offshore to be unloaded and with

43  The World Bank. ‘Yemen monthly economic update  – December 2019’, 28 January 2020, https://www.worldbank.org/en/country/yemen/publication/yemen-monthlyeconomic-update-december-2019 44  The World Bank. ‘Yemen Monthly Economic Update’, December 2019, http://pubdocs.worldbank.org/en/360391580209593452/Yemen-Update-Dec-2019.pdf 45  Herman Wang. ‘Promising signs for Yemen’s oil industry, but civil war rages’, S&P Global, 23 January 2020, https://www.spglobal.com/platts/en/market-insights/latestnews/natural-gas/012320-promising-signs-for-yemens-oil-industry-but-civil-war-rages 46  Tsvetana Paraskova. ‘Houthis Block Access to ‘Floating bomb’ oil tanker off Yemen’, Oil Price, 9 May 2019, https://oilprice.com/Latest-Energy-News/World-News/HouthisBlock-Access-To-Floating-Bomb-Oil-Tanker-Off-Yemen.html 47  Campbell MacDiarmid. ‘Houthi rebels are holding a ‘floating bomb’ oil tanker hostage off Yemen’s coast’, The National, 9 May 2019, https://www.thenational.ae/world/mena/ houthi-rebels-are-holding-a-floating-bomb-oil-tanker-hostage-off-yemen-s-coast-1.859601 48  Famine Early Warning System Network. ‘Yemen expected to face difficulties in financing imports in early 2020’, December 2019, https://fews.net/fr/east-africa/yemen/foodsecurity-outlook-update/december-2019

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major impasses between the two in March, April and September.49 Consequently the commercial fuels like gasoline and diesel were increasing became scarce and expensive. The LPG supply (used as cooking gas) was falling short and there was a rising interest among the domestic private players to meet the expanding demand as it was rapidly being used as fuel for cars and power plants.50 Social Issues In the past three years, about 4.3 million people of Yemen have been displaced and about half of them were women and 27 per cent below the age of 18 years with severe implication on their reproductive health.51 Women and children have been the worst affected among the displaced population. About 48 recent of the Yemeni women are illiterate and child marriage is a common practice.52 Yemen is not only facing the challenge of internally displaced people (IDP) but also the influx of people from the Horn of Africa and the racket of human trafficking. According to the displacement tracking matrix of the Switzerland-based International Organization for Migration (IOM) about 138,000 people crossed the Gulf of Aden into Yemen in 2019 making it a busier route (since last two years) than the Mediterranean route to Europe.53 Most of them were Ethiopians aiming to reach Saudi Arabia and were unaware of the conflict in Yemen and were tricked into hopes of a better life in the Persian Gulf. They have been subjected to torture, abuse and illegal confinement by the traffickers.54 Yemen faces the world’s worst humanitarian crisis with 80 per cent of the population or 24 million dependent on the aid relief provided by the 49  Sanaa Centre for Strategic Studies, ‘The war’s elusive end – The Yemen annual review 2019, https://sanaacenter.org/publications/the-yemen-review/8923#Economic-WarfareGovernment-and-Houthi-Struggle-for-Control-Deepens 50  World Bank. ‘Yemen, Economic Monitoring Brief, Winter 2019, http://documents. worldbank.org/curated/en/161721552490437049/text/135266-YemEconDevBriefWinter-2019-English-12-Mar-19.txt 51  UN News. ‘Yemen: UN population fund stresses women’s needs, amidst world’s worst humanitarian crisis’, 4 March 2020, https://news.un.org/en/story/2020/03/1058591 52  Ibid. 53  UN News. ‘Amidst protection challenges, Eastern Route outpaces Mediterranean for people leaving Africa’, 14 February 2020, https://news.un.org/en/story/2020/ 02/1057411 54  Ibid.

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UN and other international agencies.55 About two-third Yemenis or 20 million are still food insecure and about 12.4 million were given emergency food assistance by the UN’s World Food Programme.56 In February 2019, the UN and partnering agencies were promised US$2.6 billion by the donor countries to meet the urgent needs of 20 million Yemenis, but by the mid-year, the relief programmes were facing funding shortage as only half of the promised funds were received forcing the UN to close several of its assistance programme.57 The humanitarian assistance programme got some lease of life from the contribution of wealthy Gulf countries; in September, Saudi Arabia, the UAE and Kuwait donated about US$500  million, US$200  million and US$88  million, respectively.58 There had been an escalation of risk faced by the humanitarian workers and about 12 of the humanitarian aid programme were forced to close because of increasing attacks on their premises.59 During the year, there had been 371,326 cases of cholera in Yemen though the WHO admitted that the estimates were imprecise.60 The public health services have reached a breaking point and IOM, as a part of its relief operations, provided over a million health consultations in Yemen.61 The HDI of Yemen had fallen back by 20 years.62 As of 2019, Yemen had an HDI value of 0.463 and ranked 177 out of 189 countries. It had a GDI value of 0.458 and the GII value of 0.245.63 55  UN News. ‘Yemen: Recent upstick in fighting contradicts desire for peace’, 18 February 2020, https://news.un.org/en/story/2020/02/1057601 56  UN News. ‘Friday’s Daily brief: World youth call for climate action and peace, record food needs met in Yemen, exclusive sit down with UN chief’, 20 September 2019, https:// news.un.org/en/story/2019/09/1046932 57  UN News. ‘Lack of funds forces UN to close down life- saving aid programmes in Yemen’, 21 August 2019, https://news.un.org/en/story/2019/08/1044681 58  UN News. ‘Yemen conflict: ‘Fragile’ hopes rise, as violence decreases and life-saving humanitarian funding surges’, 17 October 2019, https://news.un.org/en/ story/2019/10/1049481 59  UN News. ‘UN relief chief condemns attacks against humanitarian premises in Yemen’, 23 December 2019, https://news.un.org/en/story/2019/12/1054211 60  UN News. ‘World Health Organization reports 60 per cent drop in cholera in 2018’, 19 December 2019, https://news.un.org/en/story/2019/12/1054011 61  UN News. ‘Over 1 million health consultations provided in Yemen in 2019: UN migration’, 15 November 2019, https://news.un.org/en/story/2019/11/1051521 62  UN News. ‘UN and red cross chiefs appeal for end to use of explosive weapons in cities’, 18 September 2019, https://news.un.org/en/story/2019/09/1046642 63  United Nations Development Programme UNDP). ‘Yemen: Human Development Indicators’, http://hdr.undp.org/en/countries/profiles/YEM

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Bilateral Ties The on-going conflict and civil war have severely disrupted the bilateral ties between India and Yemen. It almost squeezed the little trade and commercial relations that India had with Yemen and there were no political contacts between them during 2019. Despite the difficulties, India had extended humanitarian aid to Yemen. Since July 2016, about 1,000 Yemenis were treated in India for war-related injuries as a part of the India-­ UAE medical mission that was started in 2017 under the initiative of the Emirati Crown Prince Mohammad Bin Zayed al-Nahyan.64 India has maintained that the solution to the problem in Yemen has to be found through talks and negotiations to end the hostilities. In November 2019, the Ministry of External Affairs, in response to a media query, welcomed “the signing of Riyadh Agreement between the Yemeni Government and the South Transitional Council.” Further, the statement said that “India hopes that it will lead to an early settlement of conflict resulting in peace, progress and prosperity of people of Yemen. India continues to provide humanitarian assistance to Yemen.”65 Trade and Commerce Before Yemen was engulfed in war, the total bilateral trade was US$1.53 billion in 2014–15, the imports were US$540.68 million while the exports were US$992.13 million. Exports gradually rose from US$399 million in 2015–16 to US$741 million in 2018–19, but imports were nearly wiped off except for 2017–18 (Table 10.1). India exported cereals, mineral fuels, pharmaceuticals, textiles and apparels in 2018–19. In 2017–18, oil imports constituted about 90 per cent of the total imports from Yemen but it imported a minuscule amount of crude oil worth US$90.57 million and US$137.99  million in 2014–15 and 2017–18, respectively. It also 64  Biospectrum India. ‘UAE-India Humanitarian Medical Mission helps Yemen citizens to get treatment at Medeor hospital’, 23 July 2019, https://www.biospectrumindia.com/ news/77/14266/uae-india-humanitarian-medical-mission-helps-yemen-citizens-to-gettreatment-at-medeor-hospital.html 65  GoI. MEA. ‘Official Spokesperson’s response to query on India’s position on Riyadh Agreement signed between internationally recognized Yemen Government and Southern Transitional council in Riyadh’, 11 November 2019, https://mea.gov.in/response-to-queries.htm?dtl/32027/official+spokespersons+response+to+a+query+on+indias+position+on +riyadh+agreement+signed+between+internationally+recognized+yemen+government+and +southern+transitional+council+in+riyadh

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Table 10.1  India-Yemen Bilateral Trade, 2014–19 (US$ million) 2014–15

2015–16 2016–17 2017–18 2018–19

Total exports to Yemen 992.13 399.79 Growth rate (per cent) −59.7 Per cent share in India’s total exports 0.32 0.15 Total imports from Yemen 540.68 6.88 Per cent growth −98.73 Per cent share in India’s total imports 0.12 0 Total bilateral trade with Yemen 1,532.82 406.67 Per cent growth −73.47 Per cent share in India’s total trade 0.2 0.06 Trade balance with Yemen 451.45 392.91

446.13 11.59 0.16 4.81 −30.05 0 450.94 2.63 0.07 441.31

563.46 26.30 0.19 153.05 30.79 0.03 716.52 16.49 0.09 410.41

741.32 31.56 0.22 11.77 −92.31 0 753.09 9.76 0.09 729.55

Source: DGFT. Export Import Databank, https://commerce-app.gov.in/eidb/Default.asp

imported US$375.56 million worth of LNG in 2014–15, which ceased since then. Oil India Limited and Indian Oil Company (OIL) have 12.5 per cent stakes each in the onshore block 82, located in the Messila basin in Yemen.66 The seismic work was completed when the conflict started and all works had been suspended since then.67 It was reported that the Indian consortium wanted to relinquish the oil block (with an estimated oil reserves of 87 million barrels) in 2017.68 Earlier Reliance had relinquished its stake in another oil block in Yemen. India’s oil and gas imports from the US are rapidly increasing and some of the shipments pass through the Strait of Bab-el-Mandeb, which has seen significant risk escalation following the outbreak of the Yemen conflict. About 9 per cent of the world’s oil and gas shipment traverse the Strait and the escalating risk are a threat to energy supply chains. The Indian navy has a deployment in the anti-piracy mission in the Gulf of Aden as foreign military deployment has

66  Oil India Limited. ‘JVs / PSCs / Alliances’, 19 June 2019, http://oilindia.nic.in/pdf/ pdf/tenders/Jvs%2D%2D-pscs%2D%2D-alliances 67  Kalpana Pathak. ‘Oil India, IOCL to relinquish Yemen block due to deteriorating political situation’, Livemint, 12 September 2017, https://www.livemint.com/Industry/ WZO5dCkUhlHUaCHRzEdJqO/Oil-India-IOCL-to-relinquish-Yemen-block-due-todeterioration.html 68  Ibid.

