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India, Israel and the Jewish People

(This sub-chapter was reviewed and updated by Mr. Jon Hansen of the International Energy Agency in Paris)

Indian Needs

Oil is the determinant driver of greater interdependence between Asia and the Middle East in the 21st century. “For the first time we are focusing on Asia,” declared, in 1998, Ahmed Zaki Yamani, a former Saudi oil minister and high-level official of the Organization of the Petroleum Exporting Countries (OPEC).2 Between 1998 and 2014, the Asia-Pacific region’s share of total crude oil imports from major Mideast producers rose from 46 to 74 percent.3 In fact, the Asia-Pacific region has virtually become the only destination of crude oil exports from the United Arab Emirates (UAE) and Qatar. Several factors, primarily geographical proximity and Asia’s growing demand for oil, help explain the increasing energy interdependence between Mideast producers and Asian countries.

Mideast countries also view the energy they supply Asia, China in particular, as a means of securing long-term political links, and even security, without having to submit in return to human rights demands and pressures to undertake democratic reforms, as has been the case with the United States and other Western countries. By 2030, more than 16 million barrels of crude oil per day are predicted to flow from the Middle East to Asia-Pacific, compared to fewer than 4 million barrels per day to Europe and North America combined.4 A technological revolution, fracking, and other advances in oil and gas recovery has brought about a geopolitical revolution: America is approaching energy independence, Europe gets much of its energy resources from Russia, and the Middle Eastern oil producers now, for the first time, depend on the Asia-Pacific markets for their exports and economic survival.

Growth requires energy. Rapid industrialization and urbanization, the growth of the middle class, as well as the increased use of energy-intensive products, have been driving up India’s energy demand in the last two decades. Today, India is the world’s fifth largest consumer of primary energy resources. India’s energy demand will continue to increase, and, according to projections of the International Energy Agency (IEA), it will likely more than double by 2040, which is expected to turn India into the world’s third largest energy consumer, after China and the United States.5

A few years ago, some observers were concerned that India and China’s rapidly growing energy consumption would result in increased competition for resources with the West, not to mention the effect on global warming. Indeed Indian energy consumption has almost doubled since 2000.6 It was feared that this would continue to drive up energy prices, affecting the affordability of energy in Western consuming countries while, at the same time, increasing the wealth of oil producers in the Middle East and elsewhere. In the meantime, the expansion of global supply, thanks to fracking among other factors, has led to a considerable reduction of crude oil prices. India depends on energy to sustain its economic growth and development. It is worth noting that even though the Indian demand is very high, and it occupies a growing proportion of the global energy market, India remains a microscopic oil consumer per capita. This is expected to rise massively in the coming years. Today, India accounts for only 6 percent of global energy consumption although it is currently the second largest country in the world, accounting for 18 percent of the global population. It is expected to overtake China by 2040.7

Its energy consumption per capita remains well below that of developed economies and the world average. India’s per capita electricity consumption in 2012 was 744 kilowatt-hours, less than one fifth of the global average (4235 kh). Its energy consumption is lower than China’s; India has 90 percent of China’s population but consumes only 30 percent of the energy China does.8 Notwithstanding predictions of high and sustained growth, per capita figures will remain far below those of the developed world for years to come.9

China’s economic development has largely relied on the expansion of its industrial and manufacturing sector. India’s economic growth, in contrast, has essentially centered on the development of its service sector, which requires much less energy to operate. Still, India’s low energy consumption per capita is primarily a result of the poverty that characterizes most of the country’s population. Although it has benefited from rapid and continuous economic growth since the early 1990s, and nurtures some of the world’s largest private fortunes, India remains a very poor country and faces a massive and enduring problem of energy impoverishment. According to IEA statistics, about 237 million of India’s citizens (WEO 2015) still lack access to electricity, meaning 82 percent of India’s population today has access to electricity, and more than 841 million, or 67 percent of India’s population, relies on traditional biomass fuels for cooking, for reasons of both access and affordability.10 The use of traditional biomass fuels generates a series of problems, ranging from economic and environmental concerns to health problems and gender discrimination.11 India’s challenge is not just to manage the energy consequences of its fast economic development and sustain continuous growth, but also to ensure increased energy access and affordability for its economically deprived population.

