India–UAE LNG Pact Becomes Pillar of U.S. Counter-China Strategy
- Washington is cultivating an India–UAE energy axis to counter China/Russia.
- India’s fast-growing demand and post-Galwan tilt make it a key counterweight to Beijing.
- The deal dovetails with the Abraham Accords track and U.S. efforts to reassert influence.
U.S. President Donald Trump knew back in his first term in office that there was a high probability that Iran could not be reasoned out of its nuclear ambitions nor sanctioned out of them either. It was clear to him, according to senior legal and security sources exclusively spoken to at the time by OilPrice.com, that direct action would have to be taken at some point to remove the most immediately threatening facilities related to its nuclear activities. And it was also apparent that Israel – which faced literal extinction from such a threat – was increasingly prepared to act alone to neutralise Iran’s burgeoning nuclear capabilities. “It was also understood [by Trump and his key advisers] that any sustained direct attacks by Israel on Iran could spark a broader conflict across the entire Middle East, which could eventually draw China and Russia in direct opposition to the U.S.,” a senior Washington-based legal source reiterated to OilPrice.com last week. “This was where the idea of leveraging the U.A.E.-India relationship came in,” he added. Recent weeks have seen further major developments in this context, with last week seeing a major new landmark announcement between Abu Dhabi and New Delhi.
The announcement specifically relates to energy but, as is frequently the case in this sector, has much broader geopolitical implications. The deal announced was a 15-year Sales and Purchase Agreement (SPA) between the Abu Dhabi National Oil Company (ADNOC) and Indian Oil Corporation (IOC) for the supply of 1 million tonnes per annum (mtpa) of liquefied natural gas (LNG) sourced mainly from ADNOC’s Ruwais LNG project. The terms of the SPA allow for ADNOC’s LNG cargoes to be delivered to any port across India, as directed by IOC, India’s largest integrated and diversified energy company. With further expansion of business between the two firms, IOC is set to become ADNOC’s largest LNG customer by 2029, according to comments from both sides. It will have a total offtake of 2.2 mtpa – comprising 1.2 mtpa from ADNOC’s Das Island operations and 1 mtpa from the Ruwais LNG project by that time. This latest SPA is part of the broader Comprehensive Economic Partnership Agreement signed between the U.A.E. and India in 2022, which aims for bigger and deeper bilateral trade and energy cooperation. As highlighted by ADNOC senior vice president, Rashid Khalfan Al Mazrouei: “This long-term agreement with Indian Oil underscores the robust energy relations between the UAE and India. Through our world-class Ruwais LNG Project, ADNOC will continue to provide more lower-carbon gas to meet growing global demand, fuel industries and power homes.”Related: US Oil Drilling Activity Continues to Slow
This is precisely what the U.S. wanted back in Trump’s first presidential term. Those around him knew that China especially, but also Russia, had been dramatically expanding their influence across the Middle East since the U.S.’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA, or colloquially ‘the nuclear deal’) with Iran in May 2018. Although Trump’s reasoning for the exit had been sound – that Iran was using sanctions relief to bolster its finances to expedite its nuclear ambitions – the practical result had left Tehran effectively unsupervised. This turbocharged its ability to spread its influence across the region, bolstered by its position as leader of the ‘Shia Crescent of Power’ and by strong support from Beijing and Moscow, as analysed in full in my latest book on the new global oil market order. Washington’s antidote to this loss of U.S. influence in the Middle East – and to prevent potentially disastrous attacks on Iran directly by Israel – was the U.A.E.-India plan.
There were – and still are – two main elements to this strategy. The first was to establish India as a true counterbalance to China’s ever-growing power across the Asia-Pacific region. A boon to this notion had come after 15 June 2020 when Indian and Chinese troops fought running battles in the Galwan Valley – the first deadly military confrontation between the two countries since 1975. Washington believed this and similar skirmishes breaking out across the disputed territory might mark a new push back strategy from India against China’s policy of seeking to increase its economic and military alliances through the ‘Belt and Road Initiative’ (BRI). The U.S. believed that this military assertiveness might also be echoed in India’s economic desire to finally make substantive progress on its ‘Neighbourhood First’ policy as an alternative to the BRI programme. Crucially in this context – and additionally highly propitious for Washington -- was that India’s rapid economic development was expected to drive a huge expansion in its demand for oil and gas. Indeed, at the time, the International Energy Agency predicted that India would make up the biggest share of energy demand growth at 25% over the next two decades. Washington also knew that, peculiarly to many perhaps, the U.A.E. had a uniquely close relationship with India in the field of energy, as also detailed in my latest book.
The U.A.E was the second main element to the U.S. strategy. Occupying a key geographical position next to Saudi Arabia and Oman with coastlines in both the Persian Gulf and the Gulf of Oman it makes an ideal energy hub between the West and the East. This is further supported further by its plethora of ports and storage facilities spread across the seven constituent emirates of Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm Al Quwain. This was also why China had made the U.A.E. a focus of the Middle Eastern section of its multi-generational power-grab project, the BRI, when it was launched in 2013 by President Xi Jinping. The U.A.E.’s positioning also neatly augmented the enormous influence Beijing was able to exert over what happens in the Persian Gulf and Strait of Hormuz through its ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, first revealed anywhere in the world in my 3 September 2019 article and also analysed in full in my latest book on the new global oil market order. Through other similar deals in the region, China also has a hold over the Bab al-Mandab Strait, through which crude oil is shipped upwards through the Red Sea towards the Suez Canal before moving into the Mediterranean and then westwards. For its part, the U.A.E. was extremely keen to boost its oil and gas revenues after the damage done to its economy – alongside those of all other Middle Eastern energy exporters – by the Saudi Arabia-led Oil Price War from 2014 to 2016.
Moreover, there was also the existing strong energy relationship between India and the U.A.E. to use as a basis for this expansion. 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 ADNOC, Sultan Ahmed Al Jaber, highlighted that he looked forward to exploring partnerships between Indian firms and the U.A.E. 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 to store crude oil in the SPR. India has also allowed ADNOC to export such oil to allow it greater operational flexibility. The slew of deals being planned at that time with Indian companies in the U.A.E. 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.”
Washington’s U.A.E.-India plan became clearer when it was announced on 13 August 2020 that the emirate had signed a deal to normalise relations with Israel in a deal that had been brokered by the US. This coincided with the Israeli Prime Minister Benjamin Netanyahu’s announcement that he was suspending plans to annex more areas of the West Bank that Israel had seized during the 1967 Six-Day War. It marked the first of the Middle East’s ‘Abraham Accords’ programme that emerged in Trump’s first presidency, that were an attempt for the U.S. to re-project its power across the Middle East. Trump made it clear during his campaign for his second term that he favoured a resumption of the Abraham Accords, including one between Israel and Saudi Arabia. Despite several reports to the contrary, the U.A.E. never cancelled its own such deal with Israel despite the fallout from the Israel-Hamas War. Consequently, the more the benefits of a renewed relationship between the U.S. and the UAE is seen to work, the more likely Abu Dhabi is to support such a landmark deal between Riyadh and Jerusalem, in Washington’s view. The latest big long-term LNG deal between the UAE and India fits perfectly in this U.S. design.
By Simon Watkins for Oilprice.com
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