Saudi Aramco is investing $15bn in India for a 20 per cent stake in Reliance Industries. As per the deal, dubbed as the second-largest Foreign Direct Investment (FDI) in India, Saudi Aramco is to acquire a 20pc stake in Reliance’s oil-to-chemicals (OTC) business at an enterprise value of $75 billion. The oil-to-chemicals division, formed by combining refining and petrochemicals businesses, converts petroleum into chemicals.

The deal was made despite, reports late July, that talks between Aramco and Reliance had hit a roadblock as Reliance was keen on a higher valuation. Aramco apparently overpaid for the deal, for obvious reasons, reports now say.

$15bn for a 20pc stake is a generous price, Bloomberg opined. When it was first reported in April that a deal might be in the works, the valuation named wasn’t much more than half of that sum.

Reliance as a whole has an enterprise value of about $134bn, including phone and retail businesses that brokerages value anywhere between $60bn and $80bn. At the median multiple for oil and gas deals of 6.5 to 7.0 times enterprise value to Ebitda, Reliance’s refining and chemical businesses would collectively be worth about 30pc less than it’s receiving, Bloomberg said. Yet Aramco went ahead.

As part of the deal, Saudi Aramco will also supply 500,000 barrels per day (bpd) of crude oil on a long-term basis to the Reliance Industries Jamnagar Refinery, the world’s largest refining facility as per the deal. To Saudi Aramco, this was the most lucrative part of the deal. This is roughly double the volume of crude oil, Reliance currently buys from Saudi Arabia. The refining complex currently has the capacity to process 1.36 million bpd. As per reports, it plans to further expand its refining capacity to 2mbpd by 2030.

The just-announced stake in Reliance is beside the 50pc interest Aramco, along with UAE’s ADNOC, is picking up in a planned $ 60bn refinery on the west coast of India.

Indeed, besides other reasons, the most important issue behind the deal seemed to be the co-dependent relationship that the world’s biggest oil exporter would develop, courtesy the deal, with India. The country is likely to overtake the US as the world’s biggest net importer of crude. Indian consumption growth is pacing ahead and with virtually little local production and India remains significantly dependent on crude oil imports to meet its needs.

These investments are part of Aramco’s plan to double its global oil processing capability to somewhere around 10mbpd by 2030, locking buyers for the Kingdom’s crude on a long term basis. In an era of stiff competition for market share, the strategy seems working for Riyadh.

The announcement came at a point in time, when Kashmir is under siege. Many in the country now feel; the Arab world is not putting its weight fully behind Kashmir and Pakistan.

A report by AP rightly pointed out that Gulf Arab countries have preferred staying silent on the issue. Regional heavyweight Saudi Arabia urged restraint and expressed concern over the brewing crisis. Other Gulf countries such as Kuwait, Qatar, Bahrain, and Oman do not appear to have issued any statements.

The United Arab Emirates has gone a step further by apparently siding with India, calling the decision to downgrade Kashmir’s status an internal matter. Iran has also preferred a balanced position on the issue of Kashmir.

This muted response, as per AP, is underwritten by more than $100bn in annual trade with India. The volume of trade makes India one of the Arab world’s most prized economic partners. And the Arab world does not want to ditch it for the sake of Kashmiris.

Let’s be fair. We are living in an era of realpolitik. Self-interests are driving policies. We opted not to send our forces to take an active part in Yemen-Saudi politics because our long term national interests did not permit it.

Arabs are no different. They have their national interests close to their hearts. The concept of one ummah-standing together-in all respects is dead.

We need to learn and live with it.

Published in Dawn, August 18th, 2019