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significantly increased since 2001.69 The challenge is to contribute to the regional security while navigating through the intra-Gulf rivalries. Expatriates About 4,000 Indians were working in different cities of Yemen before the strife started in 2015 and the Indian government had successfully evacuated them.70 Nine Indian fishermen, which were reportedly harassed and not paid wages for nearly a year by their employers in Yemen, managed to escape in boats and sailed to Kochi in November 2019.71 There are descendants of Yemeni tribes (from Hadramaut), who have settled in India some three generations ago and have Indian citizenship. Those living in the Barkas neighbourhood in the high-tech city of Hyderabad (reportedly 50,000 to 100,000) felt vulnerable with the enforcement of India’s Citizenship Amendment Act, 2019 and have participated in some of the protests against it.72 There are about 300,000 strong Yemeni diaspora in India and a vibrant Indian diaspora in Yemen.73

Challenges Yemen continues to be divided and devastated. There is no end in sight for the internal conflict and external powers have exploited and expanded internal cleavages. The plight of Yemeni civilians became an international issue only after the murder of the Saudi journalist Khashoggi, who incidentally had supported the Saudi-led military intervention. The people of 69  Neil Melvin. ‘The foreign military presence in the Horn of Africa region’, SIPRI background paper, April 2019, https://www.sipri.org/sites/default/files/2019-05/ sipribp1904_2.pdf 70  Lok Sabha, India. ‘Starred Question and Answer’, 22 April 2015. http://164.100.47.194/ Loksabha/Questions/QResult15.aspx?qref=14940&lsno=16 71  M. K. Ananth and Disney Tom. ‘The Great escape: 9 exploited in Yemen steal boat, set sail for India’, The Economic Times, 29 November 2019, https://economictimes.indiatimes. com/nri/working-abroad/the-great-escape-9-exploited-in-yemen-steal-boat-set-sail-forindia/articleshow/72288509.cms 72  Syed Mohammed. ‘Why Hyderabad’s Yemeni descendants worry about proving their citizenship’, The Hindu, 1 March 2020, https://www.thehindu.com/society/why-hyderabads-yemeni-descendants-worry-about-proving-their-citizenship/article30949526.ece 73  Aftab Husain Kola. ‘Hadhramis present a slice of Yemen in India’s Hyderabad’, Al-Arabiya, 13 December 2018, https://english.alarabiya.net/en/features/2018/12/13/ Hadhramis-and-a-slice-of-Yemen-in-India-s-Hyderabad

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Yemen are paying the price for the regional ambitions of their powerful neighbours, especially Iran and Saudi Arabia. The Indo-Yemeni relations excessively rely on the energy  trade and hence continuing civil war and drop in oil production in Yemen have severely hampered economic and political contacts between the two.

CHAPTER 11

GCC

India’s engagement with the Gulf Cooperation of Council (GCC) as a regional body has not been institutionalized and the minimal efforts in this direction have been undermined by the intra-bloc rift. Since its establishment in 1981, the GCC has been important and relevant despite the occasional internal differences. The emergence of young leadership in some member states appeared to have contributed to the situation of near collapse in June 2017. The efforts to bridge the gap among the principal players continued in 2019 but without much success. Despite the intra-­ GCC differences, a certain level of functional continuity is achieved with notable progress in harmonizing standards across the GCC countries, facilitating movements of goods and people and significant intra-GCC investments.

Domestic Developments The Qatar crisis continues to undermine the internal cohesion and economic prosperity of the bloc. Though 2019 witnessed some minor mediatory efforts, tensions persisted. At the same time, one could also notice a lessening of criticisms and rhetoric against one another in public.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_11

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Politics and Security The divisions within the GCC have weakened its position in the regional dynamics. Qatar’s ability to cope with the politico-economic boycott has strengthened its position. This was reflected in the statement by the Qatari Foreign Minister Mohammed bin Abdulrahman al-Thani at the Doha Forum in December 2018 when he observed that the GCC needs to reform to make it more effective and that a fragmented GCC would not be relevant for the world.1 Responding to the regional tensions in the wake of attacks on the oil tankers in the Persian Gulf, in late May 2019 Saudi Arabia—current chair of the GCC—hosted emergency meetings of the Arab and Islamic blocs in the holy city of Mecca; the summit meetings of Arab League and Organization of Islamic Cooperation were held during 30–31 May.2 Coinciding with these meetings, an emergency summit meeting of the GCC was also held in Mecca on the same dates.3 Using the larger assembly of leaders, the Kingdom of Saudi Arabia offered an olive branch to Qatar and Emir Tamim was also invited for the extraordinary summits, but he chose to ignore it. However, Qatar was represented by Prime Minister Sheikh Abdullah bin Nasser al-Thani.4 The summit was aimed at shaping public opinion in the Arab and Islamic countries against Iran amidst attacks on the oil tankers in the Gulf and drone attacks inside the Kingdom from Yemen.5

1  Middle East Monitor. ‘Qatar says GCC needs reform to give it teeth’, 16 December 2018, https://www.middleeastmonitor.com/20181216-qatar-says-gcc-needs-reform-togive-it-teeth/ 2  Al-Jazeera. ‘Iran rejects Saudi Arabia’s ‘baseless’ allegations at Arab Summit’, 31 May 2019, https://www.aljazeera.com/news/2019/05/iran-rejects-saudi-arabia-baseless-allegations-arab-summit-190531060914467.html 3  Gulf Business. ‘Saudi calls for emergency meetings of GCC, Arab leaders over recent attacks’, 19 May 2019, https://gulfbusiness.com/saudi-calls-emergency-meeting-gccarab-leaders-recent-attacks/ 4  Al-Jazeera. ‘Saudi King invites Qatar’s emir to GCC summit in Mecca’, 27 May 2019, https://www.aljazeera.com/news/2019/05/saudi-king-invites-qatar-emir-gcc-summitmecca-190526203906436.html 5  Xinhua Net. ‘Emergency Arab League summit kicks off in Mecca as regional tensions mount’, 31 May 2019, http://www.xinhuanet.com/english/2019-05/31/c_ 138106164.htm

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In his speech at the Mecca GCC Summit, King Salman pressed for the need to restrain the Iranian acts of “defiance” of international laws and urged the international community “to shoulder its responsibility towards the Iranian practices, which pose a threat to the world security and peace and use all means to stop the Iranian regime’s interference in other countries’ internal affairs and its sponsorship of terrorist activities in the region and the world.”6 Using the occasion Kuwaiti Emir Sabah al-Ahmed al-Sabah—who has been mediating the GCC crisis since 2017—said that the GCC states need to put an end to infighting that was hampering interests of the bloc.7 He added that “In light of the bitter conditions we are facing, we will remain unable to offer hope and optimism to our peoples that are torn up by our disagreement and suffering due to ongoing conflicts.”8 The extraordinary GCC Summit passed a resolution calling on “Iran to stop supporting, funding and arming militias and terrorist organizations and refrain from feeding sectarian conflicts, calling on the Iranian regime to exercise wisdom, staying away from hostilities and destabilizing security and stability” in the region.9 The Supreme Council of the GCC further noted the “keenness of the GCC countries to maintain stability, security and peace in the region, the growth of the world economy and the stability of oil markets and condemned Iran’s threats to the freedom of maritime navigation and oil supplies; and called on the international community to shoulder its responsibilities in securing the freedom of navigation and waterways in the wake of the recent threats and attacks in the United Arab Emirates and Saudi Arabia.”10 Being represented by its prime minister, Qatar technically was a party to this resolution but later criticized the summit for its stand on Iran.11  Ramadan Al Sherbini. ‘Saudi King urges world to rein in Iran’, Gulf News, 31 May 2019, https://gulfnews.com/world/gulf/saudi/saudi-king-urges-world-to-rein-in-iran1.1559250045875 7  Middle East Monitor. ‘Kuwait Emir: GCC summit didn’t address end to Qatar embargo’, 1June2019,https://www.middleeastmonitor.com/20190601-kuwait-emir-gcc-summit-didntaddress-end-to-qatar-embargo/ 8  Ibid. 9  Al-Arabiya. ‘Al Arabiya’s translation of the GCC Summit’s final communique’, 31 May 2019, https://english.alarabiya.net/en/News/gulf/2019/05/31/GCC-Council-takesserious-note-of-recent-attacks-on-UAE-Saudi-Arabia 10  Ibid. 11  Al-Jazeera. ‘Qatar expresses reservations over Mecca summit outcome’, 3 June 2019, https://www.aljazeera.com/news/2019/06/qatar-expresses-reservations-mecca-summitoutcome-190602192326096.html 6

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On 10 December, Saudi Arabia also hosted the 40th annual summit of the GCC in Riyadh. Once again, King Salman sent a formal invite to the Qatari Emir Tamim, who again choose to send Prime Minister Abdullah bin Nasser al-Thani as the head of the Qatari delegation.12 The agenda of the meeting again revolved around the Iranian intentions and its ‘hegemonic’ regional ambitions. In his inaugural speech, King Salman called for regional unity to counter Iran and its designs and observed: “Our region today is passing through circumstances and challenges that require concerted efforts to confront them as the Iranian regime continues its aggressive actions that threaten security and stability.”13 This was seen as a tacit attempt to bring Qatar around and get it closer to the Saudi position on Iran.14 The attendance of the Qatari delegation led by the prime minister raised hopes of reconciliation but the meeting did not lead to any follow­up talks or gestures.15 Another important development that indicated the softening of the attitude of regional leaders towards Qatar came on 13–14 March when the Qatari armed forces participated in the joint Peninsula Shield Exercise, comprising of the military forces of all the GCC States.16 The 10th joint exercise took place in the Eastern Province of Saudi Arabia and “aims to reinforce the … military cooperation between GCC countries and unify their strategic military plans”17 and was the “outcome of many joint 12  Al-Jazeera. ‘Qatar’s Emir Sheikh Tamim skips Gulf summit in Saudi Arabia’, 10 December 2019, https://www.aljazeera.com/news/2019/12/qatar-emir-sheikh-tamimskip-gulf-summit-saudi-arabia-191210075123465.html 13  Gulf News. ‘GCC 40th summit: Saudi King calls for Gulf unity to confront Iran’, 10 December 2019, https://gulfnews.com/uae/gcc-40th-summit-saudi-king-calls-for-gulfarab-unity-to-confront-iran-1.1575975173786 14  Ramadan Al Sherbini. ‘With eye on Iran, GCC summit could try to resolve dispute with Qatar’, Gulf News, 9 December 2019, https://gulfnews.com/world/gulf/with-eye-on-irangcc-summit-could-try-to-resolve-dispute-with-qatar-1.68349508 15  Al-Jazeera. ‘Qatar foreign minister: Gulf crisis has moved from stalemate’, 7 December 2019, https://www.aljazeera.com/news/2019/12/qatar-foreign-minister-gulf-crisismoved-stalemate-191206192335553.html 16  The Peninsula Qatar. ‘Joint peninsula shield drills begin with Qatari participation’, 25 February 2019, https://www.thepeninsulaqatar.com/article/25/02/2019/JointPeninsula-Shield-drills-begin-with-Qatari-participation 17  Al-Defaiya. ‘Peninsula shield/10 Exercise kicks off in Saudi Arabia’, 25 February 2019, http://www.defaiya.com/news/Regional%20News/KSA/2019/02/25/peninsula-shield10-exercise-kicks-off-in-saudi-arabia

