Facing what the International Energy Agency (IEA) describes as “a period of rapid, sustained growth in energy demand”, India is looking in part to a non-traditional strategy to shore up its energy future: petrochemical-centered “reverse” special economic zones (SEZs) in oil and gas producers Iran and Mozambique, operated by Indian businesses for Indian consumers.  This investment carries the added benefit of potentially expanding Indian goods’ access to key markets.

Having agreed early in 2016 to invest upwards of $20 billion to develop the Iranian port of Chabahar and a new “reverse Special Economic Zone”, India announced in June 2016 it is now in the preliminary phases of establishing a reverse SEZ in Mozambique, where recent natural gas finds have driven an increase in foreign investment.  The “reverse” designation refers to the zones’ location outside of the primary investing country, with the aim of supplying India’s domestic market with low-cost imports.   

A progressing model: India began to use export-processing zones (EPZs) to build its industrial base in the 1960s and 1970s.  The EPZ model helped India increase its export volume, but did not have great success in attracting FDI.  Legislation in the early 2000s allowed for the creation of SEZs, larger in size and diversified in their product bases.  These SEZs have attracted foreign capital to IT and pharmaceuticals, among other of India’s principal industries.  Now, India’s reverse SEZs are poised to secure its long-term energy interests and expand its own goods’ access to Iran, Afghanistan, Central Asia, and Southern and East Africa.

At home and abroad: Both of these projects are aimed largely at securing petrochemical products for India’s domestic market, producing refined petroleum products, plastics, fertilisers, and urea among others.  The Chabahar port and other infrastructural developments along Iran’s Makran coastal strip would also give India the access to Afghanistan and Central Asia that is currently limited due to tense relations with Pakistan.  Iran and Mozambique can both provide affordable petrochemicals to fuel Indian industry.

“It is our endeavour to establish reverse Special Economic Zones (SEZ) in oil and gas rich countries with dedicated exports back to the country. After Iran, now we are also considering setting up [an] SEZ in Mozambique,” India’s Union Minister for Chemicals and Fertilizers Ananth Kumar was quoted as saying in Times of India.  According to the 2015 IEA publication India Energy Outlook, “India is set to contribute more than any other country to the projected rise in global energy demand, around one-quarter of the total: even so, energy demand per capita in 2040 is still 40% below the world average.” As an oil and gas importer, this places securing cost-effective energy supply among the top priorities for the country of 1.3 billion.

Iran and India move closer: Expanding regional trade volumes is a secondary benefit of the programme, as Mr Kumar explained. “The Chabahar port SEZ in Iran will be a huge gateway of opportunity for bilateral trade between the two countries.  We will develop similar ties with Mozambique.”

Existing industry in Chabahar, including the Chabahar Free Zone, has a steel and petrochemicals focus. China has also pursued investment recently, with plans to build an industrial town for Chinese multinationals in Chabahar Free Zone apparently discontinued following the agreement between India and Iran. There has been competition related to China’s role in the region, as the port of Chabahar could be viewed as a competitive threat to Pakistan’s nearby Gwadar Port, in which China has been investing heavily as part of the China-Pakistan Economic Corridor.  China and Iran have an annual trade volume of roughly $50 billion, more than five times that between Iran and India, and with this investment, India is set to increase its market share.