Prime Minister Narendra Modi’s recent visit to the United Arab Emirates (UAE) on May 15 occurred during a critical time for global energy stability. The ongoing US-Israel tensions with Iran have heightened concerns regarding shipping security in the Middle East, particularly in the Strait of Hormuz. This vital oil corridor is essential, as over 85% of India’s crude oil imports transit through it. Any disruptions in this area could have immediate repercussions on fuel prices and inflation in India.
Focus on Energy Security
During his brief stop in Abu Dhabi, PM Modi met with UAE President Sheikh Mohamed bin Zayed Al Nahyan. Energy security was a key agenda item, as both leaders discussed not only immediate oil supplies but also long-term strategies related to crude oil and LNG contracts. Expanding India’s strategic petroleum reserves with UAE support was another topic of interest.
India’s Strategic Oil Reserves
India currently maintains three strategic oil reserve sites with a combined capacity of 5.33 million metric tons (MMT). Plans are in place to create two additional sites with an extra 6.5 MMT capacity. Some of this capacity is already leased to Abu Dhabi National Oil Company. Discussions may include:
- Assured long-term oil supplies
- Increased LNG flows for cooking gas security
- Collaborative efforts to enhance India’s oil storage capacity
- Flexible supply terms to mitigate the impact of shipping disruptions
The UAE’s recent withdrawal from OPEC provides it with greater flexibility to increase its oil output, positioning it as a reliable supplier amid market uncertainties.
Strengthening Economic Ties
The relationship between India and the UAE has evolved significantly in recent years. After the signing of the Comprehensive Economic Partnership Agreement (CEPA) in 2022, bilateral trade surged, establishing the UAE as India’s third-largest trading partner. The two nations aim for trade to reach $200 billion in the near future.
Sectoral Cooperation
The upcoming discussions are expected to delve into various sectors, including:
- Infrastructure investment
- Clean energy initiatives
- Logistics optimization
- Food security and supply chains
- Defence and cybersecurity collaboration
This partnership is increasingly viewed as an energy and investment corridor, rather than merely a supplier-consumer relationship.
The Importance of the Strait of Hormuz
Given that a significant portion of India’s oil and gas imports pass through the Strait of Hormuz, its stability is crucial. Threats in this region could lead to:
- Prolonged shipping routes
- Increased freight and insurance costs
- Delays in shipping
- Immediate pressure on domestic fuel prices
Both India and the UAE are expected to discuss enhancing maritime security and ensuring uninterrupted trade flows during PM Modi’s visit.
Significance of the Visit
Experts consider this visit timely, given the ongoing geopolitical tensions affecting energy supply chains. Abhinav Munshi from Razor Capital noted that this meeting reflects the urgency of a rapidly changing relationship. The UAE’s share in India’s oil supply is anticipated to double, rising significantly in importance as a key LNG supplier.
On the investment front, UAE institutions have injected over $25 billion into India’s economy, with remittances from Indians working in the UAE contributing significantly to bridging India’s trade deficit.
Looking Ahead
Following his UAE visit, PM Modi is set to travel to several European nations. However, the focus of this stop was clear: to safeguard India against potential oil price shocks before they escalate.