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meetings that discussed the necessary arrangements and procedures and the appropriate locations of the exercise.”18 Interestingly, this was the first Qatari participation under the GCC banner since 2017. Economic Situation The GCC, as an economic bloc, represents the richest region in the world, with per capita GDP at US$29,478 in 2018. Riding on the tide of high oil and gas prices, the bloc registered an average growth rate of 13.2 per cent in 2018, but the average growth at constant prices was only 2 per cent.19 The GCC also has one of the highest population growth rates and its demographic pyramid has a youth bulge. The region imports a wide variety of its consumption needs for food, medicines, automobiles as well as the capital and intermediate goods for its emerging non-oil sectors. It imported about US$518.89 billion worth of goods in 201920 as against US$443.4 billion in 2018 (Table 11.1), representing a lucrative growing market for traders and investors. The region had a high government spending of about US$572 billion, mostly to support current expenditure in the form of wages, subsidies and current transfer and registered a budgetary deficit of US$46.54 billion. Nevertheless, it had a current account

Table 11.1  GCC in world ranking

GDP at current Prices (US$ trillion) GDP per capita at current prices (US$) Crude oil reserves billion barrels Total gas reserves (tcm) Total GCC imports (US$ billion) Trade surplus (US$ billion)

2018 value

Global rank

1.7 29,478.1 497.0 41.8 443.4 209.0

12 – 1 2 16 2

Source: GCC-STAT, Annual Statistical Bulletin 2019, p. 47, https://gccstat.org/images/gccstat/docman/publications/GCC_Statistics_at_a_Glance_2018_.pdf

 Ibid.  GCC-STAT, GCC Statistics at a Glance, vol. 6, December 2019, p. 47, https://gccstat. org/images/gccstat/docman/publications/GCC_Statistics_at_a_Glance_2018_.pdf 20  International Trade Centre (ITC), Trade Statistics, List of importers, https://www. trademap.org/tradestat/Country_SelProduct_TS.aspx?nvpm=1%7c%7c38%7c%7c%7cTOT AL%7c%7c%7c2%7c1%7c1%7c1%7c2%7c1%7c3%7c1%7c1 18 19

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surplus of about US$209 billion, the second largest in the world in 2018 (Table 11.1). Amidst global economic slowdown, the growth rates had deteriorated across the region in 2019, especially in the second half. Despite a brief sprut after the disruption of Saudi oil production due to the September attacks on its major oil facility, the oil prices again fell below US$60 per barrel by October.21 The GCC real GDP growth rates are expected to drop to 0.8 per cent in 2019.22 The non-oil growth was precarious in some economies and in most cases, fiscal and external balance also deteriorated. Most of the countries of the region have made limited progress in diversifying their economies away from hydrocarbons; and  the growth stimulus continues to come from the energy export revenues, which contributes around 70 to 90 per cent to the total exports and about 80 per cent of total government revenues.23 Saudi Arabia and Bahrain have global ranking manufacturing base in petrochemicals and aluminium, respectively. The GCC governments, especially Bahrain, Kuwait and Saudi Arabia, made significant progress in improving the investment and business environment in 2019 (Table 11.9). Financial reforms are accelerating across the bloc, with some countries establishing and regulating crypto-­ currency.24 Their central banks (Kuwait, after a time lag) lowered interest rates in lock-step move as the US reduced its interest rates twice in July and September.25 The GCC governments closely follow the interest rate movements in the US to maintain the fixed peg value of their currencies (except Kuwait) against the dollar.26 The debt levels continued an upward 21  Tsvetana Paraskova. ‘BP: Oil is “Finely balanced” at $60’, Oil Price, 29 October 2019, ht tps: //oilprice. co m /Lat es t - E n erg y- N ew s /Wo r l d- N e w s / B P - Oi l - I s - F i ne l y Balanced-At-60.html 22  The World Bank. ‘Gulf Economic Update, December 2019: Economic diversification for a sustainable and resilient GCC’, 4 December 2019, https://www.worldbank.org/en/ country/gcc/publication/gulf-economic-monitor-december-2019 23  GCC-STAT, GCC Statistics at a Glance, December 2019. 24  Robert Mogielnicki. ‘Bahrain and Abu Dhabi complete to be Gulf’s cryptocurrency Hub’, AGSIW, 14 August 2019, https://agsiw.org/bahrain-and-abu-dhabi-competeto-be-gulfs-cryptocurrency-hub/ 25  Arabian Business. ‘Gulf Countries cut interest rates, following US fed move’, 31 October 2019, https://www.arabianbusiness.com/banking-finance/432050-gulf-countries-cutinterest-rates-following-us-federal-reserve 26  Middle East Economic Digest. ‘Time for Gulf economies to rethink the dollar peg’, 5 February 2020, https://www.meed.com/rethinking-dollar-peg/

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movement as some countries turned to the international market for funds. The year marked the entry of five GCC economies (except Oman) into JPMorgan Chase & Co.’s emerging-market bond indexes.27 The debut in the international bond market saw the GCC bonds outperforming their peers with a return of 14 per cent.28 Among fiscal reforms notable were the levying of new taxes, mainly VAT and excise tax on tobacco and sugary items. External Sector: The GCC oil export revenues grew modestly in 2019 due to falling global demand, production cuts and subdued oil prices. Still the oil and gas exports from the region were valued US$503.23 billion in 2018 against US$317.97 billion a year ago.29 The non-oil exports suffered both from the drag of the lower oil-sector growth and lesser global and regional demands. The consumer prices have been weak across the region reflecting subdued domestic demand.30 The non-oil exports of most the GCC countries were regional. Table 11.2 shows the direction of trade for the GCC region. As with many other parts of the world, China has Table 11.2  GCC: Direction of Trade, 2018 (US$ billion) Top five import sources for the GCC (value; per cent share)

Top five export destinations for the GCC (value; per cent share)

Top five destination for energy exports (value; per cent share)

China; 74.83 (14.42) US; 51.80 (9.98) India; 35.60 (6.86) UAE; 26.82 (5.17) Japan; 25.50 (4.92)

China; 44.55 (5.37) India; 31.59 (3.81) Saudi Arabia; 25.91 (3.12) Japan; 19.56 (2.36) South Korea; 19.52 (2.32)

China; 26.24 (5.21) Japan; 17.03 (3.44) South Korea; 16.92 (3.36) India; 11.58 (2.30) Singapore; 6.47 (1.29)

Figures in brackets are percentage share Source: Compiled from ITC. Trade statistics, Gulf Cooperation Council

27  Gulf Business. ‘Middle East hotspots: what awaits in 2020, from oil to Lebanon’, 21 December 2019, https://gulfbusiness.com/middle-east-hotspots-awaits-2020-oillebanon/?utm_campaign=GB_Daily_Newsletter_22_12_2019&utm_medium= email&utm_source=Eloqua 28  Ibid. 29  ITC, Trade Statistics, List of Products Exported Gulf Cooperation Council. 30  The World Bank. ‘Economic diversification for a sustainable and resilient GCC’, 5 December 2019, http://documents.worldbank.org/curated/en/886531574883246643/ pdf/Economic-Diversification-for-a-Sustainable-and-Resilient-GCC.pdf

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been its largest trading partner both in terms of sources of imports and export destinations and had a large trade surplus vis-a-vis the region. About 75 per cent of the oil exports go to ‘unspecified’ destinations, with 14 per cent going to Asia.31 This implies a growing opacity in reporting oil export data by the GCC countries. While still low by international standards, there has been significant growth in intra-GCC trade and investments in recent years, especially in areas like tourism and transport.32 The intra-GCC trade  was about US$132.48  billion, which was 9.83 per cent of the total GCC trade in 2018.33 The intra-GCC investments are led by the UAE and Saudi Arabia with a share of 14.3 per cent and 2.7 per cent, respectively, in the cumulative FDI inflows into the GCC region during 2012–16.34 The intra-GCC investments, which were dominant in real estate, tourism and hydro-­ carbon sectors are now diversifying into other sectors. ACWA power has signed an agreement for the world’s largest reverse osmosis desalination plant in Abu Dhabi,35 and the Emirati Masder-led consortium operationalized the first utility scale wind farm project in Oman in 2019. In 2019, Kuwait and the UAE announced plans to invest about US$1 billion and US$1.5  billion, respectively, in the IPO of the Saudi Aramco.36 Saudi Arabia and Kuwait have agreed to start production from the neutral zone in the shared border zone after more than four years of hiatus.37 Among the intra-GCC projects are the electricity grid and the Dolphin gas project.38 The GCC electricity grid owned and operated by GCC  ITC, Trade Statistics, List of Products Exported Gulf Cooperation Council.  IMF. ‘Gulf Cooperation Council: Trade and foreign investment – Keys to diversification and growth in the GCC’, 6 December 2018, https://www.imf.org/en/Publications/ Policy-Papers/Issues/2018/12/04/pp120618gcc-trade-and-foreign-investment 33  ITC. Trade statistics GCC. 34  IMF. ‘Gulf Cooperation Council’. 35  ACWA Power. Newsroom, 16 September 2019, https://www.acwapower.com/news/ ewec-and-acwa-power-sign-the-water-purchase-agreement-for-the-worlds-largest-reverseosmosis-desalination-facility/ 36  Gulf Business. ‘Kuwait to invest as much as $1bn in Saudi Aramco IPO’, 3 December 2019, https://gulfbusiness.com/kuwait-invest-much-1bn-saudi-aramco-ipo/ ?utm_campaign=GB_Daily_Newsletter_03_12_2019&utm_medium=email&utm_ source=Eloqua 37  Gulf Business. ‘Saudi, Kuwait agree to resume oil output at neutral zone’, 24 December 2019, https://gulfbusiness.com/saudi-kuwait-agree-resume-oil-output-shared-fields/?utm_ campaign=GB_Daily_Newsletter_25_12_2019&utm_medium=email&utm_source=Eloqua 38  MEES. vol. 62, no. 43, 25 October 2019, p. 8. 31 32