As in China, coal remains by far India’s largest source of primary energy. India’s booming demand for electricity is expected to increase its reliance on imported coal, even though the share of coal in its fuel mix will remain the same. Currently, coal constitutes 70 percent of India’s power generation. India’s third major source of energy after coal and bioenergy is petroleum, which represents about 20 percent of India’s primary energy supply. Coal and petroleum together meet nearly 70 percent of India’s energy needs. India’s energy demand will likely more than double by 2040, but the country’s two largest sources of primary energy will remain coal and oil. Between 2012 and 2014, India’s reliance on imports for the supply of coal, natural gas and crude oil reached respectively 25 and 39 percent for coal, 32 and 46 percent for gas, and 74 and 92 percent for oil.12

India has the world’s third largest (after the United States and China) coal reserves: approximately 246 billion tons, of which 92 billion are proven.13 Until the mid-1990s, domestic production was sufficient to meet the country’s needs. Since then, however, the rapid increase in coal demand has made it difficult for Indian mining companies to keep up with demand, which has come to outstrip domestic supply, requiring India to import coal from foreign producers – primarily from non-Middle Eastern countries, including Australia, Indonesia and South Africa. According to IEA projections, India’s overall reliance on coal imports will reach 28 percent by 2030.

If India does not find and exploit its own new oil and gas resources, its reliance on energy imports will increase significantly in the next two decades. According to IEA projections, natural gas imports will quadruple between 2020 and 2030, and account for nearly 60 percent of its total supply. Crude oil imports are predicted to meet 94 percent of India’s total crude oil needs by 2030, when it will constitute close to a quarter of India’s overall energy supply (including biomass fuels).

India’s dependence on energy imports comes with a heavy reliance on Mideast producers. Until 2012-13, around two-thirds of India’s total crude oil imports came from the Middle East, with Saudi Arabia its largest supplier. But Nigeria and Angola, India’s most significant oil suppliers outside the Middle East, in 2015, greatly increased their exports to India. In May 2015, African oil jumped to 26 percent of India’s imports, and Middle Eastern oil dropped to 54 percent. It is currently (2016) still impossible to predict whether this development points to shifting long-term trends.14 For the time being, the dominant assumption is still that India’s oil dependence on the Middle East could reach over 90 percent of total oil imports by 2030. India also currently depends heavily on natural gas imports from the Middle East, with Qatar its key supplier.15

Not all Indian crude oil imports are destined to domestic consumption. Over a third is re-exported by India after transformation into refined petroleum products in India’s growing energy refining sector. Several Mideast countries, chiefly Iran and the UAE, have traditionally been important markets for Indian exports of these products. India’s export reach has in recent years grown beyond the Middle East and South Asia to the Far East and Europe, and even to the United States. The Indian government, along with the private sector, has been making a sustained effort to boost its refining capacity to satisfy rapidly increasing domestic needs, and establish India as a major exporter of refined petroleum products. Refining is seen as a foreign-exchange earner for India to offset energy import expenses.

India’s high level of dependence on energy imports is a threat to its energy security as its supply depends so extensively on the Middle East. There is an ongoing risk of supply disruptions due to the region’s political and/or economic instability. India’s dependence on energy imports also makes it vulnerable to surging oil prices. Any steep rise in oil prices is likely to increase inflation and budget deficits, thereby hampering the country’s economic growth. Oil prices increased after the beginning of the so-called Arab Spring, but have since fallen again. India’s reluctance to endorse the Western-led military intervention in Libya was at least partly motivated by concerns over higher oil prices.

