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Policy Scan: Time for new thinking

The continuing political upheaval in countries of West Asia and North Africa (WANA) and the instability that marks many interim regimes in these countries have sparked thinking the world over on what these developments may imply for the future of the global energy market. The region has some of the world's largest energy producing countries.

According to one estimate, West Asia is home to 54.4% of the world's proven reserves of oil and Africa, 9.5%. As key energy producers, countries of the region are important trading partners for India. Over 70% of India's crude oil imports come from West Asia.

Political instability in these oil supplying countries is a reminder of the risks associated with unfavourable patterns of trade dependence.

India's energy securing strategy should now focus on diversifying its energy supply sources. India recognises the need to engage with countries in Latin America, Central Asia and Africa, and the country's oil and gas companies have expanded their presence in these regions. Kazakhstan, with 2.8% of the world's oil, 3.9% of the world's coal and over 15% of the world's total uranium, is emerging as a key energy partner. In Southeast Asia, Malaysia and Indonesia offer potential for long-term contracts for gas.

Public sector companies are pursuing equity investments in coal too. Indonesia, South Africa, Mozambique and Australia hold possibilities for India to participate in their coal sectors. Coal India Ltd won two blocks in Mozambique in 2009. Though there is no consensus on the ability of overseas resource acquisition to add to India's energy security (given that production from many projects is not brought back to the country), these investments need to be seen as relationship builders and trust multipliers that fortify business ties.

India's energy interests lie at the core of these engagements. But to secure the interests, India also needs to contribute to the development of these countries in critical areas like infrastructure, institution-building, technology and education . Concomitantly, energy planning needs to be integrated with foreign policy decisions, and India's diplomatic endeavours need to factor in the country's energy interests and the complementarities offered by partner countries.

Security of external energy supply also depends on the safety of and unhindered access to trade routes for transport of energy imports. Trade along sea lanes of communication (SLOCs) is vulnerable to a range of risks: piracy, terrorism, inter-state conflict, natural disasters and accidents. Piracy and regional insurgent movements threaten trade routes critical for India- the Strait of Hormuz, the Malacca Straits and Bab-al Mandab. The Indian Navy has been playing an active role in countering piracy in the Malacca Straits and off the Somalia coast. Recently, the US has talked of the possibility of American, Chinese and Indian navies collaborating to deal with piracy on international routes.

Domestically, the building of emergency oil stocks has emerged as an important risk mitigation strategy in the light of increasing supply risks. Enhanced domestic exploration of resources; development and deployment of renewable energy; and effective demand-side management of energy can also contribute towards reducing India's import dependence. In the complex geopolitical and economic environment of today where energy, security, development and environment intersect in ways that challenge conventional policies, new thinking is required to achieve multiple objectives.

Tags: West Asia and North Africa (WANA), India's energy security, import dependence, Global energy market, energy supply

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