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Interconnection Authority (GCCIA) became operational in 2011 and was set up to provide emergency power back-up to member countries and attended to about 1,725 events of disruption of power supply between 2008 and 2018.39 It is largely under-utilized as the member countries’ electricity grids have become more stable and sufficient and on 15 September, the GCCIA signed a framework agreement with Iraq for links with the GCC grid. This could reduce Iraq’s dependence on Iran’s electricity and gas supplies for its power sector.40 The Dolphin gas project continued to deliver 2 bcf/d piped gas from Qatar to the UAE despite the economic blockade imposed on Qatar by its Arab neighbours.41 Indeed, this has been one of the notable intra-GCC cooperation that was not affected by the Qatar crisis. Efforts are underway for a GCC rail project. The 19th meeting of the GCC railway project committee was held on 9 December and it approved the procedure for the operating system and made preparations for the workshops in cooperation with the European Organization of International Rail Transport.42 During the year, the GCC environmental portal, which is a unified official window that aims to enumerate environmental data for the GCC, regional and international countries, was launched.43 The GCC states have adopted a unified system for environmental assessment of projects and policies and general principles for environmental protection. Over the years, the GCC countries have unified technical standards, harmonized custom administration procedures and reduced clearance requirements with the consequent lowering of non-tariff barriers within the bloc.44 39  Sari-Energy. ‘Experience of GCCIA in developing GCC Regional electricity Market’, 25 April 2019, https://sari-energy.org/wp-content/uploads/2019/04/Experience-ofGCCIA-in-developing-GCC-Regional-Electricity-Market-Final.pdf 40  The National. ‘Iraq signs deal with GCC to plug into Gulf power Grid in a first’, 15 September 2019, https://www.thenational.ae/business/energy/iraq-signs-deal-with-gccto-plug-into-gulf-power-grid-in-a-first-1.910668 41  Al-Jazeera. ‘Qatar ships LNG to UAE after dolphin pipeline outage: Report’, 19 May 2019, https://www.aljazeera.com/news/2019/05/qatar-ships-lng-uae-dolphin-pipelineoutage-report-190519094717695.html 42  GCC. ‘The 19th meeting of the GCC railway project committee’, 9 December 2019, https://www.gcc-sg.org/en-us/MediaCenter/NewsCooperation/News/Pages/ news2019-12-10-2.aspx 43  GCC News. ‘GCC states…strategic and vital plans and projects to enhance the level of GCC energy security and sustainability’, 15 September 2019, https://www.gcc-sg.org/ en-us/MediaCenter/NewsCooperation/News/Pages/news2019-9-15-2.aspx 44  IMF. ‘Gulf cooperation council: Trade and Foreign investment-keys to diversification and Growth in the GCC’, 6 December 2018, https://www.imf.org/en/Publications/ Policy-Papers/Issues/2018/12/04/pp120618gcc-trade-and-foreign-investment

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Table 11.3  GCC: List of important GCC committee meetings, 2019 Type

Important GCC committees

Security and Defence

GCC Criminal Information Centre; GCCPOL with headquarters in Abu Dhabi, GCC Joint Defense Council (16th meeting); Network of Countering Violent Extremism Centre GCC Standing Committee for Combating Harmful Practices in International Trade,(16th) GCC Chambers of Commerce and Industry; GCC Technical Committee for Payment Systems (66th) GCC Ministerial Committee of the Financial Markets Regulators, (8th); GCC Permanent Working Group on Financial Technologies (24th) GCC Ministerial Committee for Higher Education and Scientific Research (19th); GCC Committee of Technical Education and Vocational Training (28th) GCC Committee of National Computer Emergency Response Centre; GCCNet Technical Committee (67th); GCC Unified software and hardware Purchase Working Group (1st) GCC Technical Committee for Road Transport and Road Engineering (28th); GCC Railway Project Committee(19th); GCC Air Navigation Committee (15th) GCC Climate Committee

Trade

Financial Education

IT related

Travel and Transport Climate

Source: Compiled from GCC. News, https://www.gcc-sg.org/en-us/Pages/default.aspx Note: Figures in the bracket are the meeting series held in 2019

The organization has several committees that continue to facilitate intra-GCC trade, commerce, movement of persons and harmonize and coordinate policies, technical standards and procedures. These committees also meet with their counterparts in other countries to exchange experience and expertise and to resolve bilateral economic issues. Some of the meetings of the GCC committees in 2019 are enlisted in Table 11.3. The GCC committees that dealt with security issues, organized crime and extremism had more frequent meetings with the representatives of the other countries and international organizations for strategic cooperation. As mentioned earlier, the 40th GCC summit took place on 10 December in Riyadh. Though the economic blockade on Qatar continues, the rift appeared to have mellowed down towards the end of the year. The venue was shifted from Abu Dhabi to Riyadh to facilitate Qatar’s participation.45 Instead of the Emir, the Qatari prime minister attended the meeting. In

 Ibid.

45

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his speech, King Salman, though criticized the attacks on the oil facilities by the Iran-backed forces, avoided any criticism of Qatar. At the time, he praised the success of the 24th Gulf Soccer Cup, hosted by Qatar between 26 November and 8 December, for its excellent organization and efforts in making the championship a success.46 As of 2019, the GCC has free trade agreements (FTA) with Singapore and European free Trade Association (EFTA) comprising Iceland, Liechtenstein, Norway and Switzerland. To protect the local industry, in 2019, the GCC imposed quantitative restrictions on the import of chemical plasticizer for three years and introduced a uniform custom duty that decreases annually after the quantitative restrictions ends.47 The 10th Economic Dialogue between the GCC and the European Union was held on 19 October in Brussels.48 The ASEAN-GCC ministerial was held on 28 September in New  York on the side-lines of the 74th session of the UNGA.49 The frequency of meeting of the GCC with representatives (ministers, delegations and ambassadors) of the US, the EU, China and India with Saudi Arabia in the year was 10, 16, 6 and 3, respectively.50

Bilateral Ties Though the GCC countries occupy a significant role in its foreign policy calculations and economic progress, India has not approached the group within an institutional framework. Relations continue to be pursued at the bilateral level and the Qatar crisis complicated this traditional approach.

46  GCC News. ‘The custodian of the two holy mosques chairs the 40th session of the GCC Supreme council’, 10 December 2019, https://www.gcc-sg.org/en-us/MediaCenter/ NewsCooperation/News/Pages/news2019-12-10-4.aspx 47  GCC News. ‘The GCC imposes final measures on their imports of Chemical products’, 16 May 2019, https://www.gcc-sg.org/en-us/MediaCenter/NewsCooperation/News/ Pages/NEWS2019-5-16-1.aspx 48  GCC News. ‘The holding of the 10th Economic dialogue between the GCC and the European Union’, 19 November 2019, https://www.gcc-sg.org/en-us/MediaCenter/ NewsCooperation/News/Pages/news2019-11-19-6.aspx 49  GCC News. ‘The Joint statement issued of the ministerial meeting between the GCC and the association of the Southeast Asian nations’, 1 October 2019, https://www.gcc-sg. org/en-us/MediaCenter/NewsCooperation/News/Pages/news2019-10-1-1.aspx 50    Compiled from GCC News, https://www.gcc-sg.org/en-us/MediaCenter/ NewsCooperation/News/Pages/Home.aspx

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Political and Security Ties While India’s bilateral ties with the member states have flourished, the fragmentation within the bloc has hampered structural relations with the GCC. New Delhi has adopted a neutral position on the fissures within the group. Though a united GCC serves its interest, India avoided seeking a mediatory role for itself and this approach continued in 2019. On 25 September, External Affairs Minister S.  Jaishankar held talks with the GCC Ministerial Council on the side-lines of the United Nations General Assembly session. The GCC team was led by Omani Foreign Minister Yusuf bin Alawi, who chaired the Council.51 The meeting was attended by Khaled al-Sabah, the Deputy Prime Minister and Foreign Minister of Kuwait, Anwar Gargash, Emirati MoS for Foreign Affairs and the Secretary-General of the GCC Abdullatif bin Rashid al-Zayani. According to a press release, the meeting “discussed means to enhance relations of cooperation and friendship between the GCC and the Republic of India within the framework of the strategic dialogue between both sides, in various fields, to serve their common interests.”52 Moreover, the two sides “reviewed the latest political and security developments in the region, as well as issues of common interest.”53 Earlier, the Ambassador of India to Saudi Arabia Ausaf Sayeed met the GCC Secretary-General on 19 June upon assuming office in Riyadh.54 Economic Relations The Indo–GCC economic relations encompass energy security, food security, economic growth and developmental issues as both the regions have mutually complimenting resources, expertise and market potential. In 2018, India was the third-largest exporter to the GCC after China and the 51  Outlook. ‘Jaishankar holds meet with GCC to strengthen ties’, 26 September 2019, https://www.outlookindia.com/newsscroll/jaishankar-holds-meet-with-gcc-tostrengthen-ties/1628130 52  GCC News. ‘Holding a session of talks between the GCC and the Republic of India’, 25 September 2019, https://www.gcc-sg.org/en-us/MediaCenter/NewsCooperation/ News/Pages/news2019-9-25-7.aspx 53  Ibid. 54  GCC News. ‘The secretary general of the Gulf cooperation Council receives the Ambassador of the Republic of India to the Kingdom of Saudi Arabia’, 19 June 2019, https://www.gcc-sg.org/en-us/MediaCenter/NewsCooperation/News/Pages/ news2019-6-19-2.aspx

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US (Table 11.2); the second-largest importer after China; and the fourth largest market for energy exports from the region. Table 11.3 shows the value of India’s  exports and imports and their respective  shares  in the GCC trade. India’s exports to the GCC have largely declined during 2012–18 from US$51.05 billion to US$41.62 billion and was mostly due to decreasing petroleum products exports (Table 11.6). The share of India in the GCC’s total imports have largely stagnated during 2012–13 while declining during 2013–16. At the same time, China’s share in the GCC total imports had increased from 11.89 per cent in 2012 to 14.42 per cent in 2018.55 Similarly, the share of the GCC in India’s total exports declined during 2012–19, sharply falling after 2017 and has dropped from 16.99 per cent to 12.60 per cent during this period. The sluggish growth of exports to the region has led to increasing trade deficits in the face of increasing imports from the GCC. India’s imports from the GCC have fallen over the years from 22.02 per cent in 2012–13 to 13.76 per cent in 2017–18 and rose to 15.50 per cent in 2018–19 and to 16.8 per cent in April 2019–January 2020. Partly the decline was because of the decrease in the share of the GCC in India’s oil and gas imports, as New Delhi sought to diversify its supplies (Table 11.7). A part of the decline was also due to falling oil and gas prices in 2014–16. The main composition of India’s exports to the GCC comprises of pearls, precious and semi-precious stones; mineral fuels; cereals; machinery (electrical and mechanical); ships, boats and floating structures. Table 11.4 shows the share of India’s top ten export items to the GCC countries and the share of the GCC’s top ten import items in the region’s total imports from India. The table shows that the extent of India’s exports to the GCC is commensurate to its global export performance and is aligned with the import needs of the GCC. Except with the UAE, India’s exports to the GCC countries are below potential. Exports to Qatar are in discordance with India’s export potential and the Emirate’s import requirements. Even with Saudi Arabia with whom the trade has been burgeoning, India’s top ten export items constitute only 45.28 per cent of its exports and Saudi Arabia’s top 10 import items accounted for only 48.68 per cent. The high-value items that are among India’s leading export items and the top import items of the GCC are engineering goods, mineral fuels, pharmaceutical and articles of iron and steel. Table  11.5 shows India’s rank and share in the GCC market. India has a low rank and a tiny market  ITC, Trade Statistics, list of products imported by Gulf Cooperation Council.

