New Refinery in India Could Boost Trade with Pakistan

A new Indian oil refinery near its border with Pakistan could boost trade between the two countries through fuel sales. The South Asian rivals are hoping that stepped up trade will help the reconciliation process.

The $4 billion refinery near Bhatinda in India’s northern Punjab state can process nine million tons of crude oil a year. Besides meeting rising demand in India, it could also supply fuel to Pakistan.

The refinery is 175 kilometers from the eastern Pakistani city of Lahore.

Islamabad has said it is close to removing petrol from a list of items banned for trade with India and India’s oil minister says New Delhi is prepared to export petroleum products and gasoline to Pakistan.

Pakistan suffers from energy shortages. India imports nearly three quarters of its crude requirement, but it has huge refining capacity and can export petroleum products.

Analyst Wilson John of the Observer Research Foundation in New Delhi says the move to open trade in fuel is part of recent efforts by the two countries to boost trade. Ties between India and Pakistan suffered a huge setback after Pakistan-based militants attacked the Indian city of Mumbai.

“Particularly after the Mumbai attack of 2008, when there was a deliberate slowdown in the composite dialogue, you seem to witness a dramatic upsurge in the last say one year," John said. "In my opinion that is a very good, positive sign.”

A series of recent announcements have raised hopes that trade could emerge as a key driver of peace efforts between the two countries.

Earlier this month, India decided to lift a ban on foreign direct investment from Pakistan. Although this is unlikely to lead to an immediate rush of investment, analysts say the move improves the climate for trade.

The Central Bank of India and the State Bank of Pakistan are exploring the possibility of opening branches in each others' countries. The two countries are also expected to sign a liberalized visa agreement next month, making it simpler for businessmen to travel from one side to the other.

The steps to boost trade are expected to make it easier for India and Pakistan to address their differences. Besides a disputed border, India blames Pakistan for allowing its territory to be used by Islamic militant groups to mount terror attacks in India.

Wilson says it will take more than trade for the two longtime rivals to completely normalize ties.

“Pakistan will have to, sometime in the near future, address the core concern of India, which is terrorism," said John. "Without that I really do not think this process can move beyond a point.”

Observers say, for the time being, the steps to boost trade have created a mood of optimism on both sides.