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18-Sep-2023-Editorial
September 18, 2023 @ 7:00 am - 11:30 pm
How will India-Middle East – Europe Economic corridor impact trade?
The story so far:
During the recently concluded G-20 summit in New Delhi, a memorandum of understanding (MoU) was signed to establish the ‘India-Middle East-Europe Economic Corridor’ (IMEC).
The signatories included leaders of India, US, Saudi Arabia, the UAE, the European Union (EU), Italy, France and Germany. The project forms part of the Partnership for Global Infrastructure and Investment (PGII).
What is the corridor ?
The proposed IMEC will consist of railroad, ship-to-rail networks (road and sea) and road transport routes (and networks) extending across two corridors.
The Two Corridors
While the east corridor will connect India to the Gulf, the northern corridor will connect the Gulf to Europe.
As per the MoU, the railway, upon completion, would provide a “reliable and cost-effective cross-border ship-to-rail transit network to supplement existing maritime and road transports routes”.
It would enable the transportation of goods and services from India to the UAE, Saudi Arabia, Jordan, Israel and Europe, and back.
The corridor is expected to increase efficiency (relating to transit), reduce costs, generate jobs, and lower greenhouse gas emissions. This in turn will translate into a “transformative integration of Asia, Europe and the Middle East.”
India – Saudi Arabia Relations
ECONOMIC TIES: India is Saudi Arabia’s second-largest trade partner; Saudi Arabia is India’s fourth-largest trade partner. Bilateral trade in FY2022-23 was valued at $52.76 billion. Trade with Saudi Arabia accounted for 4.53% of India’s total trade in FY23.
ENERGY COOPERATION: Saudi Arabia is a key partner for ensuring India’s energy security and was its third largest crude and petroleum products source for FY23. India imported 39.5 million metric tonnes (MMT) of crude from the country in FY23, amounting to 16.7% of India’s total crude imports.
DEFENCE PARTNERSHIP: There is extensive naval cooperation between India and Saudi Arabia, and two editions of the bilateral naval exercise, Al Mohed al Hindi, have been concluded so far. Both sides also cooperate closely in the domain of defence industries and capacity-building.
INDIANS IN SAUDI: The Indian community in the kingdom is more than 2.4 million strong, widely respected for its contribution to the development of Saudi Arabia and seen as a living bridge between the two countries.
IMEC:
Future Projects
The MoU states that participants intend to enable the laying of cables for electricity and digital connectivity, as well as pipes for clean hydrogen export along the railway route.
The participants promised to speed up work related to technical design, financing, legal and relevant regulatory standards. A meeting is planned in the next 60 days to carve out an “action plan” with “relevant timetables”.
How has it been received?
While Mr. Modi suggested the corridor “promises to be a beacon of cooperation, innovation, and shared progress,” Participants called it the “most direct connection” between India, the Gulf and Europe: with a rail link that would make trade between India and Europe 40% faster.
Israeli Prime Minister Benjamin Netanyahu, whose country will be a part of the corridor, also welcomed the move.
On the other hand, with the corridor being suggested as a competitor for China’s Belt and Road Initiative (BRI), the announcement did not draw enthusiasm from the Chinese media.
What is the objective behind this corridor?
The objectives for IMEC include generating economic growth while incentivizing new investments in the region. It aims to connect the two continents (Asia and Europe) with commercial hubs and facilitate development and export of clean energy, support existing trade.
What geopolitics is at play here?
It has often been believed that China is utilising the BRI from the Indo-Pacific to West Asia to further their economic and political influence, particularly on sovereigns with relatively unstable economies.
The Financial Times points out that, for the U.S., the project could also serve to counter Beijing’s influence “at a time when Washington’s traditional Arab partners, including the UAE and Saudi Arabia, are deepening ties with China, India and other Asian powers.”
Professor Michaël Tanchum, Senior Fellow at the Austrian Institute for European and Security Policy, said in August 2021 that a corridor connecting India to Europe via West Asia and the Mediterranean region could serve as an “alternative trans-regional commercial transportation route” to the troubled Chabahar-based International North-South Transit Corridor.
He said that from Mumbai, Indian goods shipped by this route could arrive on the European mainland in as less as 10 days — 40% faster than through the Suez Canal maritime route.
How does this affect Israel and Gulf ties?
Saudi Arabia and Israel do not have diplomatic ties — primarily because of differences of opinion about the Israel-Palestine conflict.
In fact, Israel has official ties only with Egypt, Jordan, the UAE, Bahrain and Morocco in the Arab region. In this light, the transit network which seeks integration on multiple fronts assumes particular significance.
An effort to build on the recent normalisation of ties between Israel and several Arab states, including the UAE can also be seen. This may push Saudi Arabia to follow suit and formalise ties. “China is one factor. The U.S. is also trying to refocus attention on the region, to reassure traditional partners and to maintain influence,” the publication learnt.
With Saudi Arabia being the world’s top exporter of oil and the UAE being West Asia’s dominant finance center, FT says that both are “seeking to project themselves as key logistics and trade hubs between east and west.”
Important for Prelims
- Participants of the grouping
- The Two Corridors
- What all networks are part of the corridor
- The regions connecting and the mapping of the route.
- Arab-Israel relations
- BRI
Mains Questions
- Discuss how the India-Middle East – Europe Economic Corridor can be a game changer for India and its deeper integration with West Asia and Europe? (150 Words) 10 Marks.
- Describe how the geo-political issues among the participating countries can be a hindrance in the smooth execution of the corridor? Give country specific examples? (250 Words) 15 Marks