55

49,295.80 15.88 5.62 84,432.63 18.84 3.54

6.30 101,799.42 22.61 3.54

2014–15

48,221.20 15.33

2013–14

3.48

14.64

55,790.47

5.06

41,692.70 15.89

2015–16

4.15

14.35

55,171.91

5.90

41,768.34 15.14

2016–17

Sources: Adapted from Department of Commerce, GOI, Region X All Commodities, ITC Trade Statistics, GCC a Per cent share is for calendar year calculated from ITC trade statistics

India’s total exports to the GCC 51,053.65 Per cent share in India’s total 16.99 exports India’s share in the GCC total 6.89 importa India’s total imports from the 108,092.06 GCC The GCC’s share in India’s total 22.02 imports India’s share in the total GCC 4.10 exportsa

2012–13

Table 11.4  India–GCC trade (US$ million)

4.33

13.76

64,079.19

6.32

39,390.64 12.97

2017–18

3.81

15.50

79,715.68

6.86

41,621.97 12.60

2018–19

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Table 11.5  India’s export composition to the GCC, 2018–19 India’s exports to GCC

India’s exports to the GCC countries 2018–19 (US$ million)

Per cent share of India’s top ten export items in India’s total export to the GCC countries

Per cent share of GCC’s top ten import items in India’s exports to the GCC

Bahrain Kuwait Oman Qatar Saudi Arabia UAE Total GCC Per cent share in India total exports

742.14 1,333.92 2,246.31 1,611.16 5,561.72 30,126.73 41,621.97 12.97

41.91 45.07 54.03 41.13 45.28 76.16 67.40 –

45.01 40.17 50.89 33.78 48.68 70.92 62.25 –

Source: Calculated from ITC, Trade Statistics, GCC and Department of Commerce, GOI, Export–import database

share in all GCC countries for high-value items. According to the ITC trade statistics database, India’s market share in the import of mechanical machinery and parts has decreased in the last two years in Bahrain, Kuwait, Oman, while that of the UAE had increased.56 As an import source for the electrical machinery and parts, India’s share has declined in Oman. For the import of articles of iron and steel, its share had declined for  Bahrain, Oman, and Saudi Arabia. India’s share in the import of pharmaceuticals has picked up in the UAE since 2018 and it needs to increase the penetration of the high-value export items to the GCC markets. There is a strong case to pursue the India–GCC free trade agreement. Energy Security The GCC countries are important for India’s energy security. The GCC supplied about 42.44 per cent of India’s oil imports and 58.77 per cent of India’s LNG imports in 2018–19 (Table 11.7). The GCC share in India’s oil and gas imports have been continuously declining from 51.37 per cent in 2014–15 to 43.66 per cent in 2018–19 as New Delhi imported more from outside the GCC, especially Iraq. Between April–January 2019–20,  Ibid.

56

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Table 11.6  India’s market share in the GCC for high-value items, 2018 HS Code and Items

Bahrain (Rank; share in per cent)

Kuwait (Rank; share in per cent)

Oman (Rank; share in per cent)

Qatar (Rank; share in per cent)

Saudi Arabia (Rank; share in per cent)

84 Machinery & parts (mechanical) 85 Machinery (electrical) 87 Vehicles and parts 73 Articles of Iron & steel 30 Pharmaceuticals

8th, 2.5

6th, 2.6

10th 2.5

11th, 1.7 9th, 2.6

10th, 2.2

9th, 3.7

5th, 4.4

3rd, 3.8

5th, 4.5

9th, 1.8

3rd, 4.2

8th, 3.8

10th, 1.7

–

9th, 2.7

8th, 3.3

7th, 2.6

4th, 7.9

6th, 6.1

4th, 5.4

3rd, 11.3 8th, 4.8

8th, 8

1.5

–

2.8

1

7th, 4.9

1

UAE (Rank; share in per cent)

Source: Calculated from ITC, Trade Statistics, database

the share of the GCC increased over the previous year for oil but decreased for LNG as India imported more volumes from the US. India imported US$61.52 billion worth of oil and gas from the GCC in 2018–19. Between April 2019 and January 2020, imports of crude oil from the GCC worth US$32.45 billion, petroleum products worth US$13.85 billion and LNG worth US$4.59 billion and they made up 46.43 per cent of India’s total oil and gas imports during that period. The Emirati firm ADNOC provided three parcels of Das Crude oil for the storage in Mangalore Strategic Petroleum Reserves between May– November 2018, under an agreement signed by ADNOC and Indian Strategic Petroleum Reserve Limited (ISPRL).57 Another MoU with ADNOC was signed on 11 November 2018 for filling the two caravan of 0.625 MMT each of the strategic reserves at Padur (Karnataka).58 New

57  Indian Strategic Petroleum Reserves Limited (ISPRL). ‘Annual Report 2018–19’, http:// www.isprlindia.com/downloads/annual-reports/ISPRL-Annual-Report-2018-2019-E.pdf 58  The Economic Times. ‘Abu Dhabi National oil company to fill up half of Padur Strategic crude oil storage’, 12 February 2019, https://economictimes.indiatimes.com/industry/ energy/oil-gas/abu-dhabi-national-oil-company-to-fill-up-half-of-padur-strategic-crudeoil-storage/articleshow/67955101.cms?from=mdr

24,153.92 11,576.14 76,256.21 46.86 4,809.28 6,710.46 71.67 40,539.34 82,966.82 48.86 6,520.09 20.87

47,203.01 16,103.69 129,121.74 49.03 7,758.60 9,230.83 84.05 71,065.30 138,352.73 51.37 13,101.63 22.73

2015–16

17.76

5,763.42

86,970.90 45.21

39,322.47

3,678.47 6,004.74 61.26

80,965.39 44.02

25,213.89 10,430.11

2016–17

Source: Adapted from Department of Commerce, Government of India, Export Import Databank

Oil imports from GCC Petroleum products imports from GCC India’s total oil imports Oil imports from the GCC as a per cent of India’s total oil imports LNG imports from GCC India’s total LNG imports Per cent share of GCC in India total LNG imports India’s oil and gas imports from the GCC India’s total oil and gas imports GCC’s share in India’s total import of oil and gas India’s export of Mineral fuels to GCC Per cent share in India’s total petroleum products export

2014–15

Table 11.7  India–GCC oil and gas trade, 2016–19 (US$ million)

16.16

6,217.66

108,665.86 43.78

47,570.92

4,443.73 8,121.29 54.72

100,544.47 42.89

30,347.47 12,779.72

2017–18

15.60

7,478.95

140,926.58 43.66

61,527.08

6,204.56 10,558.24 58.77

130,368.24 42.44

38,345.77 16,976.75

2018–19

15.66

5,736.36

109,610.40 46.43

50,890.00

4,590 8,060.6 56.94

86,791.87 53.35

32,450 13,850

2019–20 (April–January)

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Delhi has signed a similar agreement with Saudi Arabia and is looking for collaboration with Kuwait to shore up its oil reserves.59 India’s stake in the oil fields in the Abu Dhabi and Oman60 are important contributions to its energy security and a precursor for other similar arrangements. To make energy imports affordable, India needs to reverse the decline in its export of petroleum products to the region. The delays in joint ventures in the refineries and petrochemicals in India61 would yield space to other countries like China. The downstream oil sector in India is highly regulated,62 and its tax policies are not investor-friendly.63 The UAE and Saudi Arabia have joined the India-led International Solar Alliance. Qatar’s 25.1 per cent stake in Adani electricity transmission and Saudi Arabia’s windmill power plant in Kutch are notable beginning in partnerships in the renewable energy which need to be scaled up. India is also vying for investments from the sovereign wealth funds of the GCC countries. Presently, the GCC investments in India are primarily institutional investments and except for the UAE, FDI from other GCC countries have only trickled. Table 11.8 shows the FDI inflows from the GCC countries. The UAE, with a cumulative investment of US$6.9 billion, is the 10th largest investor in India and the largest among the GCC. However, the Emirati share in the cumulative FDI inflows between January 2000 and December 2019 was just 1.51 per cent. Oman, though less endowed, was a distant second, followed by Saudi Arabia and Bahrain. Investments from Saudi Arabia and Qatar increased substantially in 2019 as compared to previous years while that of Oman and Kuwait declined. 59  Debjit Chakraborty and Vrishti Beniwal. ‘India Buying millions of barrels of Saudi crude for strategic reserves’, World Oil, 8 April  2020, https://www.worldoil.com/ news/2020/4/8/india-buying-millions-of-barrels-of-saudi-crude-for-strategic-reserves 60  Sanjay Pulipaka and Mohit Musaddi. ‘Power shifts and re-calibrations: India and the Gulf’, The Economic Times, 14 February 2020, https://economictimes.indiatimes.com/ blogs/et-commentary/power-shifts-and-re-calibrations-india-and-the-gulf/ 61  Nidhi Verma. ‘Saudi Aramco, ADNOC’s India refinery project delayed by two years’, Reuters, 11 December 2018, https://www.reuters.com/article/us-india-refinery/ saudi-aramco-adnocs-india-refinery-project-delayed-by-two-years-idUSKBN1OA1CX 62  India Brand Equity Foundation. ‘The Indian Oil and Gas Sector: Recent Developments, Growth and Prospects’, January 2013, https://www.ibef.org/download/Oil-GasSector-040213.pdf 63  The Economic Times. ‘IEA slams India’s gas pricing policy, says it reduces incentives for producers to raise supply’, 12 January 2020, https://economictimes.indiatimes.com/industry/energy/oil-gas/iea-slams-indias-gas-pricing-policy-says-it-reduces-incentives-for-producers-to-raise-supply/articleshow/73211951.cms

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Table 11.8  FDI from GCC to India, 2000–2019 (US$ million) Country Cumulative 2017 FDI January 2000– December 2016

2018

Bahrain

140.79

22.93

5.82

Kuwait

44.02

16.69

10.19

Oman

434.32

22.93

34.67

Qatar

23.48

0.40

4.05

Saudi Arabia UAE India’s Total FDI

75.55

124.82

10.21

4,643.96 323,964.89

689.02 721.45

2019 Jan–Sept

Cumulative FDI April 2000– December 2019

Rank Per cent share in cumulative investment April 2000– December 2019

5.24 (0.01) 2.15 (0.01) 29.08 (0.08) 59.1 (0.16 per cent) 31.2 (0.08) 762.02

177.44

45

0.04

73.11

54

0.02

526.77

31

0.12

87.27

52

0.02

315.91

39

0.07

6,916.19 456,910.99

10

1.51

Sources: Department for Promotion of Industry and Internal Trade, GOI, Factsheet on Foreign Direct Investment From April 2000 to December 2019, https://dipp.gov.in/sites/default/files/FDI_ Factsheet_December-19_5March2020.pdf; Department for Promotion of Industry and Internal Trade, GOI, Statement of Country-wise /Year-wise FDI Equity During Calendar Years 2019, From January 2000 to December 2018, https://dipp.gov.in/sites/default/files/Chapter_3.2_0.pdf

On the contrary, in the last few years, India has been the second-largest investor in the GCC after the US, with 11.6 per cent share in the cumulative FDI during 2012–16.64 India and the GCC countries have made significant progress in improving the business environment in 2019. Table  11.9 shows the Ease of Doing Business score for India and the GCC and their improvement from 64  IMF. ‘Gulf Cooperation Council: trade and foreign investment – Keys to diversification and growth in the GCC’, 6 December 2018, https://www.imf.org/en/Publications/ Policy-Papers/Issues/2018/12/04/pp120618gcc-trade-and-foreign-investment

