U.S. to Benefit From Improving India-UAE Relations

• India is still regarded by the U.S. as its best hope to provide an economic, political, and military counterpoint to China in Asia for two key reasons.
• The U.A.E. has a uniquely close relationship with India in the field of energy.
• the U.S. believes that its efforts to effect a lasting agreement to end the ongoing Israel-Hamas War might also allow for the beginning of a broader rapprochement with the U.A.E.

The 13 August 2020 U.S.-brokered relationship normalisation deal between Israel and the United Arab Emirates (U.A.E.) underlined how important the Emirate was to Washington at that point, both as a key Middle Eastern ally, and by extension as critical link in its plans to use India as a counterbalance to China’s dominance in the Asia-Pacific region. Following the U.S.’s withdrawal from several major Middle Eastern positions after that, including further military drawdowns from Syria, its pullout from Afghanistan in May 2021, and its end of combat mission in Iraq in December 2021, evidence emerged that the U.A.E. had been much less willing to play the role that Washington had envisioned for it. The most dramatic was the revelation over the Christmas period of 2021 that U.S. intelligence sources had identified that China had been building a secret military facility in and around the big U.A.E. port of Khalifa. Based on classified satellite imagery and human intelligence data, U.S. officials stated that China had been working for several months “to establish a military foothold in the U.A.E.”. Now, though, in tandem with renewed efforts to increase its influence in the newly-won third term of Indian Prime Minister, Narendra Modi, the U.S. is looking to redouble its efforts to do the same in the U.A.E., according to senior Washington-based energy security sources spoken to exclusively by OilPrice.com last week.

India is still regarded by the U.S. as its best hope to provide an economic, political, and military counterpoint to China in Asia for two key reasons, as analysed in my new book on the new global oil market order. First, the two countries have a long-running regional rivalry, which back in 2020 when the decision was made in Washington to further exploit this relationship fissure had just seen another bloody eruption. On 15 June that year, in the disputed territory of the Galwan Valley in the Himalayas, troops of China and India had clashed in what the U.S. thought marked a new ‘push back’ strategy from India against China’s policy of seeking to increase its economic and military alliances through its multi-generational power-grab project, ‘One Belt, One Road’ (now rebranded as the less autocratic-sounding ‘Belt and Road Initiative’, BRI). The U.S. believed that this military push back might also be echoed in India’s economic desire to finally make substantive progress on its ‘Neighbourhood First’ policy as an alternative to China’s BRI programme. Second, India’s rapid economic development was accompanied by the corollary expansion of its demand for oil and gas, with its huge potential as a global energy demand powerhouse underlined in the first quarter of 2021 by the International Energy Agency (IEA). This showed that India would make up the biggest share of energy demand growth at 25 percent over the next two decades, as it overtook the European Union as the world’s third-biggest energy consumer by 2030.

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Oddly to many, perhaps, the U.A.E. has a uniquely close relationship with India in the field of energy, as also detailed in my new book. Following the awarding of the U.A.E.’s Onshore Block 1 to India’s Bharat Petroleum Corporation in May 2019, the chief executive officer of the Abu Dhabi National Oil Company (ADNOC), Sultan Ahmed Al Jaber, highlighted that he looked forward to exploring partnerships with even more Indian companies across the energy giant’s hydrocarbon value chain. He added that he wanted this to include expanding the commercial scale and scope of India’s vitally-important Strategic Petroleum Reserves (SPR) partnership. This was in line with ADNOC already being the only overseas company allowed at that stage to hold and store the country’s SPR. At that point, India’s government approved a proposal that would allow ADNOC to export oil from the SPR if there was no domestic demand for it. In the first instance this would be done from the Mangalore strategic storage facility, with the other major SPR pool being at Padur. This decision marked a major shift in the policy of India in the handling of these vital energy reserves, with the country having previously banned all oil exports from the SPR storage facilities.