Toward greater energy security and diversification

The energy crisis and the steep increase of oil prices that came in the wake of the 1973 Yom Kippur War enriched the oil producers and impoverished India along with many other oil-hungry developing countries. This threw India into a tighter embrace with the Gulf countries than it would probably have chosen had there been an alternative. But no oil importers had a choice in those years. The Indian novelist and Nobel laureate V.S. Naipaul called India in a 1977 book “a wounded civilization.” He began his book with a bitter comment that India was “again at the periphery of this new (meaning newly oil-rich) Arabian world.”16 Few prominent Indians or persons of Indian origin (Naipaul was not born in India) would have expressed themselves so openly during those years. But many understood that India had to launch energy source diversification measures to improve its energy security. From the 1980s and 1990s on, India developed initiatives and projects in many different directions to reduce its dependency on Gulf oil – with very limited success so far, as should be clear from the statistics cited earlier in this chapter. Nevertheless, it is interesting to summarize the various ways India has tried to wriggle out of its dependency, as it will continue searching for new energy sources for the foreseeable future.

India’s energy security and diversification moves take four main directions:

  • Investing in Middle Eastern oil and natural gas
  • Searching for oil and gas outside the Middle East
  • Increasing self-reliance on its own oil and natural gas resources
  • Supporting energy sciences and technologies to develop alternatives to oil and gas

Investments in the Middle East and oil and natural gas

India invests in oil and gas exploration and production in Middle Eastern countries and also tries to attract investments from these counties for its own energy sources. India supports these efforts through diplomatic and economic moves but faces fierce competition, particularly from China and Japan. Acquiring energy assets by investing in the oil industry of Middle Eastern producer countries increases energy security to some degree, but does nothing to diversify energy sources. Three other policies aim at diversification.

Searching for oil and natural gas outside the Middle East

India is looking for oil and gas in Sub-Saharan Africa, Russia, Central Asia, the United States and Mexico among others. Again, it faces competition from China and Japan. India’s cumbersome bureaucracy has missed opportunities more than once. Supplies from energy-rich Central Asia are hampered by major transport problems, but Sub-Saharan countries, e.g. Angola and Nigeria, the new “hot spots” of the world oil industry, have become important suppliers to India. Israel was involved in one project linked to India’s diversification drive, the “Med-Stream Project.” In 2006, the Israeli and Turkish governments planned to build energy pipelines from Central Asia and Russia to Turkey, which would then ship supplies to Israel and then on to India. The project was shelved when relations between Israel and Turkey deteriorated following the 2010 Marmara incident.

Increasing self-reliance on its own oil and natural gas resources

Self-reliance has deep roots in Indian culture. Gandhi saw it as a key moral and religious precept and a means to fight against British rule. But self-reliance often meant protectionism, extensive government regulation, and public ownership of resources and industries, none of which was conducive to a speedy development of endogenous resources. In the 1990s India opened its economy to foreign investments, which has led to some new discoveries. The newest and perhaps most promising potential resource is shale gas, but its development is still hampered by technological, financial, environmental and health problems. Also, it is not clear how much recoverable shale gas India actually has – according to provisional estimates, nothing of the order of magnitude of American or Chinese reserves.

Supporting energy sciences and technologies to develop alternatives to oil and natural gas

India’s first prime minister, Jawaharlal Nehru, attached enormous importance to science, and this has been a continuing driver of Indian science and technology policies. Important research and development activities are underway to develop coal, nuclear, hydro-, wind and solar power, as well as bio-fuels. India is working to improve its energy conservation and efficiency. India’s energy intensity – the amount of energy required to produce one unit of GDP – ranks among the highest in the world, which comes with negative local and global environmental consequences. The use of coal is particularly inefficient. As coal represents over 50 percent of India’s total energy supply (excluding biomass), any improvement in coal use would lead to greater economic, environmental, and health improvements than increased efficiency in any other power source.

Israel and the Jewish world could make the most important contribution to India’s energy needs through cooperative efforts in solar and other renewable technologies. Israel is a leader in solar and other renewable energy sources relevant to India. The two countries have been discussing cooperation since the early 2010s. In 2015, India and Israel were working toward their first cooperation agreement in the renewable energy sector, expanding their strategic relationship to include energy security.17