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Table 11.9  Ease of doing business in India and the GCC, 2020 Doing business score 2020a

Starting a business (Score)

Dealing with construction permits (Score)

Border compliance for cross-border trade (hours)b

Paying Enforcement Overall taxes (No. of contact score of (score) payments/ year; Time— hours/ year)

Rank 2020 among (change in score from 2019, per cent point)

India

81.6

78.7

52

11; 252

41.2

71

Bahrain 89.6

83.1

3; 23

63.8

76

Kuwait

88.4

71.9

59 (land) 84

12; 98

61.4

67.4

Oman

93.5

75.2

28

15; 68

61.9

70

Qatar Saudi Arabia UAE China

86.1 93.1

84.2 78.3

25 37

4; 41 4; 104

54.6 65.3

68.7 71.6

94.8 94.1

89.8 77.3

27 21

5; 116 7; 138

75.9 80.9

80.9 77.9

83.9

70.0

57.5

20.6; 173 53

63; +3.5 43; +5.9 83; +4.8 68; +1.2 77; +2 62; +7.8 16; -0.7 31; +3.9 –

East Asia & Pacific

53

Source: Compiled from World Bank, Ease of Doing Business 2020, https://www.doingbusiness. org/en/data a Score is on the scale of 1–100 b Time for border compliance is for ports

the previous year. The score is based on a multitude of indicators like a number of procedures involved, time and cost, pace of judicial process in the enforcement of contracts, etc. The table shows that India is less competitive than China. The high transaction cost of doing business in India emanates from the procedural delays and capacity bottleneck and India could move up only by three places over the previous year. Among the GCC countries, the UAE is the most competitive, while Oman is more competitive than Saudi Arabia in starting a business and

11 GCC 

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time required for border compliance. Kuwait is the least competitive among the GCC but was among the major reformers in 2019. Both India and the GCC are fast reforming their trade and investment policies and India–GCC deliberations are the appropriate platform for communicating and sharing mutual progress. Nevertheless, as compared to its peers, India–GCC contact events are far and few. The four rounds of India–GCC conferences were held in 2004, 2006, 2007 and 2015. In the first one, the India-GCC framework Agreement was signed, which sought to enhance trade and technology transfer between the two regions. The second envisaged a bilateral meeting. The third discussed ways and means of expediting proposed FTA and the fourth explored specific areas of cooperation in food security, oil and gas, renewable energy, IT, health care, etc.65 The irregularity in meetings does not provide India the opportunity to negotiate deals and communicate its strengths and capacities at the regional level. India has been negotiating FTA with the GCC since 2004 and only two meeting on the issue took place since then. The third was scheduled for 2009 but could not take place as GCC has deferred its FTA negotiations with all counties and economic groups.66 In the India–GCC conference in 2015 Indian External Affairs Minister Sushma Swaraj called for an early resumption of the talks. On the Indian side, the powerful petrochemicals and plastic industries have been lobbying to retain some protective measure against the cheap GCC imports and there are concerns over the loss of huge revenue to the government for duty-free petroleum imports.67 As the GCC goods were already subjected to higher tax in India (as compared to Indian goods in the GCC), delay in the elimination of duties seems difficult for the GCC countries to accept.

65  GoI. MEA. ‘Gulf Cooperation Council’, April 2012, http://www.mea.gov.in/Portal/ ForeignRelation/gulf-cooperation-council-april-2012.pdf 66  India. Lok Sabah. Unstarred Question No. 4005, India-GCC FTA, https://www.mea. gov.in/lok-sabha.htm?dtl/26233/QUESTION_ 67  John Calabrese. ‘Linking the West’ in ‘uncertain times’: India-GCC Trade relations’, Middle East Institute, 11 April 2017, https://www.mei.edu/publications/ linking-west-unsettled-times-india-gcc-trade-relations

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The GCC Standing Committee for Combating Harmful Practice in International Trade chose India as its first destination and met Anup Wadhwan, Secretary of Ministry of Commerce and Industry and Director General of Trade Remedies, in February.68 Later in the year, the Indian delegation led by the Director-General of Foreign Trade, Ministry of Commerce and Industry, met the GCC Bureau of Technical Secretary for the Anti-Injurious Practices of International Trade on 26 November to discuss the anti-dumping investigation on Indian exports of ceramic products to the GCC countries.69 The GCC region is important for India’s energy security and India needs to increase the penetration of its high-value exports (including mineral fuels) to balance its trade with the region. Energy relations also need to expand to clean energy partnerships encompassing a gamut of cooperation in renewable energy, energy efficiency, bio-degradation of oil sludges, bio-fuels and lowering of energy-related carbon emissions. The FTA negotiations, tax policies and other business reforms are some of the challenges that had to be addressed to reap the synergetic benefit of India–GCC economic potential. Despite intra-GCC differences and disputes, the functioning of the GCC over a period of time has acquired a certain level of continuity and it is an apt institution for India to interact with to enhance and strengthen its position in the member countries. India needs to institutionalize the India–GCC dialogue process as well as increase the contact frequency with the GCC and its important committees related to various aspects of intelligence, security, trade, commerce and governance.

68  GCC News. ‘A delegation from the GCC standing committee for combating harmful practices in International Trade visits the Republic of India’, 25 February 2019, https://www. gcc-sg.org/en-us/MediaCenter/NewsCooperation/News/Pages/news2019-2-25-2.aspx 69  GCC News. ‘The GCC Bureau of Technical Secretariat for Anti Injurious practices in International trade meets with a delegation from the Republic of India’, 26 November 2019, https://www.gcc-sg.org/en-us/MediaCenter/NewsCooperation/News/Pages/ news2019-11-27-1.aspx

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Challenges The internal divisions with the GCC mean that it has become difficult for India to engage with the organization. Nonetheless, the continued progress in the  economic policies of the GCC states would mean that as an economic bloc,  it will continue to remain relevant despite the political bickering. Hence, New Delhi will do better to have a more active institutional engagement with the group. The India–GCC FTA remains on the backburner and good way forward for greater institutional engagement would be reviving the FTA negotiations.

CHAPTER 12

Policy Options

1. Disruptive US Role: Under President Donald Trump, the US has been an unpredictable, unreliable and even disruptive force in the Persian Gulf. Far from mitigating regional instability, it instigates regional tensions and conflicts. India should have a minimalist approach towards the US policies and capitalize on the opportunities emanating from diluting American commitments for the security of the Persian Gulf. 2. Iran Challenge: The Islamic Republic of Iran will continue to be a significant challenge to India’s Gulf policy. Tehran’s hegemonic policies towards its neighbours, apprehensions of the Arab countries, political weakness of the EU and the belligerent Trump Administration require a constant vigil and monitoring. India should balance its ties with Iran on the one hand and with the Arab countries and the US on the other. Chabahar project offers a breather and New Delhi should leverage this while managing its relations with Iran. 3. China Factor: Through its growing economic cooperation, increasing defence exports and labour migration, China is posing a formidable challenge to India's interests in the Persian Gulf. If it were to avoid marginalization, India should double down in its efforts to expand its trade and joint investments in the Persian Gulf. 4. Walking the Talk: The inability to deliver on promises and expectations is a bane to Indo-Gulf relations. Gulf Arab countries have © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4_12

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shown interest in some of the mega privatization projects such as Air India, Bharat Petroleum Corporation and Shipping Corporation of India. The 2015 Emirati pledge of investing up to US$75 billion largely remains unfulfilled and the same could happen to the 2019 Saudi commitment to  invest up to US$100 billion. Bureaucratic delays, procedural issues, legal wrangles and slower growth have been denting investor confidence. India should address these issues seriously and quickly. 5. Restructuring MEA: The restructuring of the Ministry of External Affairs should also include a territorial reorganization. The Gulf Division does not include the most important member Iran, which is covered by the Pakistan-Afghanistan-Iran Division. Though Tehran’s importance for the  policy on Pakistan and Afghanistan are relevant, Iran’s exclusion from the Gulf Division impedes a proper understanding and appreciation of Iran, its regional role and importance and their implications for the Gulf Arab countries with whom India is getting closer. 6. Check Backsliding: One could notice signs of diplomatic backsliding after Prime Minister Modi's re-election in May 2019, most notably vis-à-vis the Middle East. After a gap of three-years, East Jerusalem has been re-flagged as the capital of the future Palestinian state, thereby signalling a disconnect between the different divisions of the Ministry of External Affairs. 7. Security Cooperation: Since 2014, the security agenda has dominated in Indo-Gulf engagements, but the progress has been limited. There is a strong case for cooperation that goes beyond the port calls, joint exercises and officers’ training programmes. India should consider the following: a. The military presence in all missions be maintained at a senior level; b. The military establishment find ways of operationalizing the templates of India’s joint statements with the regional countries by establishing service-to-service contacts; c. Bilateral visits and exchanges by service chiefs become regular and institutionalized; d. Indian Navy could take part in escort, anti-piracy and surveillance operations with the Persian Gulf countries in securing sealanes of communication in the Gulf of Oman and the Strait of Hormuz; and

12  POLICY OPTIONS 

337

e. UAE and Oman are more receptive to military engagements with India and they can be the starting point for military-tomilitary cooperation. 8. Rationalizing Oil Trade: The share of the Persian Gulf in India’s total hydrocarbon exports has been declining. As Saudi Arabia and UAE are leasing over-seas oil storage facilities, India should continue prioritizing its energy relations with the Persian Gulf countries. 9. Clean Energy Partnership: The discourse on India–Persian Gulf energy trade need to change from energy security to clean energy partnership. India should seek robust partnerships with the GCC in the generation of renewable energy and research consortiums in the upcoming energy areas like bio-remediation of industrial oil effluents, biofuels, carbon capture and energy efficiency and auditing. 10. Manage Domestic–Foreign Policy Linkages: Countries cannot build watertight compartments between internal and external developments. Any downward economic trend or domestic discontents would affect relations with the outside world. Rather than taking a legalistic position around the sovereignty of decision-making, India should adopt a holistic approach towards policy making. 11. India Chairs: India does not have any institutional setup in the Persian Gulf countries to further social and cultural engagements. The MEI has been proposing the establishment of ICSSR and ICCR Chairs in the region. The same could also be done in collaboration with private Indian companies that are active in the region. 12. Engagements Beyond Leaders: The political system in the Persian Gulf region is regime-centric and offers only limited space for engagements at the non-official level. Hence, regular and institutionalized interactions with business communities, academia, media persons, literary figures and other civil society actors are necessary both for India’s multifaceted engagement and for possible hedging should there be political openings, shifts and changes. 13. GCC Mission in India: Despite internal  GCC differences and disputes, the GCC has acquired a certain level of continuity and it is an apt institution for India to enhance with and strengthen its

338 

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position in the region. India should seek a GCC mission, preferably with a branch in Mumbai, to institutionalize the India–GCC dialogue process. 14. Reverse Media Neglect: Despite the strong presence of the Indian community in the Gulf Arab countries and heightened political contacts, mainstream newspapers and television networks continue to ignore the region. Except for the Malayalam media networks, national dailies do not have resident correspondents in the Gulf and this should be remedied at the earliest. 5. Engage with Track-II Diplomacy: India should actively engage 1 with various multilateral forums and meetings in the region such as Manama Dialogue, Sar Baniyas Forum, Friends of Yemen, etc., at a ministerial or senior bureaucratic level. These gatherings offer an opportunity for regional-level engagements and India should pursue them vigorously.