A further sign of this relationship between the U.A.E. and India moving up a gear was the likelihood of ADNOC being top of the list of foreign companies that would be considered for the purchase of a substantial stake in the high-profile privatisation of major Indian refiner, Bharat Petroleum. At that time, Russian state corporate proxy, Rosneft, expressed an interest in buying the Indian government’s 53.29 percent in the company - following a visit to New Delhi by Rosneft’s chief executive officer, Igor Sechin – but these overtures were side-lined by India. This was underlined by Al Jabber at the end of 2020 when he said: “Today, Indian companies represent some of Abu Dhabi’s key concession and exploration partners… [and…] As we continue to work together, I see significant new opportunities for enhanced partnerships, particularly across our downstream portfolio.” He added: “We have launched an ambitious plan to expand our chemicals, petrochemicals, derivatives and industrial base in Abu Dhabi and I look forward to exploring partnerships with even more Indian companies across our hydrocarbon value chain.” This longer-term view accorded with the outlook given at around the same time by India’s minister of petroleum and natural gas, Dharmendra Pradhan, who stated that his country’s demand for refined products was expected to rise dramatically, requiring a 40 percent increase in its refining capacity to 350 million tonnes a year, or 7 million barrels per day (bpd), by 2030. Part of the policy to accommodate this increase was the plan to build a 1.2 million bpd refinery and petrochemical plant on India’s west coast through a joint venture comprised of Indian state refiners and ADNOC.

The U.S. also had – and still does – key players on the ground in the U.A.E., in the shape of energy giants ExxonMobil and Occidental Petroleum. The former has been a major investor in the U.A.E.’s oil hub of Abu Dhabi and is still working closely with ADNOC on the world’s second largest offshore oil field, Upper Zakum. The latter has an ongoing 30-year joint venture with ADNOC in Al Hosn Gas, a 35- year concession for onshore Block 3, and another 35- year concession to explore and develop onshore Block 5. It is also a partner with Mubadala and France’s TotalEnergies on Dolphin Energy Limited, which supplies natural gas produced in Qatar to markets in Oman and the U.A.E. and is working on major new renewable energy projects in the Emirate as well. However, after the recriminations following the U.S. intelligence report in 2021 of the U.A.E.’s alleged collusion with China to build a secret military facility around Khalifa port, it appeared that the Emirate’s willingness to cooperate with Washington was to be limited from that point to business only. From the U.S. side, the U.A.E.’s statement that it was not aware of such an extraordinary amount of activity being conducted by China at one of its biggest ports, including month after month of extremely high levels of movement of enormous Chinese ships in and out of it day and night, was not credible. Washington’s jitteriness surrounding this apparent drift of the U.A.E. to China was compounded by a broader feeling that this shift of allegiances was occurring more widely across the region, as further evidenced at around the same time by news that U.S. intelligence agencies had also found that Saudi Arabia had started to manufacture its own ballistic missiles with the help of China.

As it now stands, according to senior Washington-based energy security sources spoken to by OilPrice.com, the U.S. believes that its efforts to effect a lasting agreement to end the ongoing Israel-Hamas War might also allow for the beginning of a broader rapprochement with the U.A.E. that may allow it to regain some measure of political influence there. “The U.A.E. is embarking on a big investment programme in its gas operations [US$13 billion on the next five years], so we might be able to do something there,” said one of the U.S. sources last week. “This is linked to a big push to boost its LNG [liquefied natural gas] capacity, and they’ve asked India to invest in a big new plant [in Ruwais] connected to this, so we might be able to work something there as well,” he concluded. This said, such a rapprochement may be a long process, as early February saw the U.A.E. inform the U.S. that it would no longer allow its warplanes and drones based at the Al Dhafra air base to carry out strikes in Yemen and Iraq without notifying Emirati officials ahead of time. This prompted Washington to move its key fighting air assets to nearby Qatar, which is now the U.S.’s major non-NATO ally in the Middle East, according to President Joe Biden, as also detailed in full in my new book.

By Simon Watkins for Oilprice.com

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