Saudi-Pakistan Defense Pact and India's Energy Relations: An Analytical Overview

The signing of a joint defense agreement between Saudi Arabia and Pakistan has raised questions about the future of energy relations between Riyadh and India, one of the world's largest oil consumers and a key customer of the Kingdom.

However, a well-placed source has confirmed that this agreement will not affect India's continued purchase of Saudi oil. The source, who preferred to remain anonymous, explained that Saudi Arabia is seeking to strengthen its security by expanding its alliances, but it will not do so at the expense of its vital trade relations.

India, which has shared border disputes with Pakistan for decades, is a very important market for Saudi Arabia. According to data from Kpler, Riyadh sold just over 600,000 barrels per day of crude oil to India in July, making it one of India's top three suppliers alongside Russia and Iraq.

The source also dismissed long-standing rumors about a shift in Saudi oil trade away from the US dollar, describing talk of non-dollar denominated agreements as a "phantom deal". He affirmed that dollar-denominated pricing will remain the basis of Saudi oil exports, even as Riyadh seeks to balance its security relations with the United States and Pakistan, and expand its energy trade with India, also a member of the BRICS bloc.

For his part, Asif Iqbal, President of the Indian Economic Trade Organization, emphasized that Saudi Arabia is a strong partner for India. He stressed that the Saudi-Pakistani agreement should be viewed from the perspective of national priorities, asserting that each country has its own interests.

Limited Impact on Oil Markets

Analysts believe the agreement will not have a significant impact on global oil markets. This comes at a time of increasing concerns about US defense guarantees in the Gulf region, especially after the Israeli attack on Qatari territory.

Rashmi Garg, Senior Portfolio Manager at Al Dhabi Capital, pointed out that Gulf countries are turning to other partners because of their perception that the United States will not fulfill its obligations as it has in the past. However, she affirmed that relations between the United Arab Emirates and other GCC countries with the United States remain relatively good.

In contrast, India is working to strengthen its relations with the Gulf countries. Indian Commerce Minister Piyush Goyal recently visited the United Arab Emirates to review the progress made in the Comprehensive Economic Partnership Agreement between the UAE and India. Abu Dhabi is also a major supplier of crude oil to India, selling approximately 400,000 barrels per day in June.

Manpreet Gill, Chief Investment Officer for Africa, the Middle East and Europe at Standard Chartered, believes that any rise in oil prices due to geopolitical events in the region will be short-lived. He expects WTI crude prices to remain near $65 a barrel.

Conclusion

Despite the signing of the Saudi-Pakistan defense agreement, India is likely to continue buying Saudi oil. Saudi Arabia seeks to maintain its trade relations with India, while India is working to strengthen its relations with other Gulf countries. The agreement is not expected to have a significant impact on global oil prices.