Index

A Abdel-Mahdi, Adel, 95, 96, 100, 110, 114 Abdullah, Miteb Bin, 206 Abu Dhabi Fund for Development, 166 Abu Dhabi Investment Authority (ADIA), 288, 290 Air Arabia, 249 Air India, 119, 336 Al-Arabiya network, Iraq, 97 Alhakim, Mohamad A., 114 Al-Aqeel, Maryam, 142 Al-Assad, Bashar, 63 Al-Jazeera Network, 181 Al-Quds Force of the Islamic Revolutionary Guards Corps (IRGC), 61 Arab-Islamic Extraordinary Summit, Mecca, 7 Arab Spring protests, 33, 35, 47, 255 Asia Cooperation Dialogue (ACD), 193–194 Asian Ministerial Energy Round Table, 282

B Badr Organization, 97 Bahrain Bahrain Petroleum Company (BAPCO), 46 contribution of sectors to GDP, 40 current account balance, 44 directions of trade, 45 domestic developments, 33 Fifth Fleet of US Navy in, 33 foreign policy, 33–37 and India, bilateral relationship between; expatriate community, 9; India-Bahrain joint business council, 54; opportunities and challenges, 54–55; political and security cooperation, 48–50; trade and commerce, 50–54 inward and outward foreign investments, 42, 43 natural gas reserves in, 46 oil and gas production and trade, 46 oil and non-oil GDP, 38, 39 political situation in, 33 social issues in, 47–48

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 P. R. Kumaraswamy et al., Persian Gulf 2020, Persian Gulf, https://doi.org/10.1007/978-981-15-6415-4

339

340 

INDEX

Bahrain (cont.) socio-economic indicators, 31–32 state security, 34 Bahrain Economic Development Board (BEDB), 42, 53 Bahrain Independent Human Rights Commission, 36 Balakot strike by India, 237 Balochi separatist movement, 64 Bandar, Reema Bint, 210, 232 Bharat Petroleum Corporation, 336 Bilateral relations between India and non-Arab countries economic ties, 9–27 political issues, 7–9 Bin Alawi, Yusuf, 168, 322 Bin Zayed, Abdullah, 280, 282 Bin Zayed, Mohammed, 128, 181, 251, 253, 257, 267, 279, 280, 282, 307 Boushehri, Jenan, 126 British Petroleum (BP), 107, 111, 124, 142, 152, 165–166, 178, 189, 204, 250, 275, 296 Al-Busaidi, Bader Bin Saud, 168 C Camp David Accord of 1979, 156 Causeway, Sheikh Jaber, 22, 135 Central Board of Secondary Education (CBSE) of India, 292 Central Intelligence Agency (CIA), 46, 206, 207 Centre for Strategic and International Studies (CSIS), 282 Chevron Philips, 191 China Belt and Road (BRI) project, 105–106 oil consumption by, 20 stake in Iraq oil fields, 110

China National Petroleum Corporation (CNPC), 76, 110, 166 Citizenship Amendment Act, 2019, 309 D Dashti, Saeed, 126, 127 Doha International Maritime Defense Exhibition and Conference (DIMDEX), 194 E Emirates, 125–127, 133, 138, 142–144, 148, 149, 179, 182, 183, 189, 194, 201, 251–255, 259, 261, 262, 268–270, 272–274, 278–283, 285, 288, 289, 291–293, 298, 313, 323 Energy sector in foreign trade of India, 17 Erdogan, Recep Tayyip, 77, 183, 206 Etihad Airways, 249, 262 European Union (EU), 64, 66, 75, 105, 207, 227, 321, 335 Exxon Mobil, 191, 275 F Al-Falih, Khalid, 209, 213 Al-Farhan, Fahd, 209 FIFA World Cup, see Football Football FIFA World Cup 2022, 184 Gulf Cup football tournament, Doha, 182 Forex Management Integrated System (NIMA) rate, 72, 73 Future Investment Initiative (FII) forum, Riyadh, 8, 42, 55, 205, 235, 266, 290

 INDEX 

G Gandhi, Indira, 94, 124, 144 Gargash, Anwar Global Aviation Summit, Mumbai, 144, 194 Gokhale, Vijay, 81 Goyal, Piyush, 282 Greenblatt, Jason, 156 Griffiths, Martin, 299 Gulf Cooperation of Council (GCC) crisis, 1, 6–7, 182, 313 domestic developments; political situation, 312–315; security scenario, 312–315 economic situation, 315–321 FDI inflows from, 328 GCC Interconnection Authority (GCCIA), 318–319 and India, bilateral relationship between; challenges, 333; Ease of Doing Business in India and the GCC, 329; FDI from GCC to India, 329; FTA negotiations with GCC, 331; GCC Standing Committee for Combating Harmful Practice in International Trade, 332; oil and gas trade, 327; political, 322; security, 322; trade and commerce, 320, 332 Gulf Cup football tournament, Doha, see Football H Hadi, Abdrabbuh Mansur, 5, 6, 211, 212, 257, 297–299 Al-Haq, Asaib Ahl, 97 Hashd al-Shabbi, see Popular Mobilization Force (PMF) Al-Hashem, Safa, 136 Hennis-Plasschaert, Jeanine, 98

341

Al-Houthi, Mohammed Ali, 5, 6, 65, 183, 211, 213, 256, 257, 297–302, 304 Human Rights Watch (HRW), 143 I Indian Space Research Organization (ISRO), 49 Indian Technical and Economic Cooperation (ITEC), 115 India Ports Global Private Limited (IPGPL), 88, 89 India-Qatar Joint Defence Cooperation Committee (JDCC), 194 INS Trikand, 194 Instrument in Support of Trade Exchanges (INSTEX), 66, 75 International Labour Organization (ILO), 192 International Maritime Organization (IMO), 141, 191 International Maritime Security Construct, 37 International Organization for Migration (IOM), 305, 306 International Solar Alliance (ISA), 49, 245, 328 International Trade Centre (ITC), 28, 325 Intra-GCC conflict, 23, 127, 179, 181, 193, 311, 318–320, 332 Iran balance of payments, 74 Chabahar project; inauguration and operationalisation of, 88; Trilateral Transit Agreement (Chabahar Agreement) between India, Iran and Afghanistan, 81 direction of trade, 73, 74

342 

INDEX

Iran (cont.) domestic developments; political system, 59–64; security system, 59–64 economic indicators, 68 energy sector, 76–78 fiscal reforms in 2019, 71 foreign and regional policy, 64 and India, bilateral relationship between; challenges and opportunities, 90–91; diplomatic relations, 79–82; political relations, 79–82; trade and commerce, 82–90 information on India in, 57–59 Iranian Revolutionary Guards Corps (IRGC) oil and non-oil exports in, 72 sectoral contribution to GDP and average growth rate, 69 Shahid Beheshti Port, 81 social issues in, 78–79 socio-economic indicators, 57–58 Iraq Baghdad’s Liberation Square (Freedom Square), 96, 98 domestic developments; political and security situation, 95–99; socio-economic indicators, 93–94 economic scenario; GDP and growth rate, 101–103; oil sector, contribution to GDP, 103; poverty and unemployment, problems of, 104 foreign policy, 99–101 and India, bilateral relationship between; challenges and opportunities, 121; information on India in, 93–95; investments and expatriates, 119–120;

Kirkuk-Ceyhan pipeline (Iraq-Turkey pipeline) to Turkey, 108; oil and gas production and trade, 107; political relations, 114–115; social degradation and issues in, 113; trade and commerce, 115–119; trade and current account, 102, 105 Iraqi Airways, 93, 119 Iraqi State Organization for the Marketing of Oil (SOMO) Islamic State of Iraq and Syria (ISIS) Israeli-Palestinian conflict J Jaishankar, S., 80, 149, 153, 168, 282, 322 Al-Jasser, Saleh, 210 Joint Comprehensive Plan of Action (JCPOA), 3, 8, 59, 64, 66, 67, 73, 83–85, 155 Al-Jubeir, Adel, 210, 237 K Al-Kaabi, Saad, 193 Kataib Hezbollah, 5, 95, 97, 98 Katz, Israel, 156 Al-Khalifa, Khalid Bin Ahmed, 37 Al-Khalifa, King Hamad Bin Isa, 33, 49 Al-Khalifa, Salman Bin Hamad, 37, 49 Khamenei, Ali, 61–63 Khashoggi murder, 205 Kurdish Democratic Party (KDP), 109 Kushner, Jared, 36, 37, 156 Kuwait domestic developments; foreign policy, 128–129; political situation, 127

 INDEX 

economic performance of; contribution of sectors to GDP and growth rates, 130; cumulative foreign investments, 133; directions of trade, 140; expatriates, policy towards, 136; external trade balance, 139; fiscal deficits since 2015, 134; government sector employment by gender and nationality, 136; increase in holidays for private sector workers, 138; KuwaitChina Silk Road Fund, 132; national accounts and economic growth rates, 130; oil revenues, 129; slump in real estate industry, 131; unemployment, rising rate of, 135 energy sector, performance of; building of LNG terminal, 142; Clean Fuel Upgradation Project (CFP), 141; export of value-­ added petroleum products, 140; Kuwait Authority for Partnership Projects or Project (KAPP), 142 and India, bilateral relationship between; challenges in, 149; Indian workforce, policies for, 152–153; political relations, 144; trade and commerce, 144–148 information on India in, 123–125 Iraqi aggression of 1990-91, 129 social issues, 142–143 socio-economic indicators, 123–124 Kuwait Airlines, 132 Kuwait Energy, 141, 303 L Larijani, Sadeq Amoli, 62–63 Lazareva, Marsha, 126

343

Libyan National Army (LNA), 257 Liner Shipping Bilateral Connectivity Index (2019), 25 Lok Sabha elections (17th), 1, 82 M Make in India programme, 234, 235 Al-Maktoum, Mohammed bin Rashid, 249, 252, 253, 276 Mansoor, Ahmed, 255 Marine Security Belt, 67 Al-Mawali, Khalid bin Hilal, 155 Middle East Institute at New Delhi (MEI@ND) academic and outreach activities, 27 establishment of, 27 Middle East Strategic Alliance, 37 Ministry of Human Resource Development, India, 149 Modi, Narendra, 1, 2, 7–9, 33, 48, 49, 55, 58, 80, 124, 143, 149, 152, 153, 167, 178, 193, 204, 205, 233, 234, 235, 236, 244, 251, 279, 280, 282, 336 focus to develop relations with Persian Gulf countries, 8 high-level meetings with Mohammed bin-Salman, 1 re-elected in 2019 and continuity of Gulf policy, 336 visit to; Bahrain, 8; Oman, 153; Qatar, 193; Saudi Arabia, 233; UAE, 280–281 Mubarak, Hosni, 181 Muraleedharan, V., 114, 144 N Al-Nahyan, Khalifa bin Zayed, 251, 252, 307 Nanoo, Houda Erza Ebrahim, 210 The National, 258

