How The Oman Trade Agreement Could Offer India A Better Crude Bargain
India’s merchandise imports from Oman were at $7.9 billion in FY23, led by petroleum products.
A fast-tracked trade deal between New Delhi and Muscat, which is currently underway, could offer a better deal on petroleum crude for India and diversify its crude import source nations.
India’s merchandise imports from Oman were at $7.9 billion in FY23, led by petroleum products ($4.6 billion) and urea ($1.2 billion). These account for 73% of imports.
The advantage of the Oman deal is that India already has a CEPA with the United Arab Emirates, and both economies are similar, differing only in production capacity and profile of products, according to an official with knowledge of the matter, who spoke on the condition of anonymity.
The Commerce Ministry on Friday indicated that both countries were eager to close the deal and making good progress, with the text on most chapters already completed by both sides.
Oman is also the third-largest export destination for India within the Gulf Cooperation Council countries. The first two are the UAE and Saudi Arabia. India and the UAE signed a Comprehensive Economic Partnership Agreement in 2022, which has targeted to achieve $100 billion in bilateral trade of non-petroleum products by 2030.
In the past, India and the GCC were involved in negotiations for a trade agreement, which could not be finalised.
The GCC, as a bloc, has good potential for India, the person quoted above said.
The option has been given that they can have negotiations with GCC bloc, or go as individual countries, the official said. As and when, other GCC members show interest, India is willing to move ahead, according to him.
"The dominant export of Oman is petroleum products. India will have to offer duty cuts on that. That will make Oman's petroleum products more competitive than other OPEC countries and Russia. The duty cuts by Oman will give a 5% margin that will help Indian exporters" Ajay Srivastav, co-founder of Global Trade Reach Initiative and former trade services officer, told NDTV Profit.
Due to the size of the Oman economy, the deal will offer India an incremental gain and not pose a threat to the domestic economy, Srivastav said.
Where Does The Deal Stand?
Formal negotiations on the subject began on Nov. 20, with the first round taking place in New Delhi from Nov. 27 to Nov. 29.
A second round of negotiations were expected to take place in Muscat from Dec. 9 to Dec. 14. "The negotiations on the text of most of the chapters have been concluded by both the sides," the Commerce Ministry said on Friday.
How Much Does India Trade With Oman?
Bilateral trade between the two countries reached $12.4 billion in FY23, according to recent data from the Commerce Ministry. India’s merchandise exports in FY23 to Oman stood at $4.5 billion, while services exports were at $2.8 billion.
India's imports of merchandise from Oman were valued at $7.9 billion in FY23, with services imports at $0.6 billion.
Refined petroleum products worth $2.2 billion account for 49% of India’s exports, with motor gasoline (petrol) leading at $1.7 billion, followed by iron and steel, electronics and machinery.
Over 83.5% of India's goods exports, valued at $3.7 billion, currently face a 5% import duty in Oman, according to a report by think tank Global Trade Research Initiative. These products could benefit from duty elimination, through such a deal.
"Meanwhile, about 16.5% of Indian exports worth $800 million are already entering duty-free and will not see additional benefits from the FTA... The duty elimination will aid most Indian exports, but significant growth in the Omani market, a small, middle-income economy with a $25,000 per capita income, will also depend on product quality improvements," it said.
In FY23, 33% of the total merchandise import from Oman constituted petroleum crude oil (under HS code 2709), according to international trade researcher Piyali Majumder.
She added that India’s import of petroleum crude oil amounts to $162.2 billion in FY23, but Oman constitutes only 1.6% of the total crude oil imported by India that year. Meanwhile Iraq, Russia, and Saudi Arabia, together constituted 57% of the total petroleum crude oil imported.
"Presently, the Most Preferred Nation (MFN) tariff rate of 5% applies to crude oil imports from Iraq, Russia, Saudi Arabia, and Oman. The impact to India’s oil imports will depend on the preferential tariff rate negotiated under the trade deal with Oman," she said.
She further added that the India-Oman trade agreement would be an attempt toward market diversification to ensure resilience against global headwinds.
The deal could aid products like semi-milled or wholly milled rice, which has an unrealized export potential in Oman’s market at $93 million; agglomerated iron ores and concentrates, excluding roasted iron pyrites with an export potential of $120 million and medicaments for retail sale which could fetch $157 million in exports, she said.
