India may leverage the new free trade agreements with Australia and the United Arab Emirates to ensure long-term economical energy supply at a time when import-dependent countries are facing an acute supply crisis, two people aware of the development said. The country could also offer reciprocal arrangements with the partners to meet their requirement of critical goods and services, they said.
Mutually beneficial trade partnerships open up possibilities of strategic tie-ups in terms of ensuring supply to each other when the global supply chain is disrupted, they said on condition of anonymity.
“The UAE has proposed a strategic agreement, whereby India would ensure enough supply to meet their food requirements, and they would reciprocate with petroleum supplies as and when global supply chains are disrupted,” one of them said, adding that the matter is still under consideration.
Similar arrangements can be made with other partners such as Australia, a major supplier of coal and liquified natural gas (LNG), a second person said. The pact signed on Saturday – the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) – allows duty free imports of these items immediately after the agreement is operationalised, the person added.
“This will give competition to Indonesia, which is also supplying coal to India at zero duty. The fair competition may bring down costs,” the first person said. AI-ECTA is expected to come into force in about four months. Australia will be encouraged to supply natural resources such as coal, alumina, metallic ores, titanium, zirconium and LNG after tariffs are removed on them.
Global supply chain disruption is one of the major cause of concerns for import-dependent nations. Sri Lanka is facing an acute shortage of food and fuel because of supply hinderance. India has also seen fuel rates skyrocket due to the Ukraine war and sanctions against Russia by the US and its allies.
Benchmark Brent crude spiked to about $140 a barrel on March 7 due to the geopolitical tensions. Although it fell a bit later, it largely remained above $115 until the past two sessions when Brent softened below $110 a barrel on the US’ move to tap its reserves.
The oil price volatility has forced state-run oil companies to raise petrol and diesel rates by ₹8 a litre in past 13 days. India, which is the world’s third largest consumer of fossil fuel, imports 85% of its crude oil requirements and 54% of its natural gas.
Australia is already supplying coal to India. Between April last year and January 2022, India imported Australian coal worth $10.33 billion, out of total imports of $13.50 billion. The new trade tie would further boost energy imports from Australia, which has an edge over LNG and liquefied petroleum gas used for cooking and automobiles.
India on Saturday signed AI-ECTA, close on the heels of a similar important agreement with the UAE in February.
The India-Australia free trade agreement is expected to double the bilateral trade between the two nations to nearly $50 billion from the existing $27 billion in the next five years, while India and the UAE deal may almost double the two-way trade from $60 to $100 billion in the same period.
The India-UAE Comprehensive Economic Partnership Agreement will come into force from May 1.