Glimpse into Indo-Oman Trade: Geo-Economics & GeoStrategic

By Tanmay Goel, Researcher, Nitisara

India’s upcoming Comprehensive Economic Partnership Agreement (CEPA) with Oman marks a new start in bilateral relations, with trade already exceeding $10.5 billion in 2024-25. The foundation of the partnership is Oman’s neutrality policy that offers it a safe investment platform outshining regional powers. The sultanate’s strategic geographical position as an intermediary diplomat and portal to vital shipping lanes makes it important to India’s Middle East trade objectives.

Introduction

Both India and Oman have a long history shared over millennia of sea trade, cultural exchange, and diplomatic collaboration. This time-tested relationship has developed into a full-fledged strategic friendship encompassing defense cooperation, energy security, and strong commercial ties that have survived local instability as well as international economic crises. The two nations’ bilateral relations were greatly enhanced between 1970 and 2020, when positive neutrality policy came to be embraced as the foundation of Oman’s foreign policy.

The India-Oman CEPA, tabled in November 2023, is the result of this historic relationship and is the beginning of a new era of economic cooperation. The negotiations have been moving swiftly with requirements of certain quotas of Omani nationals’ employment in different industries, which is the final major obstacle to negotiating an agreement that would massively change trade flows between the two countries. The strategic gain is greater than mere trade facilitation, positioning Oman as India’s third-largest export market amongst the Gulf Cooperation Council countries.

India-Oman bilateral trade showing exports, imports, and total trade volume from 2019-2024, Source: Author’s own

How does Oman’s strategic positioning impact its trade relations with India?

Oman’s political neutrality is the cornerstone for backing its robust trade relationship with India, which has resulted in it being a stable and safe place of business, attracting large Indian investments in industries like logistics, manufacturing, and energy. This intentional neutrality in foreign policy has turned Oman into a critical pillar for India’s West Asia policy and has enabled it to pursue balanced ties with its competing regional powers as well as be a consistent trading partner of India. The political stability that resulted from the union enabled the two countries to negotiate the CEPA, which aims to eliminate or reduce tariffs on a wide variety of products and simplify regulatory procedures. Oman’s unbiased foreign policy has indirectly helped India by allowing continuous access to key shipping routes, primarily the Strait of Hormuz that handles approximately 20% of the world’s oil trade. Such neutrality has also made Oman able to introduce Special Economic Zones(SEZs) giving favorable treatment to Indian businesses, strengthening bilateral trade that reached $12.39 billion in 2022-23. In spite of certain negotiation obstacles, the pillar of diplomatic neutrality works to supplement economic cooperation, making Oman India’s third-largest trade partner within the Gulf Cooperation Council.

How does Oman’s strategic location enhance Indo-Oman trade prospects?

Oman’s location at the southeastern corner of the Arabian Peninsula gives it unrivaled strategic benefits for Indo-Oman trade, with special mention to its domination of key maritime chokepoints and proximity to key international shipping lanes 1. The coast of the sultanate is on the Arabian Sea and Gulf of Oman, and thus the nation is a natural passageway between the Indian Ocean and the Persian Gulf, with an approximate 40% of the world’s maritime oil trade transiting the nearby Strait of Hormuz 5. Oman’s flagship ports of Sohar, Salalah, Duqm, and Muscat have also become key regional gateways that not only cater to bilateral Indo-Oman trade but also act as transshipment centers for India’s overall Middle East and African trade ambitions. Sohar Port has become a cornerstone of Indo-Oman economic relations with several Indian industrial investments there and as a pivotal point of export of Indian manufactured goods to regional markets. The Duqm Special Economic Zone is a very important opportunity of deepened Indo-Oman cooperation under the suggested FTA regime, and this huge infrastructure development project on the Indian Ocean coast of Oman intended to be one of the key industry and logistic hubs. The geopolitical benefit of Oman’s geography is complemented by its place in India’s wider connectivity plans, including the planned India-Middle East-Europe Economic Corridor (IMEC), where Oman is a central node on this line of transport between India and European markets through Middle Eastern transit networks 6.

Map showing the strategic location of the Strait of Hormuz in relation to Oman and surrounding countries, Source: Britannica

What are the main economic expectations of the India-Oman Trade Agreement?

The India-Oman CEPA is of enormous economic gain to both countries in the form of extensive tariff reduction, expanded market access, and simplified regulatory procedures. For India, the CEPA is likely to provide preferential access to the Omani market for 98% of Indian products with tremendous benefits projected for major export industries such as engineering goods, pharmaceuticals, textiles, and horticulture commodities. The data of the trade composition shows that there are vast growth prospects in India’s big export industries to Oman, 20% of which is made up of engineering products, 12% pharmaceuticals, and 15% rice and food items. For Oman, the FTA is crucial to supplementing the sultanate’s Vision 2040 plan for economic diversification in a bid to diversify away from oil revenues dependence and create a knowledge-based economy 3. The deal will open up Indian markets for Omani goods in terms of petroleum products, fertilizers, and petrochemicals and open up scope for enhanced cooperation in renewable energy initiatives, especially green hydrogen and solar power projects. Bilateral ties have already witnessed significant inflows of investments, with more than 6,000 India-Oman joint venture firms in Oman with investments of more than USD 7.5 billion 4.

India’s major export categories to Oman showing petroleum products as the largest export sector, Source: Author’s own

In conclusion, the India-Oman CEPA is not just a typical trade deal; it is the combination of strategic geography, diplomatic finesse, and economic pragmatism that holds out the promise of both countries’ lasting prosperity in an increasingly complex world. Oman’s firm commitment to neutrality has been a stable anchor for intimate economic attachment and protected bilateral relations from regional tensions that have wrecked other Middle Eastern alliances. The economic benefits extend well beyond short-term tariff reductions, ushering in the potential for deep cooperation in renewable energy, digital trade, and green infrastructure that align with the longer-term strategic objectives of both nations. The signing of this agreement will unlock unprecedented possibilities for bilateral collaboration that will serve as a model for how neutral diplomacy and strategic geography can facilitate strong economic partnerships in an age of increasing geopolitical fragmentation.

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