344 

INDEX

National Assessment and Accreditation Council (NAAC), 149 National Institutional Ranking Framework (NIRF), 149 National Investment Infrastructure Fund (NIIF), India, 200, 290, 291 National Space Science Agency (NSSA) of Bahrain, 49 Netanyahu, Benjamin, 156 NRT TV network, Iraq, 97 O Obama, Barack, 155 Observer Research Foundation, 82 Oil and gas trade between India from Persian Gulf import by India, 18, 19 suppliers of, 20, 21 Oman direction of trade, 164 domestic developments; foreign policy, 155–156; political situation, 153–155 economic scenario; agreement on power sector, 166–167; budgetary deficits, decline in, 159–160; creation of two ministries, 158; employment structure in government and private sector, 161–162; gas, exploration and production of, 165–166; GDP growth rate, 156–157; Khazaen Economic City, 158; National Centre for Employment (NCE), establishment of, 161; Ninth Development Plan (2016-2020), 157–158; Omanization of labour force, 161–162; public finance, 159, 160

energy production and trade, 165–167 external trade, 163–164 fertilizer project, 22 and India, bilateral relationship between; challenges, 176; cultural relations and expatriates, 175–176; politics and security, 168–169; trade and commerce, 169–175 information on India in, 152–153 social system of, 167 socio-economic indicators, 151 Oman Air, 159 Oman Airports, 159 Oman Aviation Services, 159 Oman Electricity Transmission Company (OETC), 166 Oman India Fertilizer Company (OMIFCO), 169 Oman India Joint Investment Fund II (OIJF), 174 Oman Oil (OOC), 164, 166 Oman Oil Refineries and Petroleum (ORPIC), 166 Oman Power and Water Procurement Company (OPWP), 167 Organization of Islamic Cooperation (OIC), 280, 312 46th OIC Council of the Foreign Ministers meeting, 193 Organization of Petroleum Exporting Countries (OPEC), 10–12, 106, 108, 109, 140, 189, 191 P Patrol Aircraft P8-I, 194 Peninsula Shield joint military exercise, 7 Persian Gulf region estimated and projected real GDP growth rates, 9, 11

 INDEX 

natural gas reserves, 9–10 oil reserves, 9–10 policy options for India in, 335–337 population of Indian expatriates working in, 26–27 regional developments in, 2–7 spot crude oil prices, 12, 13 Persian Gulf Series, 27 Pompeo, Michael, 37 Popular Mobilization Force (PMF), 5, 97 Pradhan, Dharmendra, 20, 193, 282 Pulwama suicide attack on Indian paramilitary forces, 1–2, 205, 234, 237, 281 Putin, Vladimir, 221, 272 Q Qaboos, Sultan, 152–156 Qatar crisis, 6, 128, 149, 181, 201, 220, 311, 319, 321 customary laws and Islamic Sharia, 192 domestic developments; foreign policy, 181–183; political developments, 179–181 economic scenario of; GDP and growth rates, 184; low unemployment rate, 187; Msheireb Downtown Doha project, 185; National Vision 2030, 185; public finance, 186; sectoral contribution to GDP and average growth rates, 184–185 energy sector; leader in LNG export, 190; left OPEC in 2019, 191; natural gas, production and trade of, 190; natural gas reserves, 189

345

external sector; balance of payments, 187–188; direction of trade, 188–189; FDI investment, 189; Qatar Investment Authority (QIA), 189, 200 and India, bilateral relationship between, 183, 193–200; challenges and opportunities, 200–201; Indian expatriate community, 200; political and defence, 193–194; trade and commerce, 194–200 information on India in, 178–179 kafala system, 192 Majlis al-Dawla (State Council), Oman, 154, 155 Majlis al-Shura (Consultative Council), Oman, 154, 155 socio-economic indicators, 177–178 Qatar Airways, 186 Qatar Petroleum, 142, 190, 191, 197, 274 R Rouhani, Hassan, 3, 58, 60, 62, 63, 66, 70, 80 S Al-Sabah, Emir Sabah al-Ahmad al-Jaber, 123, 124, 126–128, 149, 313 Al-Sabah, Khalid al-Jarrah, 139 Al-Sabah, Nasser, 126, 128 Al-Sabah, Prince Nawaf al-Ahmad al-Jaber, 123, 127 Al-Sabah, Sabah al-Jaber, 127 Al-Sabah, Sabah Khalid, 126, 127, 322 Al-Sabah, Salman al-Salem, 144 Saeed, Maeen Abdulmalik, 295 Al-Saeidi, Abdel Wahab, 96

346 

INDEX

Al-Said, Fahd bin Mahmoud, 168 Al-Said, Sultan Haitham bin Tariq, 154 Salam Air, 159 Saleh, Ali Abdullah, 296 Salih, Barham, 93, 114 Al-Saud, King Salman Bin Abdulaziz, 203, 209 Al-Saud, Prince Mohammad Bin Salman (MbS), 181, 182, 203, 205–207, 210, 233, 246 Saudia, 203 Saudi Arabia balance of payment, 224–225 composition of exports and imports, 225–227 direction of trade, 225 domestic developments; foreign policy, 210–212; political scenario, 205–210; security situation, 212–214 economic situation; Diriyah Gate Project, 218; employment and labour market, 223; employment opportunities in tourism sector, 218–219; inward and outward foreign investments, 219–220; oil and non-oil GDP and growth rates and oil prices, 214–215, 217; oil and non-oil revenues, 221, 222; pledge to support Russian Direct Investment Fund, 221; Saudi Vision 2030, 215, 216, 234; sectoral contribution to GDP and growth rates, 215–216 energy sector, 228–231 foreign exchange reserves, 227 and India, bilateral relationship between; challenges and opportunities, 246–247; expatriate population and Haj

pilgrimage, 246; political and security cooperation, 233–238; trade and commerce, 238–245 socio-economic indicators, 203–204 Saudi Aramco, 45, 166, 213, 229, 230, 237, 243, 244, 258, 275, 288, 299, 318 Shahid Beheshti University, 61–62 Shipping Corporation of India, 336 Singh, V. K., 193 Skill India programme, 235 Society for Worldwide Interbank Financial Telecommunication (SWIFT), 90 Soleimani, Qasem, 5, 61–63, 99 Southern Transition Council (STC), 6, 211, 212, 257, 297–299 Sovereign Wealth Funds (SWF), 23, 24, 32, 43, 58, 69, 123, 134, 143, 152, 178, 189, 203, 209, 250, 261, 275, 328 assets under management, 24 SpiceJet, 291 Start-Up India programme, 234 State General Reserve Fund of Oman (SGRF), 174 State Grid Corporation of China, 166 Stockholm Agreement (2018), 211, 256, 297 Strait of Hormuz, 23, 36, 65, 66, 77, 175, 213, 229, 245, 336 Bin Sultan, Bander, 210 Sushma Swaraj Institute for Foreign Service (FSI), 115 Swaraj, Sushma, 80, 82, 125, 143, 234, 280, 331 Syrian civil war, 63, 182 T Talal, Waleed Bin, 206 Tehran University, 61

 INDEX 

Al-Thani, Abdullah bin Hamad bin Khalifa, 177, 181 Al-Thani, Abdullah bin Nasser, 180, 182, 193, 314 Al-Thani, Emir Tamim bin Hamad, 177, 178, 180 Al-Thani, Mohammed bin Abdulrahman, 183, 312 Al-Thani, Sheikh Abdullah bin Nasser, 312 Al-Thani, Tamim bin Hamad bin Khalifa, 177 Trade relations between India and Persian Gulf exports, 12, 15 imports, 13, 16 Trading partners of India, 12–13 Trump, Donald, 2–5, 8, 24, 36, 37, 58, 59, 63, 64, 66, 67, 77, 79, 88, 113, 128, 156, 207, 211, 212, 258, 335 U UAE domestic developments, 251–252; Federal National Council (FNC), 249, 252–254, 279; Federal Supreme Council (FSC), 252, 253; energy sector, 272–277; foreign policy, 256–259; information on India in, 250–251; security scenario, 256–259 economic situation; Abu Dhabi’s Integrated Transport Centre, 263; Dubai Now app, 263–264; financial technology hub, 262; GDP and growth rates, 259–260; Global Competitive Report 2019, 263; health tax, imposition of, 265–266; high

347

tech-farms, development of, 261–262; initiatives to boost private sector, 262; MoU with China, 267; oil and gas contribution to government revenues, 264–265; sector-wise contribution to GDP and growth rates, 259–260; social welfare Emirati model, 265; UAE Federal Law No. 19 of 2018 on FDI, 266–267 energy sector, 272–277 external sector; balance of payments indicators, 270, 271; direction of trade, 270, 271; net foreign exchange reserves, 272 federation of seven Emirates, 249, 252 and India, bilateral relationship between; challenges, 293; foreign direct investment and joint ventures, 289–292; and Indian expatriate community, 292–293; India-UAE medical mission (2017), 307; political relations, 280–282; security and defence, 282–283; 7th UAE-­ India High-Level Joint Task Force on Investments (HLTFI), 282; trade and commerce, 283–292 labour market and expatriates, 268–270 political situation, 252–256 socio-economic indicators, 249–250 steps taken to improve society issues, 277–279 UNCTAD, 25, 28, 32, 58, 74, 75, 83, 94, 124, 152, 178, 204, 219, 220, 250, 296 UN Human Rights Council (UNHCR), 206

348 

INDEX

United Nations General Assembly (74th session), 37 United Nations Mission to support the Hodeida Agreement (UNMHA), 298 UN Security Council, 101 UN World Food Programme, 306 US and Iran tensions, 1 attacks on oil tanks, 4 impact on Iraq, 5 Iran shot down US UAV drone, 4 Trump’s administration to nuclear deal, 3 US Department of State, Bureau of Population, Refugee and Migration, 104 US Senate Armed Services Committee, 35 W Wadhwan, Anup, 332 Warsaw Process Working Group meeting, 37 West Asia and North Africa (WANA) desk, 8 World Energy Congress, 282 World Food Programme, 104, 306

Y Yemen crisis, 5–6, 211, 297, 300, 304–306 domestic developments; economic situation, 301–302; political situation, 297–300; security scenario, 297–300 energy sector, 303–305 and India, bilateral relationship between; challenges in relations, 309–310; Indian expatriates, 309; no political contacts during 2019, 307; trade and commerce, 307–309 information on India in, 296–297 social issues in, 305–306 socio-economic indicators, 295–296 Yemen Airlines, 295 Z Za’ir al-Bahr (Roar of the Sea) India-Qatar naval exercise, Doha, 194 Al-Zamili, Hakim, 101 Zarif, Javad, 62, 63, 81, 82, 183 Al-Zeyoudi, Thani bin Ahmed, 292